Health Exchange Risk Adjustment: HHS-HCC

Health reform risk adjustment model available in MARA

The establishment of the Patient Protection and Affordable Care Act (ACA) includes the implementation of a federally certified risk adjustment methodology to assure that premiums paid to participating plans reflect differences in benefits (metal levels) and plan efficiency. The goals of risk adjustment under ACA are to mitigate the impacts of potential adverse selection and to stabilize premiums in the individual and small group markets.

A federally certified risk adjustment methodology called HHS-HCC was developed by the U.S. Department of Health and Human Services (HHS) and uses a hierarchical condition category (HCC) system to summarize diagnosis codes into levels of severity for calculating risk scores. Unlike traditional risk adjustment models that explain “total allowed expenditure risk,” the chief aim in the design of the HHS-HCC model is to assure that premiums reflect differences in benefits (metal levels) and plan efficiency. The HHS-HCC model is concurrent or “retrospective,” in that risk scores reflect “plan liability” rather than “total expenditure.” The model output is metal level risk scores that more accurately reflect the plan liability for initial expenditures in light of differing deductibles. It is intended to more accurately reflect plan liability for people with higher versus lower expenditures across plan benefit tiers.

This model has been added to the MARA software to offer guidance, making it easier for users to simulate health exchange risk score calculations. The software handles the complex data requirements specified by HHS, and outputs risk scores for different plan levels of coverage. Additional output includes the medical conditions or HCCs identified during processing.

For more information, contact your Milliman consultant.

Details of the HHS-HCC model are available at the Centers for Medicare and Medicaid Services website.