HHS-HCC Deep Dive
ACA Marketplace risk adjustment — concurrent model, metal tiers, and budget-neutral transfers
Source: HHS, CMS/CCIIO, 45 CFR Part 153 • Last updated March 2026
Key Takeaway
HHS-HCC is a concurrent risk adjustment model used in the ACA Individual and Small Group Marketplaces. Unlike CMS-HCC (which pays plans directly from government funds), HHS-HCC drives budget-neutral transfers between insurers within the same state market — a zero-sum system where one insurer's gain is another's loss. ACA issuers that underinvest in risk adjustment optimization are effectively subsidizing their competitors.
How HHS-HCC Works
Concurrent Model
HHS-HCC uses current-year diagnoses to predict current-year costs. This is fundamentally different from CMS-HCC's prospective approach. There is no “recapture” challenge — every diagnosis documented during the benefit year counts toward that year's risk score. However, this makes scores more volatile since they change in real time as new diagnoses are captured.
Commercial Population
The model covers all ages — infants, children, and adults through age 64 — enrolled in individual and small group Marketplace plans. It was calibrated on employer-sponsored insurance claims (MarketScan data), not Medicare FFS claims.
Combined Medical + Drug
Unlike CMS-HCC (which covers only non-drug medical spending), HHS-HCC predicts combined medical and prescription drug costs. There is no separate pharmacy model equivalent to Medicare Part D's RxHCC.
Budget-Neutral Transfers
HHS-HCC does not generate direct payments from the government. Instead, it drives risk transfer payments between insurers in the same state market. Issuers with higher-risk enrollees receive payments from issuers with lower-risk enrollees. The system is zero-sum within each market.
No Coding Intensity Adjustment
Because HHS-HCC is concurrent and all issuers in a market use the same coding environment, there is no equivalent to CMS-HCC's 5.9% coding intensity reduction. The playing field is level — but issuers that code more accurately capture more risk transfer revenue.
Condition Exclusions
HHS-HCC excludes conditions that might reflect poor quality of care (e.g., pressure ulcers), random acute events (e.g., trauma), or conditions susceptible to discretionary coding. This is a deliberate design choice to prevent gaming.
15 Sub-Models
HHS-HCC uses a matrix of age group and metal level to produce 15 distinct sub-models. Each sub-model has its own coefficient weights.
| Age Group | Catastrophic | Bronze | Silver | Gold | Platinum |
|---|---|---|---|---|---|
Infant (0–1) | |||||
Child (2–20) | |||||
Adult (21–64) |
Each cell represents a distinct sub-model with unique coefficient weights. Plan metal level determines the actuarial value factor applied.
HCC Categories
Current model
ICD-10 Codes Mapped
Mapping to HCCs
Sub-Models
3 age × 5 metal
Calibration Source
Employer claims data
Who Uses HHS-HCC?
Primary Users
- ACA Individual Marketplace issuers
- ACA Small Group Market issuers
- State-based exchange plans (SBEs)
- SHOP (Small Business Health Options Program) plans
NOT Used By
- Medicare Advantage plans (use CMS-HCC)
- MSSP / ACO REACH (use CMS-HCC)
- Medicaid Managed Care (state-specific models)
- Self-insured employer plans (bear own risk)
Statutory Authority
HHS-HCC is authorized under ACA Section 1343 and codified in 45 CFR Part 153. It is administered by the CMS Center for Consumer Information & Insurance Oversight (CCIIO), not the Center for Medicare — a different CMS office than CMS-HCC. The regulation requires risk adjustment in the individual and small group markets to mitigate adverse selection and promote fair competition among issuers.