What are capitation payments in health insurance?

Capitation payments in health insurance refer to a system where healthcare providers receive a fixed amount of money per enrolled patient over a specified period, regardless of the actual number of services provided. This approach incentivizes providers to focus on preventive care and the overall management of patient health, as they benefit from keeping patients healthy and minimizing unnecessary procedures or hospitalizations.

In this model, the risk is shared between the payer and the provider since the provider must manage care within the fixed payment amount. This contrasts with other payment methods that are based on the quantity of services provided, which can sometimes encourage more procedures rather than a focus on patient outcomes.

This fixed payment structure allows for predictable budgeting for both the health care provider and the insurance company, aligning incentives towards maintaining the health of the population served. The capitation model is particularly popular among managed care organizations, where efficient and preventive care is emphasized.