Employer Purchasing Coalitions and Medicaid: Experiences with Risk Adjustment

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Choice among health plans increases patient satisfaction with care and enables families to select a plan that best meets their needs. Offering multiple plans, however, creates the possibility that sicker patients will congregate in a few plans, leading to high costs of care and spiraling premiums. To avoid this problem, many employers offer only one insurance carrier to workers.

Business purchasing coalitions and public programs, which represent a large number of health plan enrollees, could help mitigate the problem by adjusting premiums to reflect the health status of those enrolled in a given plan. In Employer Purchasing Coalitions and Medicaid: Experiences with Risk Adjustment, authors Melinda Beeuwkes Buntin and Joseph Newhouse describe the techniques of three members of the National Business Coalition on Health that have attempted to employ risk adjustment techniques.

Gateway Purchasers for Health in St. Louis, for example, uses the relatively rudimentary risk adjustment system of comparing demographic characteristics of individual employee groups with those of the entire pool. Pacific Business Group on Health in California and Arizona has tested several risk adjustment models, yet has chosen not to implement any of them, for reasons such as data being difficult to work with and administrative difficulties.

The third group, Buyer's Health Care Action Group in the Minneapolis/St. Paul area, contracts directly with primary care-centered health systems, which bid to serve member employees. Claims experience is adjusted quarterly using diagnostic information, and the premiums are revised to reflect experience over the past year.

Beeuwkes Buntin and Newhouse point out that state Medicaid agencies also appear to be in a particularly good position to implement risk adjustment. As they enroll new populations in managed care plans, for example, these agencies have access to comprehensive fee-for-service claims data that could be used for diagnostic adjustment. According to recent studies, however, Medicaid programs have done more planning than implementation of health-based payments.

Business coalitions and state Medicaid agencies are just beginning to deal with the issue of risk selection. As states move sicker and disabled populations into Medicaid managed care, the need for risk adjustment greatly increases.

Facts and Figures

  • Risk adjusters such as age and gender have not been found to be strongly predictive of costs; in fact, they predict less than 1 percent of the variation in beneficiaries' annual costs.
  • Twelve states claim to adjust premiums within their public employee health benefit programs to reflect risk selection. In most cases, however, the adjusters are limited to the age and gender of enrollees.
  • Maryland and Colorado are leading risk-adjustment states. Maryland's Medicaid managed care program is using diagnostic adjustment, while Colorado has implemented an adjustment system for the disabled Medicaid population.

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Publication Details

Publication Date:
July 1, 1998
Authors:
Melinda J. Beeuwkes Buntin and Joseph P. Newhouse, Harvard University.
Citation:

Employer Purchasing Coalitions and Medicaid: Experiences with Risk Adjustment, Melinda J. Beeuwkes Buntin and Joseph P. Newhouse, Harvard University., The Commonwealth Fund, July 1998


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