In managed care plans, methods used in which the plan and contracted providers share the financial risks and benefits to care for the plan members in a cost-effective manner (e.g., capitation, risk pools, per diem contracts). It is a system used to control health care costs.
Tag: RAW
Risk spread
See: risk pool .
Risk tolerance
The amount of risk that an investor, individual or business is willing to assume to achieve a specific goal. Risk tolerance is a function of financial capacity, willingness to take risks and the overall profile of the business or individual. The risk profile can be plotted on a risk map, i.e. a probability/ impact matrix. Financial services professionals need to understand the risk tolerance levels of their clients. See Figure 7.
Risk Transfer
REINSURANCE: A key element of reinsurance, whereby insurance risk is shifted from the reinsured to the reinsurer under a reinsurance agreement. In order for a reinsured to receive statutory and GAAP credit for reinsurance, a threshold of both underwriting risk and timing risk transfer must be achieved. See Risk.
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UK: One party transfers the financial effects of his loss to another party. In insurance the insured transfers the possibility of loss to the insurer in return for the premium. Other forms of risk transfer can be found in contracts and leases that are used to transfer risk from one party to another to the extent permitted by law (see UNFAIR CONTRACT TERMS ACT 1977). Risk transfer of a different kind occurs where an activity is transferred from one party to another, e.g. the sub-contracting of a hazardous process to another party, but this could also be termed an example risk avoidance.
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Using funds that originate outside the organization.
Risk treatment
Decision stage of risk management when the firm decides how to respond to risk. The options include risk transfer (insurance and non-insurance), risk financing; reduction, avoidance, prevention, control, etc. This is followed by implementation.
Risk-based capital
The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.
Risk-based capital (RBC)
A measure of the capital required to absorb any unexpected losses that result from the risks an organisation assumes in regard to its business and operational activities. In insurance RBC management means an insurer calculates the capital needed to support different classes of business. Overall RBC is expressed as a ratio, the total capital of the company divided by the company’s RBC as determined by formulae. The FSA has proposed that insurers will be required to hold the higher amount of minimum capital requirement as set out in the EC Directives and enhanced capital requirement, a more risk sensitive calculation specified by the FSA.
Risk-based capital (RBC) requirements
A method developed by the National Association of Insurance Commissioners (NAIC) to determine the minimum amount of capital required of an insurer to support its operations and write coverage. The insurer’s risk profile (i.e., the amount and classes of business it writes) is used to determine its risk-based capital requirement. Four categories of risk are analyzed in arriving at an insurer’s minimum capital requirement
risk-based health maintenance organization (HMO)/competitive medical plan
Type of managed care organization. After any applicable deductible or copayment, all of an enrollee’s or member’s medical care costs are paid for in return for a monthly premium. However, due to the lock-in provision, all of the enrollee’s or member’s services (except for out-of-area emergency services) must be arranged for by the risk-HMO. Should the Medicare enrollee or member choose to obtain service not arranged for by the plan, he or she will be liable for the costs. Neither the HMO nor the Medicare program will pay for services from providers who are not part of the HMO’s health care system or network.
Risk-bearing entity
Health plan, health insurer, or self-funded employer that takes on financial responsibility for a provision that lists specific benefits and accepts prepayment for the cost of the medical care.