Capitation and insurance protection: how to protect against unpredictability

Capitation contracting has created new challenges in the world of health care. The payment emphasis in a capitated environment concentrates on prepayment of services. Opportunities are created to control health care dollars by the physician or hospital group, but the potential downside must also be recognized. This article introduces the Provider Excess Loss (or "stop loss") insurance product and some of the main features of coverage. This insurance is specifically designed to protect providers in a capitated environment and is purchased by Physician Hospital Organizations (PHO), Independent Physician Associations (IPA), and physician-owned HMOs, among others. The emphasis is on collective purchasing. Focus on the main policy features-deductible options, allowable charges, and premium factors-should ensure a basic understanding of how coverage works and how to design coverage to make it fit the unique needs of each provider's risk.