What is risk adjustment?
Risk Adjustment is a statistical process that takes into account the underlying health status and health spending of the enrollees in an insurance plan when looking at their health care outcomes or health care costs.
Health plans are compensated based on the average fee for service for specific conditions. High risk patients can and do get coverage. Health plans are incentivized to accept these due to risk adjusted compensation.
For Medicare Advantage plans, the incentive is driven by the ability to reduce spending through prevention and care tactics for wellness. Exchange or marketplace plans calculate a plan RAF (Risk Adjustment Factor) that establishes how much of a state ‘pool’ of expense dollars come to them.