Medicaid Managed Care - U.S. Senate Special Committee on Aging

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er than a judgmental context, but I think that we are really looking
at that state of the continuum, and I don't think we have seen a
lot of improvement in that in, say, the last 4 or 5 years. It has improved
somewhat, but it has not improved hugely in that amount
of time our ability to nail down a methodology.
There are things that you can do to compensate for the lack of
risk adjustment. For example, a lot of States have stop-loss coverage,
basically, for the plans-people that incur costs over
$50,000, for example, the State will cover their costs in the fee-forservice
system and will pay the plan on a fee-for-service basis.
So there are all kinds of things you can do to cushion the lack
of an adequate risk adjuster, but I think that we are still looking
at something which is relatively primitive in its development.
Mr. SCANLON. I would agree. I think there are two components
here. One is the conceptual model that you use for risk adjustment,
and while there has been progress made in that dimension, as Barbara
indicated, it is there, but it has been relatively static for a
while.
Certainly, I think there is the issue of the administration or the
implementation of one of those conceptual models. But the conceptual
models have been built off data that have been available to the
existing fee-for-service system. We have not turned around and
said how we will administer these models in a managed care environment,
when the world is predominantly managed care. How is
information going to flow well so that we can risk-adjust and additionally
set rates in the future? Today, we are very happy setting
managed care rates based on fee-for-service experience and saying,
gee, we are doing well, we got a discount. What if we have predominantly
managed care, and we don't have this fee-for-service
benchmark anymore to guide us in terms of rate-setting?
Ms. CHRISTENSEN. One more question, and then we'll close.
Go ahead.
QUESTION. [Inaudible.] But I wonder how well we analyze the
DRG system, which was [inaudible].
Mr. SCANLON. We don't want to wait until we have the perfect
risk adjusters. We don't need the perfect risk adjusters to move forward.
What we need to do is recognize the limitations of the risk
adjusters we do have and to compensate for them appropriately.
The reinsurance, or what Barbara referred to as the stop-loss
provisions, and the risk corridors that I talked about are ways of
compensating for the lack of a good risk adjuster.
If you think about it, by using a pure capitation payment, you
are betting that you were right in saying this is the amount we
should pay. If you want to cover your bets and say we weren't necessarily
right, we could be a little bit high, or we could be a little
bit low, and you adopt reinsurance or a risk corridor, you have covered
your bets in some respects.
The other thing to do is to be very sensitive about maintaining
or continuing the process of learning, to make sure that you are
collecting data to understand your experience, and you will be able
to, in some respects, relax your reinsurance, relax your risk corridors
in the future if you are able to better risk-adjust in the future.
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