Which agency uses the RAF for commercial risk adjustment?

• A. Internal Revenue Service (IRS)
• B. Department of Health and Human Services (HHS)
• C. Food and Drug Administration (FDA)
• D. Centers for Medicare & Medicaid Services (CMS)

Answer: (D)

A Risk Adjustment Factor (RAF) is used to estimate the expected costs of enrollees so that payments to health plans can be adjusted to reflect the mix of risks they cover. This keeps plans financially stable and encourages them to enroll people with higher health needs.

The agency responsible for using the RAF in commercial risk adjustment is the Centers for Medicare & Medicaid Services (CMS). CMS administers the Risk Adjustment program for the commercial health insurance market (the ACA exchanges) and also runs similar risk adjustment activities for Medicare. While the Department of Health and Human Services oversees CMS, the actual risk adjustment work—calculating RAFs and corresponding payments between issuers—is done by CMS. The other agencies listed don’t manage this risk-adjustment mechanism for commercial health plans.