Risk Pooling in Health Care
Risk Pooling in Health Care Finance
Kiran Charania
April 26, 2012
Risk pooling is a mechanism where revenue and contributions are pooled so that the risk of having to pay for health care is not borne by each contributor individually. Risk pooling is a form of risk management practiced by the health industry especially insurance companies. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled. Pooling risks together allows the costs of those higher risks to be subsidized by those with a lower risk.
The risk pooling in health care is practiced based on two considerations, equity and efficiency. There are those who believe that the cost of health care expenses should not be bourn by individuals themselves alone especially those who are not well off in the society and can’t pay. Instead, they believe that some of that risk should be spread across a given pool of individuals carrying various levels of risk. The efficiency argument is that by putting people in the diversified risk pool, and utilizing that pool it can increase the health care productivity, reduce the uncertainty associated with the healthcare cost for the individuals in the risk pool. (McCarthy, Davies, Gaisford and Hoffmeyer, 1995)
Risk pooling can be classified into four approaches; no risk pool, unitary risk pool, fragmented risk pool and integrated risk pools. In the No risk pooling approach, individuals are responsible to meet their own obligation for the healthcare cost. In this approach, individual will pay the premium for the insurance based on their individual risk based on their previous health history. Individual in this situation would only have a choice between multiple insurance companies, which may consider the individual at various different risk categories. It’s also possible in this scenario, that the most riskiest of individuals will be avoided by most insurance companies. (Peter and Witter, 2004)
In the Unitary
Kiran Charania
April 26, 2012
Risk pooling is a mechanism where revenue and contributions are pooled so that the risk of having to pay for health care is not borne by each contributor individually. Risk pooling is a form of risk management practiced by the health industry especially insurance companies. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled. Pooling risks together allows the costs of those higher risks to be subsidized by those with a lower risk.
The risk pooling in health care is practiced based on two considerations, equity and efficiency. There are those who believe that the cost of health care expenses should not be bourn by individuals themselves alone especially those who are not well off in the society and can’t pay. Instead, they believe that some of that risk should be spread across a given pool of individuals carrying various levels of risk. The efficiency argument is that by putting people in the diversified risk pool, and utilizing that pool it can increase the health care productivity, reduce the uncertainty associated with the healthcare cost for the individuals in the risk pool. (McCarthy, Davies, Gaisford and Hoffmeyer, 1995)
Risk pooling can be classified into four approaches; no risk pool, unitary risk pool, fragmented risk pool and integrated risk pools. In the No risk pooling approach, individuals are responsible to meet their own obligation for the healthcare cost. In this approach, individual will pay the premium for the insurance based on their individual risk based on their previous health history. Individual in this situation would only have a choice between multiple insurance companies, which may consider the individual at various different risk categories. It’s also possible in this scenario, that the most riskiest of individuals will be avoided by most insurance companies. (Peter and Witter, 2004)
In the Unitary
References: Peter C. Smith and Sopie N. Witter (2004) Risk Pooling in Health Care Financing: The Implications for Health System Performance, World Bank Publications Jean P. Hall and Janice M. Moore (2008) Does High-Risk Pool Coverage Meet the Needs of People at Risk for Disability?. Inquiry: September 2008, Vol. 45, No. 3, pp. 340-352. World Health Organization (2000), The World Health Report 2000. Health systems: improving performance, Geneva: World Health Organization. McCarthy, T., Davies, K., Gaisford, J. and Hoffmeyer, U. (1995). Risk-adjustment and its implications for efficiency and equity in health care systems, Basle: Pharmaceutical Partners for Better Healthcare.. Los Angeles/London: National Economic Research Associates. John Graves and Sharon K. Long,(2006) “Why Do People Lack Health Insurance?” The Urban Institute.