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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 015292, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:015292
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2017-06.pdf
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    References listed on IDEAS

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    1. Álvaro Riascos & Eduardo Alfonso & Mauricio Romero, 2014. "The Performance of Risk Adjustment Models in Colombian Competitive Health Insurance Market," DOCUMENTOS CEDE 012062, UNIVERSIDAD DE LOS ANDES-CEDE.
    2. 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.
    3. 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-CEDE, June.
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    Cited by:

    1. Alvaro J. Riascos & Mauricio Romero & Natalia Serna, 2017. "Risk Adjustment Revisited using Machine Learning Techniques," DOCUMENTOS CEDE 015601, UNIVERSIDAD DE LOS ANDES-CEDE.

    More about this item

    Keywords

    risk based capital; capitation; health insurers; risk adjustment; loss distribution;

    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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