Last month, the Alliance of Community Health Plans (ACHP) released new data revealing that major national plans have significantly higher Medicare Advantage (MA) risk scores than community-based insurers. ACHP leaders argue this isn’t due to sicker patients, but rather gaming the system at taxpayers’ and seniors’ expense.
Learn more about the MA risk adjustment program, ACHP’s findings, and its suggested solution.
What is Medicare Advantage Risk Adjustment?
MA risk adjustment is designed by the federal government to ensure that health insurers receive compensation for covering the healthcare needs of the sickest seniors enrolled in MA plans. The goal is to provide sufficient financial resources for health plans and providers to effectively manage care for individuals with complex and costly health needs.
Here’s how it generally works:
- Payment Adjustment Based on Health Status: MA plan payments are adjusted according to the health status of each senior. Plans receive more financial resources to deliver comprehensive care for individuals with more complex conditions and higher medical costs.
- Risk Scores and Payments: The more documented conditions a consumer has, the higher their assigned “risk score,” which in turn leads to higher payments to the insurer.
- Complexity: The current risk adjustment model is described by ACHP as bloated and overly complicated, involving 115 condition categories and thousands of potential diagnoses. It also presents many opportunities for insurers and vendors to game the system.
Why does ACHP believe it is being gamed?
According to ACHP, the system is currently failing and has become “overrun with abuse”:
Upcoding
Unfortunately, the system rewards aggressive coding rather than high-quality care. ACHP accused large national carriers of upcoding. Upcoding is the process of documenting excessive or even inappropriate diagnostic codes to make patients appear sicker than they are.
Discrepancies in Risk Scores
ACHP’s analysis, based on Centers for Medicare & Medicaid Services (CMS) data through 2023, shows significant differences in risk scores. For instance, in 2023, UnitedHealthcare’s risk scores were 36.2% higher than those of community health plans. ACHP attributed this variation to gaming the system rather than having sicker patient populations.
Financial Impact
These higher risk scores translate into substantial additional payments for larger plans. For example, in 2023, UnitedHealthcare reportedly earned $785.64 more per customer, and Humana earned $423.24 more than ACHP’s community plans. This difference alone for the largest national MA insurer cost Medicare over $6 billion in 2023.
Misuse of Funds
ACHP argues national plans don’t funnel these additional funds back into patient care, but instead pay for “glitzy” marketing, administrative costs, and profits.
Consequences
This aggressive coding and gaming behavior potentially wastes tens of billions of taxpayer dollars annually, stifles competition, creates an unequal playing field, and disadvantages tens of millions of consumers nationwide. ACHP believes CMS should reward high-quality plans that meet consumer needs over companies that prioritize risk adjustment revenue.
What solution does ACHP suggest?
The ACHP has proposed a comprehensive plan to streamline Medicare Advantage (MA) risk adjustment to combat upcoding and gaming of the system under its “MA for Tomorrow” initiative. The core of their solution is to simplify the risk adjustment model and shift its focus from coding practices to actual patient care.
Here are the key components of ACHP’s proposed solution:
Simplifying the Risk Adjustment Model
The ACHP proposes to limit the number of condition categories involved in MA risk adjustment. Currently, there are 115 condition categories, which the ACHP suggests reducing to approximately 10 or 12.
CMS could build this streamlined model on demographics (such as sex, age, institutional status, and disability status) and a small number of substantiated health conditions (like COPD, cancer, chronic kidney disease, congestive heart failure, and autoimmune diseases). In this model, Medicare payments would more accurately reflect patient care costs while making it harder to game the system.
ACHP would like the system to move away from incentivizing upcoding diagnostic codes.
Calibrating the Risk Adjustment Model on MA Encounter Data
CMS calibrates the current risk adjustment model using fee-for-service (FFS) claims data, which does not account for differences in coding patterns between volume-based and value-based care.
ACHP proposes recalibrating the model to use MA encounter data, which documents diagnoses, treatments, and services. CMS has collected this data for over a decade and has the authority to use it to improve payment accuracy and mitigate aggressive coding.
Tiering the Coding Intensity Adjustment
Currently, CMS applies a standard coding intensity adjustment to all MA plans, despite significant variation in coding intensity among plans.
ACHP recommends applying different levels of coding intensity adjustments by tiering plans based on their coding aggressiveness. CMS could target larger adjustments for plans that are much higher than the industry average. This approach aims to deter outliers, reduce aggressive coding behavior, and level the playing field.
Targeting Risk Adjustment Data Validation (RADV) Audits
While RADV audits improve program integrity, the ACHP is concerned that auditing everyone, as CMS announced, may cast too wide a net and not effectively target bad behavior.
The ACHP proposes that RADV audits should be targeted based on criteria that focus on health plans with significant risk adjustment that deviate from the industry average. Doing so would create a more efficient and effective program, curtail bad actors, and protect Medicare dollars.
Establishing a Federal Reinsurance Program
The ACHP acknowledges that a simplified model might not capture every rare or extremely costly condition. To safeguard patients with complex needs and prevent adverse selection, they propose establishing a federal reinsurance program. CMS could then use savings from the simplified model to cover rare and extremely high-cost conditions. Doing so would improve market stability and allow all insurers to compete effectively.
ACHP believes these reforms would save tens of billions of taxpayer dollars annually, ease administrative burden on clinicians, reduce overpayments, and create a more competitive MA marketplace focused on high-quality care rather than aggressive coding.
Further Reading
Advancing Risk Adjustment for Care, Not Codes
Is MA Risk Adjustment Ready for a Revolution?
Medicare Advantage Risk Adjustment is Failing: Billions Wasted, Seniors Disadvantaged
Release: Medicare Advantage Risk Adjustment is Failing, Costing Taxpayers Billions of Dollars
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