Johns Hopkins ACG System

Financial Analysis

The ACG® System has been widely and successfully used for capitation/rate setting, for setting insurance premiums, and for appropriately distributing resources within large health systems.

Capturing differences between populations in terms of their disease burden is essential for the fair and equitable distribution of limited health care resources. The ACG System is in wide use by health care providers, payers, and governments to ensure that resources appropriately target populations in greatest need.

Resource Allocation

With the increasing number of chronically ill individuals, the need for morbidity adjusted resource allocation that considers a wider range of characteristics than simply age, gender and geography is critical.

Capitation

The ACG® System has made it possible to accomplish risk adjustment with fairly simple and straightforward analytic strategies. ACG® actuarial cells, which classify persons based upon their likely use of health care resources, have long been a standard actuarial method for capitation and rate setting. Covered populations are sorted into these 102 cells and either national weights or localized weights applied. The product is a relative population risk index that can be used to adjust capitation rates.

Actuarial Underwriting

Setting premiums for small- and medium-sized groups is a challenging task. Given the regulatory environment and price sensitivity of the groups, underwriters must closely match premiums to future costs in order to retain the competitiveness of their products. Healthy groups may have an incentive to shop for lower rates while unhealthy groups have a disincentive to shop as it is unlikely that they will find rates more favorable than the limited regulated increase of their current plan.