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Loss and Risk Adjusted Premiums - PI Transfers Risks to Insurer B and NHI

's situation improves if and have more modest goals: Avoiding losses with 's pre-transfer probability. 's probability, (0.780152), of a PLRE less than 0.780152 (PLR + 2 *
), is 0.9772, 's probability of avoiding operating losses. If pays 78.02% of its Earned Premiums, exceeds 's probability of avoiding operating Losses on its entire portfolio, and 's guaranteed profits are 6.98%. 's probability, (0.755688), of a PLRE less than PLR + 2 *
, is 0.9772. can pay 75.57% of its Earned Premiums and lock in profits of 9.43%, while 's probability of avoiding losses on its entire portfolio exceeds 's pre-transfer probability.

and would want more of 's profits, but no insurer (risk assuming health care provider) smaller, post-transfer, than , can assume 's Claims Costs for less than or . Previously clinically efficient providers, accepting capitation from , become inefficient insurers and must cut patient care (See Section 11), or face financial ruin. Even generous reinsurance companies will not accept risks at affordable fees for capitated providers. Reinsurers do not want the risks of high Claims Costs that rejected, because 's benefits come from forcing providers to cut medically necessary and appropriate care. Low cost, low risk provider reinsurance would reduce, or eliminate, capitation induced cuts in needed care, the only benefit (curse) of capitation.

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Thomas Cox PhD RN
2013-02-23