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Updated: Jul 17, 2026

Predicting the Effectiveness of Population Replacement Strategy Using Mathematical Modeling
Published on: July 4, 2007
A model of the impact of reimbursement schemes on health plan choice
E B Keeler1, G Carter, J P Newhouse
1Harvard University, Cambridge, MA 02138, USA. emmett_keeler@rand.org
Abstract:
Flat capitation (uniform prospective payments) makes enrolling healthy enrollees profitable to health plans. Plans with relatively generous benefits may attract the sick and fail through a premium spiral. We simulate a model of idealized managed competition to explore the effect on market performance of alternatives to flat capitation such as severity-adjusted capitation and reduced supply-side cost-sharing. In our model flat capitation causes severe market problems. Severity adjustment and to a lesser extent reduced supply-side cost-sharing improve market performance, but outcomes are efficient only in cases in which people bear the marginal costs of their choices.
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