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Insurer Risk and Surplus Requirements

I have shown that small insurers have higher probabilities, of high operating losses, than large insurers, a result capitation advocates must have failed to consider because this alone shows that capitation would never work in efficient health care (finance) systems.

All insurers must anticipate years in which their PLREs exceed 0.8500. If they incur PLREs higher than 0.8500 and have no additional assets (Surplus), beyond current premiums, they become insolvent (bankrupt). Insolvency means failed commitments to suppliers, employees, stockholders, claimants, and policyholders. Regulators set many solvency requirements, including: minimum capitalization, statutory surplus and reserve requirements; rate regulation; restrictions on risky investments; and also conduct periodic financial inspections to reduce the numbers of insurer insolvencies (Barth, 2000; Cummins, Harrington and Niehaus, 1994).


Thomas Cox PhD RN 2013-02-23