The Department of Health and Human Services (HHS) has released rules for risk adjustment in Exchanges created by the Affordable Care Act (ACA) and a recommended premium age structure, but is delaying the implementation of some other Exchange provisions. States have decided whether to run Exchanges autonomously or in partnership with the Federal government. States are also taking a wide range of policy postures on whether to expand Medicaid under the ACA, with 20 states currently declaring opposition to Medicaid expansion. State-driven policies will set a fluid ACA policy environment for years to come. In RO1-MH094290, "Mental Health Coverage in Health Care Reform," our team assessed incentives for Exchange plans to supply care for mental health and other chronic conditions, finding that incentives for underservice were strongest for cancer and mental health care. In a major methodological development, MH094290 identified a simple modification of conventional risk adjustment methods, namely, imposing "constraints" on least-squares regressions, that can address efficiency problems associated with risk adjustment. Our work so far has used the Medical Expenditure Panel Survey (MEPS). In this competing renewal we propose to refine and extend our methods and to apply them to the very large data sets used for development of actual payment models. We plan to accomplish two aims: First, construct a simulation model of a Health Insurance Exchange using MEPS data to: a) confirm the presence of adverse incentives for mental health (and other chronic illnesses) in Exchanges based on current federal policy;and b) apply constrained regression techniques to address selection incentives within the framework of proposed risk adjustment policy. Second, improve on existing risk- adjustment methodology by: first, using a large MarketScan Exchange eligible adult population that is selected and weighted using the MEPS Exchange population so as to be representative of the spending and illness distribution of likely Exchange participants;second, accounting for payment system features (plan-set premiums and reinsurance) affecting plan risk and incentives;and third, applying the constrained-regression fix for incentives related to selection against those with mental and other chronic illnesses. In addition to academic papers, Aim 2 will produce a potentially implementable "optimal risk adjustment" model for adults that corrects selection-related incentives.

Public Health Relevance

As of January 1, 2014, US citizens and legal residents who are not eligible for employer-sponsored or public coverage will be able to purchase health insurance through new state-level health insurance markets, referred to as Exchanges. Persons with mental illness and other chronic conditions need special protection in private health insurance markets. This project assesses the incentives to health plans in Exchanges to undersupply care to these groups, develops a solution to this problem by modifying the way plans are paid, and applies this solution to the very large data sets used by the federal government to calibrate payment models.

National Institute of Health (NIH)
National Institute of Mental Health (NIMH)
Research Project (R01)
Project #
Application #
Study Section
Special Emphasis Panel (SERV)
Program Officer
Rupp, Agnes
Project Start
Project End
Budget Start
Budget End
Support Year
Fiscal Year
Total Cost
Indirect Cost
Harvard University
Schools of Medicine
United States
Zip Code
Montz, Ellen; Layton, Tim; Busch, Alisa B et al. (2016) Risk-Adjustment Simulation: Plans May Have Incentives To Distort Mental Health And Substance Use Coverage. Health Aff (Millwood) 35:1022-8
Layton, Timothy J; McGuire, Thomas G; Sinaiko, Anna D (2016) RISK CORRIDORS AND REINSURANCE IN HEALTH INSURANCE MARKETPLACES: Insurance for Insurers. Am J Health Econ 2:66-95
Geruso, Michael; McGuire, Thomas G (2016) Tradeoffs in the design of health plan payment systems: Fit, power and balance. J Health Econ 47:1-19
McGuire, Thomas G (2016) Achieving Mental Health Care Parity Might Require Changes In Payments And Competition. Health Aff (Millwood) 35:1029-35
McGuire, Thomas G; Newhouse, Joseph P; Normand, Sharon-Lise et al. (2014) Assessing incentives for service-level selection in private health insurance exchanges. J Health Econ 35:47-63
Frank, Richard G; Beronio, Kirsten; Glied, Sherry A (2014) Behavioral health parity and the Affordable Care Act. J Soc Work Disabil Rehabil 13:31-43
Zhu, Jane M; Layton, Timothy; Sinaiko, Anna D et al. (2013) The power of reinsurance in health insurance exchanges to improve the fit of the payment system and reduce incentives for adverse selection. Inquiry 50:255-74
McGuire, Thomas G; Glazer, Jacob; Newhouse, Joseph P et al. (2013) Integrating risk adjustment and enrollee premiums in health plan payment. J Health Econ 32:1263-77
Glazer, Jacob; McGuire, Thomas G (2012) A Welfare Measure of "Offset Effects" in Health Insurance. J Public Econ 96:520-523