Risk adjustment is a healthcare payment model that reimburses health plans that disproportionately attract higher-risk populations (such as individuals with chronic conditions) by transferring funds from insurers with relatively lower-risk enrollees. In risk adjustment covered plans, an actuarial tool is used to predict health care costs based on the relative actuarial risk of enrollees.
The goals of risk adjustment are to mitigate the impacts of potential adverse selection (e.g., insurers refusing coverage to higher-risk individuals), and to stabilize health insurance premiums so that premiums better reflect differences in benefits and plan efficiency, rather than the health status of the enrolled population.
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