Risk Adjustment in Health Care Markets: Concepts and Applications

Abstract

This chapter summarizes the recent literature on risk adjustment, synthesizing the theoretical and empirical literatures, emphasizing areas of current research and policy interest. The paper relates optimal risk adjustment to the previous theory and empirical work. The empirical estimation section covers choice of an objective function, different types of information that can be used, conceptual issues, estimation, and validation. The paper concludes with detailed discussion of risk adjustment applications in Canada, US, Netherlands, and Germany.