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Capital requirements of health insurers under different risk-adjusted capitation payments

Author

Listed:
  • Álvaro Riascos
  • Natalia Serna
  • Ramiro Guerrero

Abstract

Defining optimal capital requirements for health insurers is a matter of interest for policy-makers. They determine the insolvency probability of health insurers and the minimum number of enrolees in order to keep insolvency under control. In this paper we develop a methodology for estimating the expected loss per health insurer after considering their specific risk profile and the capitation formula with which they are paid. We assume the expected loss follows a normal distribution within risk pools consisting of a unique combination of long-term disease, age, gender, and location, and then define the minimum capital requirement as the 1st quantile of the loss distribution. An application is made for insurers in the statutory health care system of Colombia. Our results show that under normal expenditures with ex-ante morbidity risk adjustment using long-term disease groups, if capitation payments were conditional on long-term diseases too, riskier insurers should have significantly higher capital requirements compared to those generated by the current government capitation formula, which reimburses only on demographic variables, while less risky insurers should have lower capital requirements.

Suggested Citation

  • Álvaro Riascos & Natalia Serna & Ramiro Guerrero, 2017. "Capital requirements of health insurers under different risk-adjusted capitation payments," Documentos CEDE 15292, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:015292
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    File URL: https://repositorio.uniandes.edu.co/bitstream/handle/1992/8712/dcede2017-06.pdf
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    References listed on IDEAS

    as
    1. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    2. Álvaro Riascos Villegas, 2013. "Mecanismos de compensación complementarios al ajuste de riesgo prospectivo en el SGSSS en Colombia y la Cuenta de Alto Costo," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, June.
    3. Álvaro Riascos & Eduardo Alfonso & Mauricio Romero, 2014. "The Performance of Risk Adjustment Models in Colombian Competitive Health Insurance Market," Documentos CEDE 12062, Universidad de los Andes, Facultad de Economía, CEDE.
    4. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Alvaro J. Riascos & Mauricio Romero & Natalia Serna, 2017. "Risk Adjustment Revisited using Machine Learning Techniques," Documentos CEDE 15601, Universidad de los Andes, Facultad de Economía, CEDE.
    2. Comisión del Gasto y la Inversión Pública, 2018. "Comisión del Gasto y la Inversión Pública. Informe final," Libros Fedesarrollo 16617, Fedesarrollo Provider_Institution: RePEc:edi:fedasco.

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    More about this item

    Keywords

    risk based capital; capitation; health insurers; risk adjustment; loss distribution;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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