In managed care payment models, what is the purpose of risk-adjusted payments?

• A. To align incentives by compensating plans fairly for health status and risk of the enrolled population.
• B. To reward plans for enrolling only healthy individuals.
• C. To simplify billing by removing risk considerations.
• D. To penalize plans for high hospitalization rates.

Answer: (A)

Risk adjustment in payments is about aligning what plans get paid with how sick the enrolled population is. In capitation or fixed-per-member payments, the amount a plan receives should reflect the expected costs of caring for members based on their health status and risk profile. If payments didn’t adjust for risk, plans would have an incentive to enroll healthier individuals and avoid sicker ones, or would underprovide care for those with higher needs. By adjusting payments to account for health status and risk, plans are fairly compensated for the mix of patients they serve, making competition about quality and efficiency rather than risk selection. This is why risk-adjusted payments are used. They do not reward enrolling only healthy individuals, simplify billing by removing risk considerations, or penalize plans for high hospitalization rates.