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The Impact of Partial-Year Enrollment on the Accuracy of Risk-Adjustment Systems: A Framework and Evidence

Author

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  • Keith M. Marzilli Ericson

    (Boston University Questrom School of Business and NBER)

  • Kimberley H. Geissler

    (University of Massachusetts School of Public Health and Health Sciences Author email: kgeissler@umass.edu)

  • Benjamin Lubin

    (Boston University Questrom School of Business)

Abstract

Accurate risk adjustment facilitates health-care market competition. Risk adjustment typically aims to predict annual costs of individuals enrolled in an insurance plan for a full year. However, partial-year enrollment is common and poses a challenge to risk adjustment, since diagnoses are observed with lower probability when an individual is observed for a shorter time. Because of missed diagnoses, risk-adjustment systems will underpay for partial-year enrollees, as compared with full-year enrollees with similar underlying health status and usage patterns. We derive a new adjustment for partial-year enrollment in which payments are scaled up for partial-year enrollees’ observed diagnoses, which improves upon existing methods. We simulate the role of missed diagnoses using a sample of commercially insured individuals and the 2014 Marketplace risk-adjustment algorithm and find the expected spending of six-month enrollees is underpredicted by 19 percent. We then examine whether there are systematically different care usage patterns for partial-year enrollees in this data, which can offset or amplify underprediction due to missed diagnoses. Accounting for differential spending patterns of partial-year enrollees does not substantially change the underprediction for six-month enrollees. However, one-month enrollees use systematically less than one-twelfth the care of full-year enrollees, partially offsetting the missed-diagnosis effect.

Suggested Citation

  • Keith M. Marzilli Ericson & Kimberley H. Geissler & Benjamin Lubin, 2018. "The Impact of Partial-Year Enrollment on the Accuracy of Risk-Adjustment Systems: A Framework and Evidence," American Journal of Health Economics, MIT Press, vol. 4(4), pages 454-478, Fall.
  • Handle: RePEc:tpr:amjhec:v:4:y:2018:i:4:p:454-478
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    Cited by:

    1. Francesco Decarolis & Andrea Guglielmo & Clavin Luscombe, 2020. "Open enrollment periods and plan choices," Health Economics, John Wiley & Sons, Ltd., vol. 29(7), pages 733-747, July.

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    More about this item

    Keywords

    risk adjustment; insurance market competition; adverse selection; health-care markets; partial-year enrollment;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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