Health Plan Payment Research Articles

Combining Risk Adjustment with Risk Sharing in Health Plan Payment Systems: Private Health Insurance in Australia

Combining Risk Adjustment with Risk Sharing in Health Plan Payment Systems: Private Health Insurance in Australia

How to deal with persistently low/high spenders in health plan payment systems?

Health insurance markets with community‐rated premiums typically include risk adjustment (RA) to mitigate selection problems. Over the past decades, RA systems have evolved from simple demographic models to sophisticated morbidity‐based models. Even the most sophisticated models, however, tend to overcompensate people with persistently low spending and undercompensate those with persistently high spending. This paper compares three methods that exploit spending‐level persistence for improving health plan payment systems: (1) implementation of spending‐based risk adjustors, (2) implementation of high‐risk pooling for people with multiple‐year high spending, and (3) indirect use of spending persistence via constrained regression. Based on incentive measures for risk selection and cost control, we conclude that a combination of the last two options can substantially outperform the first, which is currently used in the health plan payment system in the Netherlands.

Improving the Performance of Risk Adjustment Systems: Constrained Regressions, Reinsurance, and Variable Selection.

Modifications of risk-adjustment systems used to pay health plans in individual health insurance markets typically seek to reduce selection incentives at the individual and group levels by adding variables to the payment formula. Adding variables can be costly and lead to unintended incentives for upcoding or service utilization. While these drawbacks are recognized, they are hard to quantify and difficult to balance against the concrete, measurable improvements in fit that may be achieved by adding variables to the formula. This paper takes a different approach to improving the performance of health plan payment systems. Using the HHS-HHC V0519 model from the Marketplaces as a starting point, we constrain fit at the individual and group level to be as good or better than the current payment model while reducing the number of variables in the model. We introduce three elements in the design of plan payment: reinsurance, constrained regressions, and machine learning methods for variable selection. The fit performance of our alternative formulas with many fewer variables is as good or better than the current HHS-HHC V0519 formula.

Identifying undercompensated groups defined by multiple attributes in risk adjustment

ObjectiveTo identify undercompensated groups in plan payment risk adjustment that are defined by multiple attributes with a systematic new approach, improving on the arbitrary and inconsistent nature of existing evaluations.MethodsExtending...

How the COVID-19 pandemic can distort risk adjustment of health plan payment

The COVID-19 pandemic has led to disruptions in healthcare utilization and spending. While some changes might persist (e.g. substitution of specialist visits by online consultations), others will be transitory (e.g. fewer surgical procedures due to cancellation of treatments). This paper discusses the implications of transitory changes in healthcare utilization and spending for risk adjustment of health plan payment. In practice, risk adjustment methodologies typically consist of two steps: (1) calibration of payment weights for a given set of risk adjusters and (2) calculation of payments to insurers by combining the calibrated weights with enrollee characteristics. In this paper, we first introduce a simple conceptual framework for analyzing the (potential) distortions from the pandemic for both steps and then provide a hypothetical illustration of how these distortions can lead to under- or overpayment of insurers. The size of these under-/overpayments depends on (1) the impact of the pandemic on patterns in utilization and spending, (2) the distribution of risk types across insurers, (3) the extent to which insurers are disproportionately affected by the pandemic, and (4) features of the risk adjustment system.

Very high and low residual spenders in private health insurance markets: Germany, The Netherlands and the U.S. Marketplaces

We study the extremely high and low residual spenders in individual health insurance markets in three countries. A high (low) residual spender is someone for whom the residual—spending less payment (from premiums and risk adjustment)—is high (low), indicating that the person is highly underpaid (overpaid). We begin with descriptive analysis of the top and bottom 1% and 0.1% of residuals building to address the question of the degree of persistence in membership at the extremes. Common findings emerge among the countries. First, the diseases found among those with the highest residual spending are also disproportionately found among those with the lowest residual spending. Second, those at the top of the residual spending distribution (where spending exceeds payments the most) account for a massively high share of the unexplained variance in the predictions from the risk adjustment model. Third, in terms of persistence, we find that membership in the extremes of the residual spending distribution is highly persistent, raising concerns about selection-related incentives targeting these individuals. As our results show, the one-in-a-thousand people (on both sides of the residual distribution) play an outsized role in creating adverse incentives associated with health plan payment systems. In response to the observed importance of the extremes of the residual spending distribution, we propose an innovative combination of risk-pooling and reinsurance targeting the predictively undercompensated group. In all three countries, this form of risk sharing substantially improves the overall fit of payments to spending. Perhaps surprisingly, by reducing the burden on diagnostic indicators to predict high payments, our proposed risk sharing policy reduces the gap between payments and spending not only for the most undercompensated individuals but also for the most overcompensated people.

Simplifying and Improving the Performance of Risk Adjustment Systems

Risk-adjustment systems used to pay health plans in individual health insurance markets have evolved towards better “fit” of payments to plan spending, at the individual and group levels, generally achieved by adding variables used for risk adjustment. Adding variables demands further plan and provider-supplied data. Some data called for in the more complex systems may be easily manipulated by providers, leading to unintended “upcoding” or to unnecessary service utilization. While these drawbacks are recognized, they are hard to quantify and are difficult to balance against the concrete, measurable improvements in fit that may be attained by adding variables to the formula. This paper takes a different approach to improving the performance of health plan payment systems. Using the HHS-HHC V0519 model of plan payment in the Marketplaces as a starting point, we constrain fit at the individual and group level to be as good or better than the current payment model while reducing the number of variables called for in the model. Opportunities for simplification are created by the introduction of three elements in design of plan payment: reinsurance (based on high spending or plan losses), constrained regressions, and powerful machine learning methods for variable selection. We first drop all variables relying on drug claims. Further major reductions in the number of diagnostic-based risk adjustors are possible using machine learning integrated with our constrained regressions. The fit performance of our simpler alternatives is as good or better than the current HHS-HHC V0519 formula.

Know Health Plan Payment Policies to Avoid Lost Revenue

Often, health plans establish payment policies that do not align with Current Procedural Terminology (CPT®) guidance and/or National Correct Coding Initiative (NCCI) edits. It's important to understand these policies to avoid lost revenue and unhappy patients.

Data transformations to improve the performance of health plan payment methods

The conventional method for developing health care plan payment systems uses observed data to study alternative algorithms and set incentives for the health care system. In this paper, we take a different approach and transform the input data rather than the algorithm, so that the data used reflect the desired spending levels rather than the observed spending levels. We present a general economic model that incorporates the previously overlooked two-way relationship between health plan payment and insurer actions. We then demonstrate our systematic approach for data transformations in two Medicare applications: underprovision of care for individuals with chronic illnesses and health care disparities by geographic income levels. Empirically comparing our method to two other common approaches shows that the “side effects” of these approaches vary by context, and that data transformation is an effective tool for addressing misallocations in individual health insurance markets.

Measuring efficiency of health plan payment systems in managed competition health insurance markets

Adverse selection in health insurance markets leads to two types of inefficiency. On the demand side, adverse selection leads to plan price distortions resulting in inefficient sorting of consumers across health plans. On the supply side, adverse selection creates incentives for plans to inefficiently distort benefits to attract profitable enrollees. Reinsurance, risk adjustment, and premium categories address these problems. Building on prior research on health plan payment system evaluation, we develop measures of the efficiency consequences of price and benefit distortions under a given payment system. Our measures are based on explicit economic models of insurer behavior under adverse selection, incorporate multiple features of plan payment systems, and can be calculated prior to observing actual insurer and consumer behavior. We illustrate the use of these measures with data from a simulated market for individual health insurance.

Improving risk equalization with constrained regression

State-of-the-art risk equalization models undercompensate some risk groups and overcompensate others, leaving systematic incentives for risk selection. A natural approach to reducing the under- or overcompensation for a particular group is enriching the risk equalization model with risk adjustor variables that indicate membership in that group. For some groups, however, appropriate risk adjustor variables may not (yet) be available. For these situations, this paper proposes an alternative approach to reducing under- or overcompensation: constraining the estimated coefficients of the risk equalization model such that the under- or overcompensation for a group of interest equals a fixed amount. We show that, compared to ordinary least-squares, constrained regressions can reduce under/overcompensation for some groups but increase under/overcompensation for others. In order to quantify this trade-off two fundamental questions need to be answered: “Which groups are relevant in terms of risk selection actions?” and “What is the relative importance of under- and overcompensation for these groups?” By making assumptions on these aspects we empirically evaluate a particular set of constraints using individual-level data from the Netherlands (N = 16.5 million). We find that the benefits of introducing constraints in terms of reduced under/overcompensations for some groups can be worth the costs in terms of increased under/overcompensations for others. Constrained regressions add a tool for developing risk equalization models that can improve the overall economic performance of health plan payment schemes.

Healthcare resource utilization of second-generation long-acting injectable antipsychotics in schizophrenia: risperidone versus paliperidone palmitate

Objective: This retrospective longitudinal cohort study aimed to compare treatment patterns, healthcare resource utilization (HRU), and costs in patients with schizophrenia treated with second-generation antipsychotic long-acting injectables (SGA-LAIs): biweekly risperidone LAI versus once-monthly paliperidone palmitate.Methods: Patients who initiated risperidone LAI or paliperidone palmitate between 1 July 2007 and 31 December 2012 (index date) were identified from the Truven MarketScan Commercial, Medicare Supplemental, and Medicaid Multi-State insurance databases. Outcomes were assessed 12 months after the index date. Propensity score matching (1:1) based on patients’ demographics and comorbidities was conducted. Outcome differences between the two cohorts were evaluated using t-tests for continuous variables, chi-square tests for categorical variables, and Wilcoxon rank-sum tests for count and cost variables. Regression models estimated the difference in medication use and adherence, likelihood of HRU, number of HRU events, and healthcare costs when comparing risperidone LAI versus paliperidone palmitate, while further adjusting for patient characteristics and pre-index HRU.Results: Patient characteristics were well balanced between the two cohorts (n = 499 each). Significantly lower discontinuation rates (36.5% vs. 53.3%; p < 0.001) and longer days of LAI coverage (233.6 vs. 131.7 days; p < 0.001) were observed in the paliperidone palmitate cohort versus the risperidone LAI cohort, respectively. Patients treated with paliperidone palmitate were 12.5 (95% confidence interval [CI]: 9.0–17.8) and 11.7 (95% CI: 8.0–17.4) times more likely to be adherent based on medication possession ratio and proportion of days covered, respectively (p < 0.001). Patients treated with paliperidone palmitate had reduced likelihood of hospitalization (adjusted odds ratio [95% CI]: 0.72 [0.55–0.95]), fewer emergency department (ED) visits (adjusted incidence rate ratio [aIRR]: 0.67 [0.61–0.73]) and reduced length of inpatient stay (aIRR: 0.86 [0.82–0.90]), which resulted in lower monthly inpatient hospitalization costs (-$77.58; p = 0.038) and ED visits (-$9.77; p = 0.021) relative to risperidone LAI.Limitations: Pharmacy costs were derived from health plan payment in the claims data and do not account for any discounts or rebates. This may have overestimated the branded drug costs in this analysis.Conclusions: These findings highlight the value of once-monthly paliperidone palmitate in the treatment of patients with schizophrenia.

Tradeoffs in the design of health plan payment systems: Fit, power and balance

In many markets, including the new U.S. Marketplaces, health insurance plans are paid by risk-adjusted capitation, sometimes combined with reinsurance and other payment mechanisms. This paper proposes a framework for evaluating the de facto insurer incentives embedded in these complex payment systems. We discuss fit, power and balance, each of which addresses a distinct market failure in health insurance. We implement empirical metrics of fit, power, and balance in a study of Marketplace payment systems. Using data similar to that used to develop the Marketplace risk adjustment scheme, we quantify tradeoffs among the three classes of incentives. We show that an essential tradeoff arises between the goals of limiting costs and limiting cream skimming because risk adjustment, which is aimed at discouraging cream-skimming, weakens cost control incentives in practice. A simple reinsurance system scores better on our measures of fit, power and balance than the risk adjustment scheme in use in the Marketplaces.

Tradeoffs in the Design of Health Plan Payment Systems: Fit, Power and Balance

In many markets, including the new U.S. Exchanges, health insurance plans are paid by risk-adjusted capitation, in some markets combined with reinsurance and other payment mechanisms. This paper proposes three metrics for analyzing the insurer incentives embedded in these complex payment systems. We discuss fit, power and balance, each of which addresses a distinct market failure in health insurance. We implement these metrics in a study of Exchange payment systems with data similar to that used to develop the Exchange risk adjustment scheme and quantify the empirical tradeoffs among the metrics. We show that an essential tradeoff arises between the goals of limiting costs and limiting cream skimming because risk adjustment, which is aimed at discouraging cream-skimming, is in fact tied to costs. We find that a simple reinsurance system scores better on fit, power and balance than the risk adjustment scheme in use in the Exchanges.

Integrating risk adjustment and enrollee premiums in health plan payment

In two important health policy contexts – private plans in Medicare and the new state-run “Exchanges” created as part of the Affordable Care Act (ACA) – plan payments come from two sources: risk-adjusted payments from a Regulator and premiums charged to individual enrollees. This paper derives principles for integrating risk-adjusted payments and premium policy in individual health insurance markets based on fitting total plan payments to health plan costs per person as closely as possible. A least squares regression including both health status and variables used in premiums reveals the weights a Regulator should put on risk adjusters when markets determine premiums. We apply the methods to an Exchange-eligible population drawn from the Medical Expenditure Panel Survey (MEPS).

Payer costs for inpatient treatment of pathologic fracture, surgery to bone, and spinal cord compression among patients with multiple myeloma or bone metastasis secondary to prostate or breast cancer.

Patients with bone metastasis secondary to prostate or breast cancer or multiple myeloma are predisposed to skeletal-related events (SREs), such as surgery or radiation to the bone, pathologic fracture, and spinal cord compression. Inpatient costs of these and other SREs represent an estimated 49%-59% of total costs related to SREs. However, information on payer costs for hospitalizations associated with SREs is limited, especially for costs associated with specific SREs by tumor type. To examine costs from a payer perspective for SRE-associated hospitalizations among patients with multiple myeloma or bone metastasis secondary to prostate or breast cancer. Patients with SRE hospitalizations were selected from the MarketScan commercial and Medicare databases (January 1, 2003, through June 30, 2009). Sampled patients had at least 2 medical claims with primary or secondary ICD-9-CM diagnosis codes for prostate cancer, breast cancer, or multiple myeloma and at least 1 subsequent hospitalization with principal diagnosis or procedure codes indicating bone surgery, pathologic fracture, or spinal cord compression. For patients with prostate cancer or breast cancer, a diagnosis code for bone metastasis was also required. If secondary diagnoses or procedure codes for SREs were present in the claim, they were used to more precisely identify the type of SRE for which the patient was treated, resulting in 3 mutually exclusive categories: spinal cord compression with or without pathologic fracture and/or surgery to the bone; pathologic fracture with or without surgery to the bone; and only surgery to the bone. Related readmissions within 30 days of a previous SRE-associated hospitalization date of discharge were excluded to minimize the risk of underestimating costs. Mean health plan payments per hospitalization, measured as net reimbursed amounts paid by the health plan to a hospital after subtracting patient copayments and deductibles, were analyzed by cancer type and type of SRE. A total of 555 patients contributed 572 hospitalizations that met the study criteria for prostate cancer, 1,413 patients contributed 1,542 hospitalizations for breast cancer, and 1,361 patients contributed 1,495 hospitalizations for multiple myeloma. The mean age range was 61 to 72 years, and the mean length of stay per admission was 5.9 to 11.6 days across the 3 tumor types. The ranges of mean health plan payment per hospital admission across tumor types were $43,691-$59,854 for spinal cord compression, with or without pathologic fracture and/or surgery to the bone; $22,390-$26,936 for pathologic fracture without spinal cord compression, with or without surgery to the bone; and $31,016-$42,094 for surgery to the bone without pathologic fracture or spinal cord compression. The inpatient costs associated with treating SREs are significant from a payer perspective. Our study used a systematic process for patient selection and mutually exclusive categorization by SRE type and provides a per episode estimate of the inpatient financial impact of cancer related SREs assessed in this study from a third-party payer perspective.

Improving Health Plan Payment Rates

Improving Health Plan Payment Rates

Effects of Compensation Methods and Physician Group Structure on Physicians' Perceived Incentives to Alter Services to Patients

To examine how health plan payment, group ownership, compensation methods, and other practice management tools affect physician perceptions of whether their overall financial incentives tilt toward increasing or decreasing services to patients. Nationally representative data on physicians are from the 2000-2001 Community Tracking Study Physician Survey (N=12,406). Ordered and multinomial logistic regression were used to explore how physician, group, and market characteristics are associated with physician reports of whether overall financial incentives are to increase services, decrease services, or neither. Seven percent of physicians report financial incentives are to reduce services to patients, whereas 23 percent report incentives to increase services. Reported incentives to reduce services were associated with reports of lower ability to provide quality care. Group revenue in the form of capitation was associated with incentives to reduce services whereas practice ownership and variable compensation and bonuses for employee physicians were mostly associated with incentives to increase services to patients. Full ownership of groups, productivity incentives, and perceived competitive markets for patients were associated with incentives to both increase and reduce services. Practice ownership and the ways physicians are compensated affect their perceived incentives to increase or decrease services to patients. In the latter case, this adversely affects perceived quality of care and satisfaction, although incentives to increase services may also have adverse implications for quality, cost, and insurance coverage.

Persistence in health expenditures in the short run: prevalence and consequences.

Knowing whether persons in the top percentiles of the health expenditure distribution exhibit persistently high expenditure is fundamental to developing health plan payment policies, containing costs, and understanding the consequences of costly illnesses. To determine the extent of high expenditure persistence over a 2-year period. To identify the correlates and consequences of expenditure persistence. A national sample of the population from a longitudinal panel of the Medical Expenditure Panel Survey (MEPS). Changes in a person's position in the expenditure distribution were examined. chi2 tests were used to identify differences in characteristics between high and low spenders. Logistic regression was used to predict the likelihood of expenditure persistence. Changes in income, employment, out-of-pocket expenditure burden, and health insurance were compared for high and low spenders. Of the top 5% of spenders in 1996, 30% retain this position in 1997 and 45% are in the top decile of 1997 spenders. High expenditures begin to regress to the mean over the study period. Cancer, mental disorders, diabetes, and infectious diseases and being in the top decile of 1996 spenders increase the probability of expenditure persistence (P < 0.05 for all). This probability also has a strong random component. An increased proportion of persons in the top expenditure decile for both years had out-of-pocket health spending greater than 20% of income in 1997 (P < 0.10). Persons with persistently high expenditures were less likely than low spenders to lose employment-based coverage (5.4% vs. 8.8%, P < 0.05) but no changes in income or employment status were detected. A sizable minority of persons exhibits persistently high expenditures, creating incentives for favorable risk selection. Few consequences of short-run expenditures persistence are observed.