Assessing Risk Adjustment Approaches Under Non-Random Selection

Inquiry -- September 2004
Vol. 41, No. 2
September 2004
Luft, H. and R. Dudley
pp. 203-17

Various approaches have been proposed to adjust for differences in enrollee risk in health plans. Because risk-selection strategies may have different effects on enrollment, we simulated three types of selection—dumping, skimming, and stinting. Concurrent diagnosis-based risk adjustment, and a hybrid using concurrent adjustment for about 8% of the cases and prospective adjustment for the rest, perform markedly better than prospective or demographic adjustments, both in terms of R2 and the extent to which plans experience unwarranted gains or losses. The simulation approach offers a valuable tool for analysts in assessing various risk-adjustment strategies under different selection situations. 

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