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Deriving Risk Adjustment Payment Weights to Maximize Efficiency of Health Insurance Markets
Timothy J. Layton, Thomas G. McGuire, Richard C. van Kleef, via National Bureau of Economic Research [NBER] Sept. 19, 2016
"[The authors] assume that the objective of risk adjustment is to minimize the loss from service-level distortions due to adverse selection incentives, [and] derive expressions for the service-level distortions as a linear function of the risk adjustment payment weights.... [W]hen the number of risk adjustor variables exceeds the number of decisions plans make about service allocations, incentives for service-level distortion can always be eliminated."
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