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1994.09.09 : Insurance Premiums for Risk Adjustments

Contact:  Anne Verano         (202) 690-6145 
Friday, Sept. 9, 1994                               


              HCFA AWARDS CONTRACTS TO DEVELOP NEW WAYS
              OF ADJUSTING INSURANCE PREMIUMS FOR RISK      

     New methods to adjust premiums for insuring different groups
under health insurance reforms will be developed through two
contracts, totaling $1.76 million, awarded by the Health Care
Financing Administration.

     A $1.03 million contract was awarded by HCFA's Office of
Research and Demonstrations to Lewin-VHI, Inc. and the Johns Hopkins
University, which will collaborate in the development of two risk
adjuster systems.  The Rand Corp. will devise a single risk adjuster
system under a $733,133 contract. 

     Risk adjustment has emerged as a key element in certain
proposed health system reforms.  Under certain reform models, risk
adjustment must be taken into account to ensure the efficient
delivery of quality health care to all consumers, particularly those
with chronic conditions and special needs. 

     "While the concept of risk adjustment is not new, current
measures have limited ability to predict variations in the costs of 
insuring different population groups," said HCFA Administrator 
Bruce C. Vladeck.  "Developing new risk adjusters is critical in
finding better ways of fairly compensating competing health
plans." 

     Lewin-VHI and Johns Hopkins will initially develop a simple
demographic risk adjuster system that includes reinsurance pools and
special payments for patients with specific medical conditions. 
Project data will come from the Washington state Medicaid program,
the Federal Employee Health Benefits Plan and a large health
maintenance organization in Minneapolis. 

     The second system to be developed by Lewin-VHI and Johns
Hopkins will use clinical and diagnostic information to group
persons into risk categories.  Data will be derived from the sources
utilized in the first project.

     The Rand Corp. will develop a single risk adjustment system,
based on identifying illness episodes.  Episodes will be classified
under a system that includes information on diagnoses and illness
severity.  The risk adjustment system also will include reinsurance
and payments for specific types of illnesses.

     The system will be derived in part from a model used to
determine which chronic conditions and expensive episodes should be
covered and at what price.  The data will come from a variety of
sources, including several private insurers, Medicaid files and
national surveys. 

     HCFA is the federal agency which administers the Medicare and
Medicaid programs that help pay the medical bills of 67 million
Americans.  HCFA's estimated FY 1994 expenditures will total nearly
$250 billion.

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