title: Cost-minimizing risk adjustment.
abstract: 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.
authors.affiliation: Center for Health Quality, Outcomes and Economic Research, Boston University School of Public Health, Bedford, MA 01730, USA. mei2@bu.edu
authors.forename: Yujing
authors.initials: Y
authors.lastname: Shen
authors.forename: Randall P
authors.initials: RP
authors.lastname: Ellis
mesh_terms: D000206:Actuarial Analysis; D000367:Age Factors; D002204:Capitation Fee; D003362:Cost-Benefit Analysis; D003953:Diagnosis-Related Groups / Q000191:economics / Q000706:statistics & numerical data; D017598:Efficiency, Organizational; D005161:Facility Regulation and Control; D018588:Fee-for-Service Plans / Q000191:economics* / Q000706:statistics & numerical data; D005260:Female; D006279:Health Maintenance Organizations / Q000191:economics* / Q000706:statistics & numerical data; D006302:Health Services Research; D006801:Humans; D015273:Insurance Selection Bias; D008297:Male; D017059:Models, Econometric; D020379:Risk Adjustment / Q000379:methods*; D012737:Sex Factors; D014481:United States