Is California Different? State-Specific Risk Adjustment Needs under Health Reform

Abstract

THE CALIFORNIA Journal of Politics & Policy Volume 3, Issue 4 Is California Different? State-Specific Risk Adjustment Needs under Health Reform Brent D. Fulton and William H. Dow* University of California, Berkeley Abstract The Affordable Care Act (ACA) allows state variation in implementing health re- form. Critical to a stable health insurance market under reform is the use of risk adjustment to share risks across insurance plans. The ACA requires states to imple- ment risk adjustment, but a California-specific risk adjustment scheme would re- quire expertise beyond existing abilities of state agencies. California could rely on a default federal risk adjustment scheme, but it is unclear California’s health care market is sufficiently different from the national market to render the federal scheme inadequate. We compare the distribution of risk-adjusted health care ex- penditures in California versus the United States. We find California expenditures highly similar to the United States and conclude that California could rely on a fed- eral risk adjustment scheme that pays special attention to high risks and differential patterns for HMO vs PPO plans. Keywords: health care reform, The Affordable Health Care Act, California health care, risk adjustment Copyright © 2011 The Berkeley Electronic Press. All rights reserved. www.bepress.com/cjpp