Suppose that country has adopted a risk-adjustment scheme to help combat risk selection. Suppose further that a sickness fund has become particularly adept at controlling costs associated with a certain illness/disease. In fact, the fund routinely treats customers with that particular illness for less than the national average cost of treating that illness. In this case, _____. A.  the fund may actually make money by enrolling individuals with that illness.    B. the fund would loose money enrolling individuals with that illness.   C. the fund would be indifferent to enrolling people with that illness.

ENGR.ECONOMIC ANALYSIS
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Suppose that country has adopted a risk-adjustment scheme to help combat risk selection. Suppose further that a sickness fund has become particularly adept at controlling costs associated with a certain illness/disease. In fact, the fund routinely treats customers with that particular illness for less than the national average cost of treating that illness. In this case, _____.

A.  the fund may actually make money by enrolling individuals with that illness. 
 
B. the fund would loose money enrolling individuals with that illness.
 
C. the fund would be indifferent to enrolling people with that illness. 
 
Expert Solution
Step 1

What Exactly Is Risk Adjustment??

Health insurance companies perform an annual risk adjustment process to cover the additional costs of taking on members with long-term health conditions.

It is possible to receive risk-adjusted payments if your health plan serves more chronically ill patients than the national average. Payments to the program may be required if it has fewer chronically ill members than the average.

As a result, accurate and complete documentation of the plan's total disease burden is critical to successful risk adjustment.

 

What is the rationale behind the necessity of risk adjustment?

In exchange for accepting full responsibility for their enrollees' healthcare costs, Medicare Advantage providers receive a monthly, per-member payment.

As long as pre-existing conditions weren't prohibited by the Affordable Care Act (ACA), many health plans were able to reduce their risk by attracting healthy members and steering clear of those with chronic conditions. Individuals with chronic conditions may have had a more challenging time obtaining health insurance coverage due to this. These people may have been uninsured and unable to get adequate medical care at the time.

Payers who accept high-risk patients are compensated somewhat through risk adjustment. As a result, more people will get the healthcare they need. In addition, providers are paid appropriately for accurately reporting their patients' conditions and treatment plans. As an added benefit, the fully capitated model utilised by Medicare Advantage compels payors and providers to provide their beneficiaries with more preventative and appropriate care.

Public health insurance exchanges and some state Medicaid programmes can benefit from the risk adjustment process.

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