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💡 '''Shared savings''' is a contractual arrangement in which an [[Definition:Insurance carrier | insurer]] and another party — such as a [[Definition:Healthcare provider | healthcare provider]], [[Definition:Managing general agent (MGA) | MGA]], [[Definition:Third-party administrator (TPA) | third-party administrator]], or [[Definition:Policyholder | policyholder]] — agree to split the financial benefit produced when actual costs come in below a predetermined benchmark. Most commonly associated with [[Definition:Health insurance | health insurance]] and [[Definition:Workers' compensation insurance | workers' compensation]], the model creates a financial incentive for all participants to actively reduce [[Definition:Claims | claims]] costs rather than simply process them.

⚙️ A typical shared savings program establishes a target cost — derived from historical [[Definition:Loss experience | loss experience]], [[Definition:Actuarial analysis | actuarial projections]], or negotiated baselines — and then measures actual expenditures against that target at the end of a defined period. If spending falls below the benchmark, the difference is distributed according to a pre-agreed formula, often splitting the savings between the carrier and the entity whose behavior contributed to the reduction. In health insurance, for example, a provider network that keeps patient [[Definition:Utilization | utilization]] and treatment costs below expected levels receives a portion of the savings, while in workers' compensation, an employer with strong [[Definition:Loss control | loss control]] and [[Definition:Return-to-work program | return-to-work programs]] may share in the favorable results through [[Definition:Experience modification | experience-rated]] or retrospective premium adjustments.

📊 These arrangements align incentives across the insurance value chain in ways that traditional fee-for-service or flat-commission structures do not. When providers, employers, or intermediaries have a direct financial stake in cost outcomes, the result is often improved [[Definition:Risk management | risk management]], better utilization controls, and lower [[Definition:Loss ratio | loss ratios]] for the carrier. Regulators generally view shared savings favorably as long as the arrangements are transparent, do not compromise [[Definition:Duty of care | care quality]] or [[Definition:Claims handling | claims handling]] fairness, and are clearly disclosed in applicable contracts and [[Definition:Policy form | policy forms]].

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Experience modification]]
* [[Definition:Retrospective rating plan]]
* [[Definition:Loss ratio]]
* [[Definition:Value-based care]]
* [[Definition:Loss control]]
* [[Definition:Risk management]]
{{Div col end}}

Definition:Shared savings - Revision history

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