PMPM - Characteristics - Insurance


The financial risks providers accept in capitation are traditional insurance risks. Provider revenues are fixed, and each enrolled patient makes his or her claims against the full resources of the provider. In exchange for this fixed payment, physicians essentially become the enrolled clients' insurers, who resolve their patients' claims at the point of care and assume the responsibility for their unknown future health care costs. Large providers tend to manage this risk better than do smaller providers, because they are better prepared for variations in service demand and costs, but even large providers are inefficient risk managers in comparison to large insurers. Providers tend to be small in comparison to insurers, and so are more like individual consumers, whose annual costs as a percentage of their annual cash flow fluctuate far more than do those of large insurers. For example, a capitated eye care program for 25,000 patients is more viable than a capitated eye program for 10,000 patients. The smaller the roster of patients, the greater the variation in annual costs, and the more likely that the costs may exceed the resources of the provider. In very small capitation portfolios, a small number of costly patients can dramatically affect a provider's overall costs, and increase the provider's risk of insolvency(1).

Physicians and other health care providers lack the necessary actuarial, underwriting, accounting and finance skills for insurance risk management, but their most severe problem is the greater variation in their estimates of the average patient cost, which leaves them at a financial disadvantage as compared to insurers whose estimates are far more accurate. Because their risks are a function of portfolio size, providers can only reduce their risks by increasing the numbers of patients they carry on their rosters, but their inefficiency relative to that of the insurers' is far greater than can be mitigated by these increases. To manage risk as efficiently as an insurer, a provider would have to assume 100% of the insurer's portfolio. HMOs and insurers manage their costs better than risk-assuming healthcare providers, and cannot make risk-adjusted capitation payments without sacrificing profitability. The risk-transferring entities will only enter into such agreements if they can maintain the levels of profits they achieve by retaining risks.

Read more about this topic:  PMPM, Characteristics

Other articles related to "insurance":

Insurance Australia Group
... Insurance Australia Group Limited (informally IAG) is a multinational insurance company headquartered in Sydney, Australia ... IAG was formed by the demutualisation of the NRMA Insurance business in July 2000 and a return of shares to the members of NRMA ... According to its website, NRMA Insurance Group Limited changed its name to Insurance Australia Group Limited on 15 January 2002 ...
Insurance Broker
... An insurance broker (also insurance agent) sells, solicits, or negotiates insurance for compensation ... The three largest insurance brokers in the world, by revenue, are Aon, Marsh McLennan, and Willis Group Holdings ...
Railroad Retirement Board - Railroad Unemployment Insurance Act
... Under the Railroad Unemployment Insurance Act, unemployment insurance benefits are paid to railroad workers who are unemployed but ready, willing, and ...
Insurance Australia Group - Operations - Asia
... Safety Insurance, Thailand, held a stake in 1998, now holds 96% voting rights NZI Thailand, acquired in 2003 AmAssurance, Malaysia, (49% ownership of AmG ... China - Insurance Australia Group owns CAA, the China Automobile Association, the largest roadside assistance provider in the country ...
Insurance - Controversies - Religious Concerns
... Muslim scholars have varying opinions about insurance ... Insurance policies that earn interest are generally considered to be a form of riba (usury) and some consider even policies that do not earn interest to be a form of gharar (speculation) ... Jewish rabbinical scholars also have expressed reservations regarding insurance as an avoidance of God's will but most find it acceptable in moderation ...

Famous quotes containing the word insurance:

    In taking out an insurance policy one pays for it in dollars and cents, always at liberty to discontinue payments. If, however, woman’s premium is a husband, she pays for it with her name, her privacy, her self-respect, her very life, “until death doth part.”
    Emma Goldman (1869–1940)

    ... business training in early life should not be regarded solely as insurance against destitution in the case of an emergency. For from business experience women can gain, too, knowledge of the world and of human beings, which should be of immeasurable value to their marriage careers. Self-discipline, co-operation, adaptability, efficiency, economic management,—if she learns these in her business life she is liable for many less heartbreaks and disappointments in her married life.
    Hortense Odlum (1892–?)

    For there can be no whiter whiteness than this one:
    An insurance man’s shirt on its morning run.
    Gwendolyn Brooks (b. 1917)