Risk equalization
Risk equalization is a way of equalizing the risk profiles of insurance members to avoid loading premiums on the insured to some predetermined extent.
In health insurance, it enables private health insurance to operate in some countries to be offered at a common rate for all even though insurers are not allowed by law to reject clients or impose special conditions for their health insurance. That is achieved by transfer payments by a risk equalization pool usually run by a neutral party, such as a government agency.
Health care
In unregulated
Some nations that encourage private insurance for health care still seek to prevent insurers from engaging in risk minimizing actions to load the premiums of people with certain high-risk profiles, typically the elderly, the sick, and to some extent, women. Thus, financial transfers are needed in order to prohibit any discriminatory practices against these subgroups without increasing costs on insurers. This is done by arranging for a third party to organize a
The financial transfers are then channeled via a so-called Subsidy Fund. In
Although premiums can be rated across many subgroups of insured people, a sponsor may not want to
Gender, health status and (to a certain extent) age will, in most countries, be considered S-type risk factors. Examples of potential N-type risk factors are a high propensity for medical consumption, living in a region with high prices and/or overcapacity resulting in supply-induced demand, or using providers with an inefficient practice-style.
That[
The concept was put in the US healthcare law, passed in 2010, the
References
- Stam PJA. Testing the effectiveness of risk equalization models in health insurance. PhD Dissertation. Erasmus University Rotterdam: Rotterdam; 2007.
- Van de Ven WPMM, Ellis RP. Risk Adjustment in Competitive Health Plan Markets. In: Culyer AJ and Newhouse JP (Eds), Handbook of Health Economics, vol.1. Elsevier Science BV: Amsterdam; 2000. p. 755–845.
- Van de Ven WPMM, Van Vliet RCJA, Schut FT, Van Barneveld EM. Access to coverage for high-risks in a competitive individual health insurance market: via premium rate restrictions or risk-adjusted premium subsidies?. Journal of Health Economics 2000; 19: 311–339.
Notes
- ^ a b c Van de Ven et al. 2000
- ^ Van de Ven and Ellis 2000, p. 768-769
- ^ Microsoft Word – -HEA8 cover page – new template.doc
- ^ Stam 2007 – Presents research results on the effectiveness of the 2004 Dutch risk equalization model.
- ^ Archived at Ghostarchive and the Wayback Machine: Risk equalization: Part 2 of 2. YouTube.
- ^ Discussion of US law
- ^ "HHS Officials Explain Risk Adjustment Methodology"
External links
- Regulated competition in the new Dutch health care system
- The purpose of risk equalization, English version
- The purpose of risk equalization, Dutch version
- Testing the effectiveness of risk equalization models, English version
- Testing the effectiveness of risk equalization models, Dutch version
Videos
- A theoretical introduction to risk equalization
- The new Dutch health care system (Note: The video has a soundtrack in both English and Dutch. It is necessary to click the T symbol in video window early on during video playback to see subtitles in English.)