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Risk Adjustment for the Medicare program: lessons learned from research and demonstrations

L M Greenwald¹, A Esposito, M J Ingber

¹Division of Payment Research, Research and Evaluation Group, Baltimore, MD 21244, USA.

Inquiry : a Journal of Medical Care Organization, Provision and Financing

|August 28, 1998

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The Balanced Budget Act of 1997 reshaped Medicare, introducing "Medicare + Choice" with new payment structures. This paper reviews historical risk adjustment research and proposes an approach for its 2000 implementation.

Area of Science:

Health Policy
Medicare Managed Care
Health Economics

Background:

The Balanced Budget Act of 1997 mandated significant changes to the Medicare program.
Medicare's managed care component was restructured into "Medicare + Choice," expanding beneficiary options and altering payment schedules.

Purpose of the Study:

To provide an overview of risk adjustment research and demonstration activities conducted by the Health Care Financing Administration (HCFA) since the 1980s.
To describe a potential technical strategy for implementing risk-adjusted payments in Medicare managed care by the year 2000.

Main Methods:

Review of historical Health Care Financing Administration (HCFA) research and demonstration projects.
Description of a technical approach for risk-adjusted payment implementation.

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Main Results:

Years of research and development preceded the Balanced Budget Act's mandated changes.
Risk-adjusted payment for Medicare + Choice, mandated for 2000, is a key developmental initiative.

Conclusions:

The Balanced Budget Act necessitates substantial adjustments to Medicare.
Risk adjustment is a critical component for the successful implementation of Medicare + Choice payments.