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Capitation and Financial Risk Allocation in New Zealand’s Primary Health Care Sector: The Perverse Consequences of Neglecting Financial Risk Allocation

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  • Bronwyn Howell

Abstract

Using analysis of the management of ‘random’ and ‘controllable’ risk in capitation contracts, this paper critiques the arrangements in the New Zealand Primary Health Care Strategy (NZPHCS) introduced in 2002. Total system costs have undoubtedly risen under the mixed capitation model adopted, relative to fee-for-service. By requiring only those treated to pay all costs not factored into the government’s prospective capitation payments, the burden of unanticipated risk-management costs falls disproportionately on the sickest patients. Rather than resources being allocated on the basis of health need, the sickest individuals bear a disproportionate share of the cost of random demand shocks.

Suggested Citation

  • Bronwyn Howell, 2008. "Capitation and Financial Risk Allocation in New Zealand’s Primary Health Care Sector: The Perverse Consequences of Neglecting Financial Risk Allocation," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 15(1), pages 29-48.
    • Handle: RePEc:acb:agenda:v:15:y:2008:i:1:p:29-48
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    File URL: http://press-files.anu.edu.au/downloads/press/p87341/pdf/15-1-AN-2.pdf
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