The Scope of the Problem

Risk adjustment models have an important role in today and tomorrow's health care system. Medicare and some Medicaid plans currently use health risk adjustment models to adjust payments to private risk contractors. Health care reform legislation mandates the use of health risk adjustment to adjust for risk differentials between insurance companies providing insurance in the individual and small group markets.

Current risk adjustment models rely upon data commonly contained in enrollment and claims files, namely variables such as: age, sex, relationship to insured, duration, geographical location, recent claim costs, recent diagnoses, recent prescription drugs, recent procedures, and recent locations of service (inpatient, ER, etc.). "Recent" typically refers to one year.

Yet it is known from literature outside of the health insurance domain that there are a host of other variables that likely reflect health cost risks. These variables include but are not limited to: BMI (height and weight), self-perceived health status, mental health, longer-term health history, socioeconomic status (variables such as education, income, wealth, occupation, employment status), benefit plan, genetics, mobility and physical fitness, and lifestyle (such as exercise, diet, smoking, risky activities, and medical treatment adherence). Many of these variables can be defined at the individual, family, and/or community level (such as the income level of the individual, family, and/or community).

Each of these variables has been shown to impact health status and/or mortality, but because they are absent from enrollment and claims files, they have not been widely examined with respect to health costs. To the extent that they have been examined, the data and results have typically been proprietary.

Omitting salient variables from the risk adjustment process opens the door for selection by health insurance companies and enrollees that cannot be eliminated via current risk adjustment models–selection which may be contrary to the intent of health reform.

In light of the importance of risk adjustment on the future of the U.S. health care system, the Health Section Research Committee of the Society of Actuaries is seeking researchers to estimate the impact of non-traditional predictor variables.

To conduct this effort, the researcher will need access to a credible dataset which contains traditional enrollment and claims data, plus one or more non-traditional variables. The researcher will also need access to at least one of the current commercial risk adjustment models.

For each non-traditional variable, the following should be estimated and quantified:

1. The relationship (ßntrad) between the variable and total health costs,
2. The relationship (ßntrad) between the variable and the health cost residuals which are generated when total health costs are predicted using the commercial risk adjustment model, and
3. If more than one non-traditional variable is being considered: The relationship (ßntrad) between the variable and the health cost residuals which are generated when total health costs are predicted using the commercial risk adjustment model and all of the other non-traditional variables

As well, the statistical contribution (R2 improvement) and reliability (s, p) of each of the above estimates should be calculated.

ßntrad may be a single ß representing a linear relationship between the variable and health costs (example: BMI) or it may be an array of ß's associated with categorical representations of the variable of interest (example: normal weight, overweight, obese).

To facilitate the evaluation of proposals, the following information should be submitted:

1. Resumes of the authors, including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one author is involved for each report, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the authors as well as for the firm or institution on whose behalf the proposal is submitted.
2. A description of the data to be used, including a list of the non-traditional variables; identification of the current commercial risk adjustment model(s) that would be applied; and details of the expected analysis.
3. A description of the expected report, including whether the dataset to be used is considered proprietary or publicly available.
4. Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
5. A schedule for completion of the research, identifying key dates or time frames for research completion and report submission.
6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

The SOA's Health Section Research Committee is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals may also be sought, but the SOA's Health Section Research Committee will make the final decision. The SOA's Research Actuary will provide staff actuarial support. A Project Oversight Group (POG) will be appointed to oversee the project upon selection of the proposal.

The SOA Health Section Research Committee desires to foster connections between actuaries and other health-related disciplines. With this in mind, research proposals from non-actuaries and interdisciplinary teams with actuaries are welcome.

Any questions regarding this RFP should be directed by fax, or e–mail to: Steven Siegel, SOA Research Actuary (ph: 847.706.3578, f: 847.273.8578).

If you intend to submit a proposal, please e-mail written notification by August 15, 2010 to: Barbara Scott, Society of Actuaries, 475 N. Martingale Road, Suite 600, Schaumburg, IL 60173-2226 or (ph: 847.706.3592, f: 847.273.3592).

Please e–mail a copy of the proposal to: Barbara Scott.

Proposals must be received no later than September 7, 2010. It is anticipated that all authors who have submitted proposals will be informed of the status of their proposal no later than October 15, 2010.

Note: Proposals are considered confidential and proprietary.

The SOA reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The SOA also reserves the right to redirect the project as is deemed advisable.

The SOA intends to copyright and publish the results of this research. The research will be considered work–for–hire and all rights thereto belong to the SOA. However, appropriate credit will be given to the researcher(s).