The Complete History of Risk Adjustment
From the AAPCC's demographic-only payments (1982) through V28 and the 2027 proposals
Source: CMS, MedPAC, academic research • Last updated March 2026
Key Takeaway
Risk adjustment evolved from a system that explained only 1% of cost variation (AAPCC demographics) to one explaining 11%+ (CMS-HCC diagnoses). Each major transition — PIP-DCG in 2000, full CMS-HCC in 2004, encounter data in 2016, V28 in 2024 — was driven by the same tension: making payments more accurate while preventing gaming. The 2027 proposals continue this pattern with the most aggressive structural changes since V28 itself.
History by Era
Calendar year 2026 marks the completion of the V28 transition. All MA risk scores are now calculated 100% on the 2024 CMS-HCC model (V28). CMS finalized an overall 5.06% average payment increase for 2026 (approximately $25 billion).
On January 26, 2026, CMS released the CY 2027 Advance Notice proposing the most significant structural change since V28 itself: excluding unlinked chart review records ($7.2 billion impact), excluding audio-only telehealth diagnoses, updating calibration data (2023 Dx / 2024 costs), and a base payment increase of just 0.09%.
In May 2025, CMS announced aggressive expansion of the RADV program: expanding the coding review workforce from 40 to approximately 2,000, auditing all ~550 eligible contracts annually, and reviewing 35–200 records per plan. A federal judge vacated the RADV Final Rule in September 2025 but enforcement pressure continues.
Master Timeline
Significant events in risk adjustment history
ACA signed; mandates risk adjustment for Marketplaces
Creates parallel HHS-HCC system for commercial population
HHS-HCC model launches for ACA Marketplaces
Two distinct risk adjustment ecosystems now operate simultaneously
21st Century Cures Act; encounter data transition begins
New condition variables mandated; shift from RAPS to EDS starts
Gradual transition from RAPS to Encounter Data System
Full encounter-level detail replaces simplified diagnosis submissions
2020 CMS-HCC model (V24) implemented with Cures Act changes
Added mental health, SUD, CKD variables; condition count variables
CMS announces V28; three-year phase-in begins
Fundamental recalibration with ICD-10 data; 115 HCCs; 7,770 codes
V28 year 1: 33% V28 / 67% V24 blend
Organizations begin adapting to new coding requirements
V28 year 2: 67% V28 / 33% V24; RADV expansion announced; RADV Final Rule vacated
2,000 coders hired; all 550 contracts targeted; legal uncertainty on extrapolation
V28 fully phased in (100%); ACO REACH final year; 5.06% rate increase
New coding baseline established; REACH participants must choose next path
Unlinked chart reviews excluded; audio-only Dx excluded; 0.09% base rate increase
$7.2B payment reduction; structural shift toward encounter-based risk adjustment
Eras
Predictive Accuracy Evolution
R-squared (% of cost variation explained) by risk adjustment model generation
Demographics alone (AAPCC) explained ~1% of cost variation. Adding inpatient diagnoses (PIP-DCG) raised this to ~6%. Using all-setting diagnoses (CMS-HCC) reached ~11% — an 11x improvement over the original system.