Standard Errors: Statistical Consequences of Health Care Provider Insurance Risk Assumption

• Activity Number: 29
• Type: Contributed
• Date/Time: Sunday, July 31, 2011 : 2:00 PM to 3:50 PM
• Sponsor: Section on Health Policy Statistics
• Author(s): Thomas Cox*+
• Companies: Consultant
• Keywords: standard errors ; health care finance ; capitation ; prospective payment systems ; managed care ; insurance

Abstract

Many health care finance mechanisms transfer health insurance risks to health care providers. Global capitation is the best known example but bundled and episode payments, Diagnosis Related Groups payments, the Medicare/Medicaid Prospective Payment Systems for Physicians, hospitals, nursing homes, and home health agencies, and agreements between health care providers and other third party payers, also transfer such risks.

Calculating correct health insurance premiums is difficult, while analyzing the impact of transferring insurance risk portfolios to health care providers is easy. I use portfolio size adjusted standard errors, to compare how portfolio size affects insurers' financial results, including: Profitability, Operating losses; Insolvency; Surplus requirements, and Maximum sustainable benefits for policyholders/patients to reveal what happens when insurance risks are managed by smaller, less capable insurers, such as risk assuming health care providers. These analyses reveal multiple flaws in capitation financed health care. Capitation, contrary to advocates' assertions reduces providers clinical and financial efficiency, by forcing them to become inefficient insurers.