How Good is Medicare’s Risk Adjustment?

During the 1980s and 1990s, CMS used a “demographic model” [that] included only demographic variables (gender, age, and disability and Medicaid status) as opposed to disease or health conditions. CMS found that the model explained only one percent of the variation in payments among the FFS population.

“In 2004, CMS introduced…the hierarchical condition categories (HCC) model…[using] claims data from the [Medicare] population to…predict [beneficiary] costs in the following year…The model distills the roughly 15,000 possible ICD-9 codes providers list on claims into seventy disease categories.”

Studies have found that the HCC model explains 11 percent of FFS cost for the subsequent year. [Emphasis added]

Source: Jason Shafrin.

Comments (10)

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  1. Robert says:

    Another example of too much bad bureaucracy in a system that stands to be simplified.

  2. Buster says:

    Studies have found that the HCC model explains 11 percent of FFS cost for the subsequent year.

    That’s better than nothing, but I suspect a dart thrown at a series of random numbers would come about as close as the HCC model.

  3. John says:

    @ Buster,
    I’d be surprised if the government wasn’t just throwing darts at numbers.

  4. Alex says:

    15,000 possible ICD-9 codes going into 70 catagories…

    Seems like a lot of work for only 11 percent.

  5. August says:

    The jump from 1% to 11% is impressive; it is over 1000% better!

    The fact that they are still only at 11% is depressing.

    This seems like an opportunity for the market to step in; let the risk of miscalculation fall on an insurance company who makes a profit otherwise. Government regulations simply shift the burden to the people.

  6. Marvin says:

    I agree with Alex. Not sure how efficient this model actually is.

  7. Allison says:

    Good? I’m not sure. Mediocre? Maybe.

  8. Andrew Gregory says:

    Are there still any doubts we are facing a (VERY) controlling system?

  9. Adrienne says:

    Government regulations just make us all worse off..

  10. Cecile Monroe says:

    From 1% to 11%…that’s great news!

    From 11% to…hmmmm…still 11%? Not sure.