Effective Risk Adjustment a Key to Successful Health Reform

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<p>Among the most important tasks for the state and federal regulators charged with implementing health insurance reform is constructing an effective system of risk adjustment—a behind-the-scenes mechanism designed to correct for market imbalances that occur when some insurers attract pools of enrollees whose expected medical costs are substantially greater or less than marketwide averages. </p>
<p>A new <a href="/publications/issue-briefs/2011/may/risk-adjustment-under-affordable-care-act-guide-federal-and">Commonwealth Fund issue brief</a> explores the challenges regulators will face in implementing the Affordable Care Act’s risk adjustment provisions, analyzes the merits of different risk adjustment strategies, and offers recommendations for policymakers. Written by Wake Forest University's Mark A. Hall, the brief draws from a Fund-supported conference of leading experts in the field. </p>
<p>As Hall notes, accomplishing health reform’s goals will require effective risk adjustment to ensure that the highly skewed distribution of medical costs—20 percent of the population accounts for 80 percent of total costs—does not destabilize insurance markets by favoring some insurers over others. "Although risk adjustment may be the thickest of technocratic regulatory weeds," he writes, "wading into this thicket is critical if insurance reforms are to succeed."<br /></p>