The Centers for Medicare & Medicaid Services (CMS) and states have developed and implemented many different risk adjustment systems for managed care plans and other risk-bearing entities in Medicare, Medicaid, and the Health Insurance Marketplaces. In general, the goals of these risk adjustment systems are to reduce incentives for plans to attract only healthy people, to pay plans appropriately based on the health risks of the people they enroll, and to encourage plans to provide care efficiently.

This brief compares features of major risk adjustment systems in the US health care system, including those used in Medicare Advantage, Medicaid, Affordable Care Act Marketplaces, Medicare Part D, Financial Alignment Initiative Medicare-Medicaid Plans, the Program for All-Inclusive Care for the Elderly, and REACH Accountable Care Organizations. In addition, we identify gaps in risk adjustment for high-need populations like those enrolled in both Medicare and Medicaid (dual enrollees). We focus on this population because the recently proposed DUALS Act would require CMS to develop a new risk adjustment system for integrated plans serving dual enrollees.

We find the following:

• All the risk adjustment systems we compared aim to make appropriate and accurate payments while minimizing the risk of favorable or adverse selection and maintaining efficiency incentives. Some risk adjustment systems also have program-specific goals, such as incentivizing plans to serve enrollees in home or community settings rather than institutional settings when appropriate.
• Each of the risk adjustment systems we compared calculates risk scores using regression models that predict spending based on diagnostic and demographic information from claims and/or encounter data and applies model segmentation to improve predictions for specific groups (e.g., dual enrollees).
• The risk adjustment systems we compared vary more in their approaches to calculating risk-adjusted payments based on risk scores. For example, the Health Insurance Marketplace risk adjustment system is “zero-sum,” while the Medicare Advantage risk adjustment system pays out more than it takes in.
• The risk adjustment systems also use different approaches to improve predictions for high-need populations, including duals. For example, the risk adjustment system used in the Program for All-Inclusive Care for the Elderly and some Medicare Advantage plans applies a frailty adjustment to risk scores based on the average level of difficulty enrollees face in performing activities of daily living.