PREDICTABILITY OF INDIVIDUAL HEALTH-CARE EXPENDITURES

It is widely believed in both academic and political circles that direct, uniform capitation payments to health insurers may induce them to contain costs. The premium-replacing capitation payments should account for predictable variations in individual health care expenditures. This article describes a model that encompasses and rejects several previous models that have been proposed for analyzing these variations. The results indicate that, at most, 20 percent of the variance among individuals in annual, short-term health care expenditures is predictable.