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 contractual agreements between health care providers, and other third party payers, also transfer insurance risks.
Calculating actuarially correct health insurance premiums is difficult, while analyzing the impact of transferring insurance risk portfolios to health care providers, once the correct premiums are known, 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 will reveal multiple flaws in the rationale for capitation financed health care. Capitation, contrary to the assertions of its advocates, must reduce health care (finance) system efficiency and the quality and quantity of patient care.