Social Risk Adjustment: Evidence from Medicare

Abstract

One in four people in the United States has health insurance that is funded by public taxes and administered by private insurance. The amount of funding that private insurers receive is typically adjusted on the health of the enrollee where sicker enrollees bring in higher revenues. This paper examines the prospects for a new regime that risk adjusts insurer payment on the health as well as the socioeconomic characteristics of the enrollees. Specifically, we study a change in Medicare’s risk adjustment system in 2017, where private Medicare Advantage plans started receiving an additional $1,416 about 10% of the baseline annual revenues for each low-income beneficiary they enroll. We find no evidence that the policy succeeded in attracting low-income groups to private plans. However, about one third of the targeted low-income population was already enrolled in Medicare Advantage and experienced more generous supplemental benefit coverage under the new regime. We also show suggestive evidence that plans that entered the market post-policy were more competitive in terms of their coverage and their spending on their enrollees.