What is Risk Adjustment?

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For individuals with chronic health conditions, they become cumbersome to insurance companies.
This is due to individual being a high-risk candidate to the insurance company. Providing health
insurance to these individuals was a challenge due to the high-risk situation, which is why Risk
Adjustment was started. Risk Adjustment is a tool used to off set the high cost on insurance for these
individuals with chronic health conditions. In regards to choosing if individuals are considered a high-
risk patient, the risk adjustment process compares health status (condition, age, sex, etc.) and health
spending. A score is then calculated from these factors.

The Affordable Care Ace (ACA) was used to enact the risk adjustment model. Without it, individual’s,
with high-risk status, were being denied by insurers. There are, however, multiple different
adjustment models. One of which was created by the Centers for Medicare and Medicaid Service
(CMS) and uses the HCC or Hierarchical Condition Category to calculate the risk scores for the
individual. Some models count high cost, while others utilize most diagnostic codes. A few of the tools
used for the risk adjustment models are; Adjusted Clinical Groups (AGCs), MedicaidRx and the
Chronic Illness and Disability Payment System (CDPS).