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The Medicare Advantage Risk Adjustment System: What It Is And Why It’s Important

Risk Adjustment in Medicare Advantage

What Is It? The purpose of the risk adjustment system is to adequately cover the costs of providing covered benefits for Medicare Advantage enrollees, including those with complex conditions.

How Does it Work? The Medicare Advantage risk adjustment system assigns a value or “risk score” to each beneficiary according to his or her age, gender, health status, and other factors. The beneficiary’s risk score reflects the person’s predicted health costs compared to those of an average beneficiary. Risk scores for plan enrollees are multiplied by the plan’s base payment amount — either the plan’s bid for covering costs of an average beneficiary or the benchmark if the bid is equal to or greater than the benchmark. This risk adjusted base payment amount is then added to the rebate for plans bidding below the benchmark to determine total reimbursement.