What is risk adjustment used for in funding allocations?

• A. Determine patient eligibility
• B. Allocate funding to plans based on severity of disease and demographics
• C. Set patient premiums
• D. Determine hospital readmission penalties

Answer: (B)

Risk adjustment in funding allocations uses information about enrollees’ health status and demographics to predict expected costs and adjust payments to plans accordingly. This ensures plans that cover sicker or older individuals receive higher funding, aligning payments with the anticipated cost of care and reducing incentives to avoid high-risk patients. That’s why the option describing allocating funding to plans based on severity of disease and demographics is the best fit.

Other ideas don’t match this purpose: determining patient eligibility is about who can enroll, setting patient premiums is about what individuals pay, and hospital readmission penalties are about penalties for hospitals rather than adjusting funding to plans.