Does the prospect of accepting capitated payments keep you awake at night? What if your per-member, per-month cost calculations fall short and you're forced to take a big loss?
Fear no more. The insurance industry is champing at the bit to help you manage that risk.
As hospitals and medical groups move into the business of managing care in exchange for a capitated payment rate, new insurance products are cropping up to help spread the risk.
Called "provider excess," "medical stop-loss" or "provider capitation," programs to insure against the risk of capitation losses are being offered by a rapidly expanding number of carriers.
Applying lessons."What's the new risk that's confronting the providers? It's clearly stop-loss or capitation risk," said Judy Hart, deputy national director in the St. Louis-based healthcare division of Alexander & Alexander, which develops insurance programs for healthcare providers. The challenge facing the insurance industry is to apply what it's learned about insuring against malpractice risks to the stop-loss side of the business, she said.
Currently, some 25 insurance carriers are in the business, said Craig Kelbel, senior vice president of Costa Mesa, Calif.-based U.S. Benefits, the managing general underwriter of provider capitation products for Continental Insurance, a New York-based insurer. Just six months ago, there were only 10 carriers offering provider capitation insurance, he said.
According to an estimate by Alden Risk Management Services, a Miami-based subsidiary of John Alden Life Insurance Co., provider capitation insurance is expected to become a $1 billion market within the next five years.
Mr. Kelbel said the total potential market is "in the billions of dollars."
Three paths.Generally,providers have three options for handling the risk of capitation losses, said George L. Root, a managing principal in the San Diego office of Weissburg & Aronson.
Hospitals and medical groups can let payers withhold a portion of their capitation rate, which goes into capitation insurance coverage purchased by the payer, Mr. Root said. Providers also can take the full capitation amount and buy their own stop-loss coverage directly, he said. A third option is to self-insure against the risk.
The problem with buying capitation coverage is that such insurance can be expensive, Mr. Root said. Typically, the insurance kicks in when a physician claim exceeds a total of $5,000 per patient per month and when an inpatient hospital claim exceeds $25,000 per patient per month, he said. Such coverage may cost a provider $5.25 to $5.50 per member per month, he said.
But insurers said the cost can range widely, depending on the product design. For example, it can be as low as 40 cents or as high as $4 to $5 per member per month, Mr. Kelbel said.
Some providers are choosing to self-insure to keep down costs. Sharp Healthcare, the San Diego, Calif.-based healthcare system, started its own insurance company several years ago just to cover its capitation risks, said Alison Fleury, Sharp's controller. Estimates of Sharp's savings compared with capitation insurance products on the market weren't available, but "I know that it is cheaper," Ms. Fleury said.
But for providers that insure fewer lives or are less experienced at accepting risk, buying insurance may make more sense. At least that's what the insurers are banking on.
"Trying to predict and even handle certain cases isn't something that they're equipped to do," said Scott Walker, an assistant vice president at Southeastern Risk Specialists, Atlanta, which underwrites insurance products offered by the Lexington Insurance Co., a Boston-based insurer. In many parts of the country, the number of actual capitation contracts remains very limited. Most of its capitation insurance business is in California and Arizona, he said.
New insurers.New York-based Continental Insurance entered the market this year because it seemed to be a natural fit with the other types of insurance it sells to hospitals, such as directors' and officers' coverage and medical malpractice insurance, said James M. Baldyga, a vice president and underwriting officer. So far, most of its clients are hospitals, but the company also is marketing to medical groups.
Last year, Willis Corroon, a worldwide insurance broker and consultant, set up a task force to look at the healthcare industry's capitation insurance needs and the types of products available. The company is surveying insurance carriers to find out what types of coverage they offer, who the purchasers are, and what methods are being used to determine economic loss. The survey results will be used to help carriers design products that will better serve healthcare providers.
The growth of capitation "has driven a lot of interest" in reinsurance products, said Douglas J. Ley, a vice president in Willis Corroon's Milwaukee office. "Some (carriers) feel this is going to be a very, very large market and they're looking at it very seriously," he said.