What is risk adjustment and why does it matter?

Published November 9, 2023

New analysis on risk adjustment shows it is working  

The Affordable Care Act (ACA) is a comprehensive law that helps millions of Americans every day, from providing support to purchase private coverage to critical patient protections for pre-existing conditions to expanding access to important preventive services. 

The ACA prohibits denying coverage or charging higher premiums to people with pre-existing medical conditions or expected high claims. These protections expand access to more affordable coverage options to millions of Americans. Risk adjustment is a critical component to accomplish this goal – and a critical part of the ACA. The objective of risk adjustment is to enroll people with high-cost health conditions and spread the financial risk among participating health plans. 

A new analysis from Oliver Wyman shows that the risk adjustment program is working. For the 25 million Americans who receive their coverage through the individual market, this means more coverage options are available, particularly for those with serious health conditions.  

How risk adjustment works:

Under the risk adjustment program, health plans that disproportionately enroll people who are older, sicker or have more chronic conditions receive payments from plans that enroll younger and healthier individuals. This promotes fair competition and minimizes incentives for insurers to “cherry pick” healthy customer. A Blue Cross Blue Shield Association Blue Perspective outlines the program’s critical role in ensuring market stability.  

Working as intended: 

The Oliver Wyman report finds that, as is, the program is effectively moving funds from health plans with low-cost members to those that are covering high-cost members. In this way, the program provides a level playing field for all insurers in the market. The analysis also found that the recent financial difficulties some insurers encountered were the result of underpricing, and not risk adjustment. Read the full report.

Why it matters:

Blue Cross and Blue Shield (BCBS) companies across the country are committed to making sure everyone has access to affordable, high-quality health insurance. Many BCBS companies often take on higher-need members, where subsidies received cover roughly $0.50 per dollar spent on claims. For other insurers who attract younger, healthier, lower-need members, they must account for the risk adjustment payment they will owe other plans when pricing their products.   

The Blue commitment to affordable, accessible care: 

BCBS companies have demonstrated a long-term commitment to consumers who rely on the individual exchange market for coverage. Today, BCBS Plans offer ACA products in counties covering 99% of the U.S. population. By contrast other national health insurers cover counties representing only 8%-69% of the population. We are committed to the success of the ACA and to ensuring affordable, quality care is available to everyone — not just our members.  

Collectively, BCBS companies make up the only system of health insurers offering coverage through employers, the ACA, Medicare or Medicaid in every community and every ZIP code in the U.S. And risk adjustment is one of many critical components to meeting those needs.