Analysis of underwriting factors for AAPCC

The adjusted average per capita cost (AAPCC) formula is used to determine payment to health maintenance organizations (HMOs) by Medicare. The four original underwriting factors (i.e., age, sex, institutional status, and welfare status) for the AAPCC were calibrated from the Current Medicare Surveys for 1974-76. Those factors have been updated by various actuarial adjustments. Revised calculations of the AAPCC underwriting factors are presented using survey data from the 1984 National Long-Term Care Survey and expenditure data from the Medicare Part A and Part B bill files. Also examined is the effect on the underwriting factors of chronic functional disability, defined as having one or more chronic limitations in activities of daily living. Comparison of alternative underwriting factors is conducted by simulating the dollar impact on payment to HMOs for select enrollee populations.