Value of ACA coding improvement: Market share and market effects

The risk adjustment program, a permanent feature of the Patient Protection and Affordable Care Act of 2010 (ACA), aims to mitigate issues in the commercially insured guaranteed issue individual and small group markets. Under the ACA risk adjustment program, a member’s risk is measured using the U.S. Department of Health and Human Services hierarchical condition categories (HHS-HCC) risk adjuster model. In this particular model, carriers are incentivized to capture all existing member diagnoses that trigger any of the predefined 146 HCCs and condition groupings. By doing so, the carrier will maximize its average plan liability risk score and thus optimize its revenue transfer position relative to the market. In this report, Milliman’s Doug Norris and Ksenia Whittal explore the crucial role of diagnosis coding by focusing on certain variables—including carrier size, market share, and market size—in the ACA risk adjustment formula.