Medicaid Plan Risk Adjustment: A Dime Yields $15

By Clive Riddle, March 4, 2021

Sherlock Company’s March issue of Plan Management Navigator tackles the topic of Medicaid risk adjustment expenses and premiums pmpm. Their analysis attempts “to measure the efficacy of risk adjustment expenses on premium rates” for Medicaid plans; because “as a result of the increased population of Medicaid members, there is a growing need to accurately capture risk scores so that compensation to the plan is commensurate with their health care requirements.”

So what exactly is “risk adjustment” in this Medicaid plan context? They explain “the Sherlock Benchmarks define Risk Adjustment as the expenses associated with the analysis of clinical data in order to match government compensation with the risk factors of members. This includes adjustment for the “three Rs”: permanent risk adjustment, transitional reinsurance and transitional risk corridors. For Medicaid products, this includes activities such as those supporting Chronic Illness and Disability Payment System (CDPS) system. Activities in this function include determining which members should be moved from TANF to higher capitation products.”

Their analysis is based on data from the Sherlock Benchmarks 2020 edition, which segments costs according to 70 functional or sub-functional categories. They captured risk adjustment chart review metrics including: total chart reviews, total charts subject to multiple passes, the risk score improvement percentage, and the dollar reimbursement yield.”

Their findings? “The modeled regression line implies that every $0.10 PMPM spent in Medicaid HMO Risk Adjustment results in about $15.00 PMPM in additional premiums. To put this in perspective, of the 14 plans included in this analysis, no plan spent over $1.50 PMPM in Risk Adjustment expenses.”

Not a bad ROI.

By the way, President Doug Shlock says there is always room for more plans to participate in their 2021 benchmarking study. Interested plans can contact Doug at sherlock@sherlockco.com.