Actuarial Notes

The Use of Health Status Based Risk Adjustment Methodologies

By Actuarial Standards Board · 2012 · ASOP No. 45

Study guide: Exam GH-301

The U.S. actuarial standard of practice that guides actuaries applying health status based risk adjustment methodologies to quantify differences in relative healthcare resource use due to differences in health status. This final version (Doc. No. 164) was developed by the Health Risk Adjustment Task Force of the Health Committee of the Actuarial Standards Board and adopted in January 2012; it is effective for professional services using these methodologies performed on or after July 1, 2012.

On the syllabus

  • Exam GH-301 — Outcomes 3c; the standard excluding its Appendices.

Transmittal Memorandum

  • The ASB describes health status based risk adjustment methodologies as an important tool in the health insurance marketplace since the 1970s, whose use affects insurers, providers, consumers and employers.
  • The standard requires actuaries to explicitly consider the important characteristics of risk adjustment models and their use, rather than assume those issues are already addressed within a given software model.
  • The exposure draft was approved in April 2011 with a comment deadline of July 31, 2011; ten comment letters were received, and the ASB voted in January 2012 to adopt the final standard.

1 Purpose, Scope, Cross References, and Effective Date

  • 1.1 Purpose
  • 1.2 Scope
    • Applies to actuaries quantifying differences in morbidity across organizations, populations, programs and time periods using commercial, publicly available or other health status based risk adjustment models or software products.
    • Does not apply to actuaries designing health status based risk adjustment models; those actuaries are guided by ASOP No. 12, Risk Classification.
  • 1.3 Cross References
  • 1.4 Effective Date

2 Definitions

  • 2.1 Carve-out
  • 2.2 Coding
  • 2.3 Condition Category
  • 2.4 Credibility
  • 2.5 Diagnostic Services
  • 2.6 Estimation Period
    • The period for which differences in morbidity are being quantified by the risk adjustment methodology.
  • 2.7 Expert
  • 2.8 Health Status Based
  • 2.9 Morbidity
  • 2.10 Program
  • 2.11 Recalibration
    • The process of modifying the risk adjustment model, usually the risk weights.
  • 2.12 Risk Adjustment
    • The process by which relative risk factors are assigned to individuals or groups based on expected resource use and by which those factors are taken into consideration and applied.
  • 2.13 Risk Weight

3 Analysis of Issues and Recommended Practices

  • 3.1 Model Selection and Implementation
    • 3.1.1 Intended Use
    • 3.1.2 Impact on Program
    • 3.1.3 Model Version
    • 3.1.4 Population and Program
    • 3.1.5 Timing of Data Collection, Measurement, and Estimation
    • 3.1.6 Transparency
    • 3.1.7 Predictive Ability
    • 3.1.8 Reliance on Experts
    • 3.1.9 Practical Considerations
  • 3.2 Input Data
    • 3.2.1 Provider Contracts
    • 3.2.2 Diagnostic Services
    • 3.2.3 Coding and Other Data Issues
  • 3.3 Program Specifics
  • 3.4 Assigning Risk Scores to Individuals with Limited Data
  • 3.5 Addressing Model and Methodology Limitations
  • 3.6 Recalibration
    • The actuary should consider the necessity and advantages of recalibration, and the credibility of data and observations for specific condition categories before changes to the model are made.
  • 3.7 Use in Combination with Other Rating Variables
  • 3.8 Budget or Cost Neutrality

4 Communications and Disclosures

  • 4.1 Actuarial Communications
    • The actuary should refer to ASOP No. 41, Actuarial Communications.
  • 4.2 Disclosures

Appendix 1 Background and Current Practices

Appendix 2 Comments on the Exposure Draft and Responses

Related readings

  • ASOP 41 - Actuarial Communications — section 4.1 refers the actuary to it for actuarial communications, and sections 4.2 a–c point to its disclosures
  • ASOP 23 - Data Quality (ASB - 2016) — assigned with it for Outcomes 3c

Sources