Comparison of risk adjusters for Medicaid-enrolled children with and without chronic health conditions

Objective.-Several capitation payment systems have been developed and imple mented recently by public and private insurers as well as by individual man aged care organizations. Many pediatricians have expressed concern that met hods for establishing capitation rates may not adequately account for the h igher expected expenditures for children with chronic health conditions. In this study, we evaluate a demographic- and 4 diagnosis-based models, payin g particular attention to their performance for children with chronic healt h conditions. Methods.-We selected children 18 years of age and under who were enrolled i n the Maryland Medicaid Program in 1995 and 1996. We defined the population of children with chronic health conditions using ICD-9 codes. Individual a nd group-level analyses were utilized to measure the ability of the differe nt risk adjustment models to predict expenditures in 1996 based upon inform ation available in 1995. Results.-All 4 diagnosis-based models significantly outperformed the demogr aphic model for children overall and for children with chronic health condi tions. Differences between diagnosis-based models were small, especially as the size of test populations increased. Conclusions.-Risk adjustment methods that account directly for health statu s promise to reduce incentives to exclude children with chronic illnesses f rom managed care plans and to provide a foundation for more appropriate pay ments to pediatricians who care for these children.