Washington state is trying to take the wild roller coaster ride out of managed care. The Health Care Authority (HCA) this year will begin paying higher premiums to plans that attract a sicker population and lower premiums to those that attract a healthier population. The HCA administers benefits for 240,000 state employees and dependents.
HCA and other purchasers hope that health status-based risk adjustment will take the edge off adverse selection and remove incentives for plans to avoid people who have health problems or need more health services. The agency said it wants to encourage "the management of care, not the management of risk."
"We’ll know we’ve succeeded when you see a billboard that says, Got a major disease? We don’t care whether you join our plan or not,’" said Carolyn Madden, professor of health services at the University of Washington, and a principal investigator for the research project on implementing health status-based risk adjustment. The University of Washington and HCA received a $2 million grant from the Robert Wood Johnson Foundation to research health status-based risk adjustment.
While there are many efforts across the country to test or implement health status-based risk adjustment of premiums, HCA is taking one of the biggest steps in this direction.
Full implementation in 2000
Full implementation of health status-based risk adjustment by HCA won’t occur until the year 2000. This year premiums will first be risk-adjusted using enhanced demographic variables. Those premiums then will be adjusted on the basis of health status by only 2% above or 2% below that level.
HCA has adjusted for age, gender and member status (i.e., subscriber, spouse or dependent) for the last 10 years. But, this year, it also will adjust for family tier (i.e. employee only, employee and spouse, employee and children, etc.) retiree status, and COBRA status.
The phase-in of health-status-based adjustment is a "reasonable" next step risk for the agency, Ms. Madden said. HCA is very aware of its role as a major purchaser in the market and didn’t "want to make major changes and muck up a market that already has enough going on in it," she said.
In a dry run with 1995 data, premiums adjusted for health status had twice the range of premiums adjusted only for demographic variables, according to James Matthisen, an actuary from William M. Mercer, who consulted on the project. For example, if plans are paid from 10% below to 10% above the average premium after adjustments for demographic variables, the range will be from 20% below to 20% above with health status-based risk adjustment.
All told, about 5% of total monthly premiums of $26 million would have been shifted among plans, based on the dry run. One plan would have lost $690,000 per month in premiums while another gained $1,075,000 per month. The plan that had the biggest hypothetical reduction was not able to submit outpatient data, pointing to the importance of good data collection.
Open enrollment for state employees in Washington was held in November. In March, HCA will make adjustments to premiums for 1998 after information has been collected on plans’ enrollees and their health status. The adjustments will be made to the capitation rate plans bid to serve a typical population.
Premiums for 1998 will be adjusted based on 1996 data. Plans must submit all diagnosis and procedure codes for inpatient and ambulatory visits.
One of HCA’s guiding principles is that it "shouldn’t ask for data that is irrelevant to the plans," said Ms. Madden. The agency wants them to provide data "they need to collect to manage care."
According to Mr. Matthisen, one reason HCA decided to phase-in health status-based risk adjustment rather than fully implement it immediately was that "plans need time to get their coding up to a quality level. HCA had to choose between a phase-in or forcing some plans not to participate."
The "grouper" that has been selected for the purpose of health status risk assessment is Diagnostic Cost Groups (DCGs), developed by a team including Arlene Ash of Boston University. DCGs, based on Medicare expenditure data, uses ICD-9 diagnosis information from claims and encounter data. One of the reasons it was selected is because it "accommodated less robust data sets better," Mr. Matthisen said. The DCG also predicted higher costs than other groupers for the very sickest individuals, which "was more consistent with HCA’s goal to encourage plans to be happy to enroll anyone no matter what condition they have," he said.
Another advantage of the grouper is that it is in the "public domain and free to plans," Ms. Madden said. She cautioned against placing too much emphasis on the HCA’s selection. The agency will continue to examine another grouper, Ambulatory Care Groups, developed by a team of researchers led by Jonathan Weiner at Johns Hopkins University. "There’s nothing wrong with the others," she said. DCGs happened to "fit the bill" for HCA.
Disproportionate risk
Plans do receive disproportionate risk profiles," said Mr. Matthisen and health-status-based risk adjustment "does a better job" of representing the risk health plans assume. Plans with populations that had a higher risk profile tended to be newer to the insurance program and also tended to have a "more open design," such as PPO models. Plans that aggressively managed care seemed to attract healthier enrollees, he said.
While many refinements will be needed in the future, Cynthia Smith, project director of health status-based risk adjustment for the HCA, said, "We’ve placed emphasis on moving ahead. There will be obstacles and there are many ways to go about this." But it is important not to get "paralyzed" at the thought that many questions and uncertainties remain and that the system is not perfect. "Refinement is the biggest code word," she said.
Information is available on the Internet at http://boat.washington.edu/risk-adjust/.
Contact Ms. Smith at 360-923-2766 or Madden at 206-616-2986 or Mr. Matthisen at 206-233-2403.
Washington will adjust premiums for health status in 1998 for plans covering state employees
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