Risk Adjustment [chapter]

Randall P. Ellis
2012 The New Palgrave Dictionary of Economics  
Risk adjustment is used to make payments or allow comparisons of outcomes while controlling for exogenous risk factors that explain variations in the outcome of interest, such as spending, utilization, quality, or death. This article focuses on conceptual and empirical uses of risk adjustment in health economics, where patient-level risk factors are commonly used to explain spending and other outcomes. Article Risk Adjustment is a term used in health economics to describe the use of exogenous
more » ... sk factors to explain variations in health care spending, utilization, quality or outcomes of interest, such as death or health status (van de Ven and Ellis, 2000; Ellis 2008). It is also used more broadly by actuaries and others when predicting any outcome that varies systematically with covariates. For example, actuaries perform risk adjustment when setting premiums for life insurance to reflect age and gender (Gründl, Post, and Schulze, 2006) , or when setting premiums for property insurance related to geography or rate classes; risk adjustment terminology is also used in the finance literature (e.g., Constantinides, 1978) . Use of "risk adjustment" for health care markets is the focus of the remainder of this article.
doi:10.1057/978-1-349-95121-5_2942-1 fatcat:bvcttqnfpfhejbdpvbibbena4e