Physicians and other health care providers lack the actuarial, actuarial, accounting and financial skills to manage insurance risks, but their most serious problem is the greater variation in their estimates of the average cost of patients, which penalizes them financially compared to insurers whose estimates are much more accurate.   Since their risks are a portfolio size function, providers can only reduce their risk by increasing the number of patients they have on their rosters, but their inefficiency compared to insurers is much greater than these increases can mitigate. To manage risk as effectively as an insurer, a provider would have to take over 100% of the insurer`s portfolio. HMOs and insurers are better able to manage their costs as experienced healthcare providers and cannot make risk-adjusted capitation payments without undermining profitability. Companies that pass on risks will only enter into such agreements if they are able to maintain the level of profit they make by retaining risks.   Suppliers cannot afford reinsurance, which would further reduce their lack of reimbursement, as the loss costs, expenses, profits and risk charges expected of the reinsurer must be paid by the suppliers. The purpose of reinsurance is to offload the risk and reward for more stable operating results onto the reinsurer, but the additional costs of the supplier make this impractical. Reinsurance believes that companies that transfer insurance risk do not create inefficiencies when they transfer insurance risks to providers. Below is an example of a capitation rate plan. It serves only for illustration and does not imply a standard for comparison purposes. The jargon used by management care organizations for the capitation rate is the PMPM (per member, per month). The financial risks that suppliers accept in the capita are the traditional insurance risks.
The provider`s income is set and each registered patient claims the full resources of the provider. In exchange for the fixed payment, physicians essentially become the insurers of registered clients who resolve their patients` claims at the Point of Care and assume responsibility for their unknown future healthcare costs.      Large providers tend to manage risk better than smaller providers because they are better prepared for fluctuations in service demand and costs, but even large providers are inefficient risk managers compared to large insurers. Providers tend to be small compared to insurers and are therefore closer to some consumers whose annual cost varies much more as a percentage of their annual cash flow than those of large insurers. For example, for 25,000 patients, a capita eye care program is more convenient than a capita ophthalmic program for 10,000 patients. The smaller the list of patients, the greater the variation in annual costs and the more likely it is that the costs will exceed the provider`s resources. In very small capitation portfolios, a small number of expensive patients can have a dramatic impact on a provider`s total cost and increase the provider`s risk of insolvency. In case of capitation, there is an incentive to take into account the cost of treatment.
Simple capitation pays a fee set per patient, regardless of their degree of infirmity, which encourages doctors to avoid the most expensive patients.  If the family physician signs a capitation agreement, a list of specific services to be provided to patients is included in the contract. The amount of capitation is determined in part by the number of services provided and varies from health plan to health plan, but most capitation payment plans for basic care services include: Capitation is a fixed amount of money per patient per unit of time paid in advance to the physician for the provision of health care. . . .