The core of the insurance business is assuming (or “underwriting”) the risk of uncertain future events in exchange for a premium. Insurers’ profits consist, first, of underwriting profits, the difference between premiums and what is paid out in claims plus other costs incurred in this process. Insurers are also in the investment business, however, for they invest cash flow from the sale of insurance, from which they also derive a return in the lag between collecting premiums and paying claims. Investment income is the second source of an insurer’s profits. (more…)

The new risk adjustment system was designed to meet ten guiding principles. These principles relate to insurance underwriting issues, understanding and acceptance by users, and minimization of opportunities to “game the system.” Briefly, the ten principles are:

1. The health-status–related measures should be clinically meaningful. This means that they should have face validity and be (more…)