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

Listed author(s):
  • Keith Marzilli Ericson
  • Kimberley Geissler
  • Benjamin Lubin
Registered author(s):

    Accurate risk adjustment facilitates healthcare 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 individual is observed for a shorter time. Due to missed diagnoses, risk adjustment systems will underpay for partial-year enrollees, as compared to 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%. 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.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23765.

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    Date of creation: Sep 2017
    Handle: RePEc:nbr:nberwo:23765
    Note: AG HC
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    1. Michael Geruso & Timothy J. Layton & Daniel Prinz, 2016. "Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges," NBER Working Papers 22832, National Bureau of Economic Research, Inc.
    2. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark Cullen, 2015. "Moral Hazard in Health Insurance: Do Dynamic Incentives Matter?," The Review of Economics and Statistics, MIT Press, vol. 97(4), pages 725-741, October.
    3. Jason Brown & Mark Duggan & Ilyana Kuziemko & William Woolston, 2014. "How Does Risk Selection Respond to Risk Adjustment? New Evidence from the Medicare Advantage Program," American Economic Review, American Economic Association, vol. 104(10), pages 3335-3364, October.
    4. Buchner, Florian & Goepffarth, Dirk & Wasem, Juergen, 2013. "The new risk adjustment formula in Germany: Implementation and first experiences," Health Policy, Elsevier, vol. 109(3), pages 253-262.
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    6. Thomas G. McGuire & Jacob Glazer, 2000. "Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care," American Economic Review, American Economic Association, vol. 90(4), pages 1055-1071, September.
    7. Keith M. Marzilli Ericson & Amanda Starc, 2015. "Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 667-682, July.
    8. Geruso, Michael & McGuire, Thomas G., 2016. "Tradeoffs in the design of health plan payment systems: Fit, power and balance," Journal of Health Economics, Elsevier, vol. 47(C), pages 1-19.
    9. Michael Geruso & Timothy Layton, 2015. "Upcoding: Evidence from Medicare on Squishy Risk Adjustment," NBER Working Papers 21222, National Bureau of Economic Research, Inc.
    10. Colleen Carey, 2017. "Technological Change and Risk Adjustment: Benefit Design Incentives in Medicare Part D," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 38-73, February.
    11. McGuire, Thomas G. & Newhouse, Joseph P. & Normand, Sharon-Lise & Shi, Julie & Zuvekas, Samuel, 2014. "Assessing incentives for service-level selection in private health insurance exchanges," Journal of Health Economics, Elsevier, vol. 35(C), pages 47-63.
    12. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2008. "Organizational Fragmentation and Care Quality in the U.S. Healthcare System," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 93-113, Fall.
    13. Timothy Layton & Alice K. Ndikumana & Mark Shepard, 2017. "Health Plan Payment in Medicaid Managed Care: A Hybrid Model of Regulated Competition," NBER Working Papers 23518, National Bureau of Economic Research, Inc.
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