Getting What We Pay For: How Do Risk‐Based Payments to Medicare Advantage Plans Compare with Alternative Measures of Beneficiary Health Risk?

Risk adjustment’s role in federal health policy has become increasingly important. As a recent example, the Affordable Care Act (ACA) introduced health care Marketplaces where plan revenues are adjusted for the risk that higher cost enrollees may disproportionately join certain plans. Risk adjustment in the ACA Marketplaces builds on more than a decade of work in the Medicare program to risk adjust payments to Medicare Advantage (MA) plans and plans in the Medicare prescription drug (Part D) program.

This study focuses on two critical questions for MA payment policy: What is the relative health risk of MA beneficiaries compared with those in traditional Medicare (TM), and how do these relative rates of underlying health risk compare with the risk‐adjusted payments that plans receive? The fiscal implications of these questions are large: In 2016 alone, the cost of the MA program was projected to be $198 billion or 27 percent of total Medicare spending. Given the size of the MA program and ongoing concerns about whether payments to MA plans are higher than warranted due to differences between MA and TM in the intensity of diagnostic coding (GAO 2012; Kronick and Welch 2014; Geruso and Layton 2015; Kronick 2017; Medicare Payment Advisory Commission 2017), there is a clear need to better understand how both health risk and payment for that risk vary between MA and TM.

– Health Services Research

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