Capitation - Bourdon

[Rice]

In step 2 of Appendix A, they illustrate an adjustment for managed care, where the manged care reduces the cost of each claim by 50%, and they use a $50,000 deductible. They make two points:

The percent of managed care claims in excess of $50,000 is equal to the percent of claim in the prior distribution in excess of $100,000. This makes sense.

However, they also say that the cost of managed care claims which are greater than $50,000 is exactly 50% of the cost of the claims from the prior distribution which are greater than $100,000.

In the second point, aren't they reducing the cost by a factor of 4? Shouldn't the cost of managed care claims greater than $50,000 be equal to the cost of claims from the prior distribution which are greater than $100,000?

[jk]

No. Say you have a claim for $1 million, reduced to $500k by managed care. Before, $900k was greater than $100k. Now, $450k is greater than $50k.

[Rice]

Yet in their example, the pmpm cost is reduced from $5 to $1.25, a factor of 4 like I said. Is this just a coincidence?

[JustASix]

In step 2 of Appendix A, they illustrate an adjustment for managed care, where the manged care reduces the cost of each claim by 50%, and they use a $50,000 deductible. They make two points:

The percent of managed care claims in excess of $50,000 is equal to the percent of claim in the prior distribution in excess of $100,000. This makes sense.

However, they also say that the cost of managed care claims which are greater than $50,000 is exactly 50% of the cost of the claims from the prior distribution which are greater than $100,000.

In the second point, aren't they reducing the cost by a factor of 4? Shouldn't the cost of managed care claims greater than $50,000 be equal to the cost of claims from the prior distribution which are greater than $100,000?

They say the first dollar cost is 50% of the non managed cost. You are correct with the 4 times effect with a $50,000 deductible. The reason it is 4 times is that the 50K-100K layer has the same cost as the 100K deductible.
In the example you have a $2.50 pmpm for the 100K deductible and a $5.00 pmpm for a 50K deductible. The pmpm for the managed 50K deductible is 1/2 the cost of the unmanaged 100K deductible or $2.50*1/2=1.25. The effect is then the combination of the cost of the layer from 50K-100K ($5.00-$2.50=$2.50) plus the reduction for the over 100K claims ($2.50*1/2=$1.25) for a total savings of $3.75.
I hope this helps clarify a little.