An important example of such an opportunity is “risk adjustment.” This is the payment methodology mandated by the Medicare Modernization Act of 2003 and used by the Centers for Medicare and Medicaid Services (CMS) to improve payment accuracy. Not many outside of the insurance industry talk about risk adjustment or understand the impact it has on Medicare beneficiaries. Yet, considering the importance of reforming Medicare to ensure a sound future for our seniors, why not prioritize this low-hanging fruit?

The current risk adjustment formula hasn’t been updated since it was created in 2002 and implemented in 2004, so it is based on research that is more than a decade old. Even worse, draft revisions to the formula recently released do not address some of the system’s fundamental flaws. The formula neither accurately accounts for the health care costs of beneficiaries with multiple chronic conditions nor new Medicare enrollees with chronic conditions based on their health history.

The result is that most Medicare plans focus on attracting healthier beneficiaries, and on coding programs to ensure their members’ health conditions are accurately documented. If we keep our heads down on this, or fail to address it accurately, it will cost us billions and prevent companies from placing the emphasis where it needs to be—on people with multiple chronic diseases.

Improving risk adjustment would be a relatively simple exercise—we’re talking about math, not policy. In fact, I and colleagues of mine from Johns Hopkins University and George Washington University recently published the results of a study showing that modifying the current risk adjustment formula to continue to include (rather than dispose of) additional beneficiary health history data would result in lower Medicare spending overall. Our model uses (as opposed to purging) existing CMS data capturing the health history of beneficiaries to get a better picture of their health status, and more accurately predict future expenditures.

This information is at our fingertips, and continuing to incorporate it into the risk adjustment formula could save our government billions, both by eliminating overpayments and encouraging plans to improve care for the chronically ill. In addition, it is important to ensure an accurate risk adjustment system to inform payment distribution for other emerging healthcare programs including health insurance exchanges and accountable care organizations, which similarly look to the predicted costs of all Medicare beneficiaries.

The unfortunate reality right now is that our system offers health plans the wrong incentives—namely, that choosing healthy members over sicker ones is more beneficial to their bottom lines. That means an increased burden for healthplans to maintain rich coverage options for their sickest members.

This is not a prescription for success.

In contrast to the majority, a small number of Medicare plans are targeting their benefits towards those with chronic illnesses who are Medicare’s highest risk beneficiaries—my company among them. These chronic condition special needs plans are held to high standards by Medicare, including annual evaluations of their impact on quality and care coordination services.

About 174,000 individuals participate in these plans, which offer features that are not otherwise available to most Medicare beneficiaries. This is a good start. Nevertheless, with more than 12 million in Medicare health plans, and a growing prevalence of chronic diseases such as diabetes and heart failure, more plans should be taking this approach.

Improving risk adjustment will help encourage this. And that, in turn, will go a very long way toward lowering health care costs and improving quality of care across the Medicare program.

Rob Cohen is Chief Government Affairs Officer for XLHealth Corporation, which owns and operates Care Improvement Plus. 

About XLHealth Corporation

XLHealth Corporation ( is the owner and operator of Care Improvement Plus, a Medicare Advantage health plan committed to delivering quality health care benefits and serving the underserved. Focused on improving patient outcomes and reducing health care spending, Care Improvement Plus provides comprehensive Medicare coverage and a Part D prescription drug benefit, plus additional services such as dental and vision coverage, and care management support.