10.1177/0272989X03257264 ARTICLEMEDICAL DECISION MAKING/SEP–OCT 2003ARK, OZMINKOWSKI, IRK, ETTNER, DRABEKTHODOLOGYRISK ADJUSTMENT FOR CHRONIC CON ITIONS Risk Adjustment for People with Chronic Conditions in Private Sector Health Plans

Background. Although the problem of adverse selection into more generous health insurance plans has been the focus of previous work, risk adjustment systems have only recently begun to be implemented to blunt its effect.Objectives. This study examines the ability of the leading risk adjustment sys-tems to predict health care expenditures for people with chronic conditions, using claims and enrollment data from 2 large employers.Researchdesign. Predictive errors and total financial losses/gains are compared for different risk adjust-ment approaches (primarily hierarchical condition catego-ries [HCCs] and adjusted clinical groups) for several chronic conditions. Results. One of the best performing risk adjust-ment systems was a regression-based HCC method, which had an average under-prediction error rate of 9 % or 6%, de-pending on the employer. In comparison, more typical actu