Cost-minimizing risk adjustment

Published: May 1, 2002
Category: Bibliography > Papers
Authors: Ellis RP, Shen Y
Countries: United States
Language: null
Types: Care Management, Finance/Budgeting
Settings: Health Plan, Hospital

J Health Econ 21:515-530.

Center for Health Quality, Outcomes and Economic Research, Boston University School of Public Health, Bedford, MA, USA

Conventional risk adjustment, which sets capitation payments equal to the average cost of individuals with similar observable characteristics, is not optimal if health plans can use private information to select low-cost enrollees. “Cost-minimizing risk adjustment” minimizes the sum of capitated HMO premiums plus FFS costs by balancing the gains from HMO cost efficiency against the overpayments that result from HMO selection. Estimations using privately-insured data suggest that cost-minimizing risk adjusted premiums reduce total sponsor costs as much as 25.6% below conventional risk adjustment premiums.

PMID: 12022271

Payment,Capitation,Predictive Risk Modeling,Cost Burden Evaluation,United States,Actuarial Analysis,Age Factors,Cost-Benefit Analysis,Diagnosis-Related Groups/economics,Diagnosis-Related Groups/statistics & numerical data,Efficiency,Organizational,Facility Regulation and Control,Fee-for-Service/utilization,Health Maintenance Organizations/utilization,Health Services Research,Gender,Models,Econometric,Sex Factors

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