Equalization pool

Last updated March 29, 2024

An equalization pool is a fund created to level out differences in financial risk, often across long periods of time, in a process known as risk equalization. Examples include mandatory health insurance and grower co-operatives.

Health insurance

In health insurance, equalization pools are used in countries such as Ireland, Australia, Germany and the Netherlands, to balance risks in groups of people of varying levels of health to ensure medical risks are covered for people who might otherwise be difficult to insure. The policies are also called high-risk pools and are made for covering the sickest uninsured people. For insurance companies, giving service to those citizens is deeply risky, so the government gives them some money to reduce the cost.^[1]

In normal insurance markets, insurers price high-risk individuals at a higher premium to discourage them from buying insurance and offer lower-risk individuals lower premiums. That can make insurance phenomenally expensive for the elderly and those in poor health at a time that they can least afford to pay for insurance because they are not earning an income. Young people, on the other hand, for whom ill health is not a major concern, often do not buy health insurance even though it is relatively cheap for them to do so.

To overcome the problem, some governments have made basic health insurance compulsory and also created a risk equalization pool to even out differences in risks carried by insurance companies in the health market. Thus, the younger and healthier people must pay into the risk equalization pool, and the older and sicker people will receive money from the equalization pool. A government agency usually assigns the risks and manages the risk pool. Governments can then subsidize health care for the unemployed or the retired by the risk pool system. The presence of a risk equalization pool and a common health benefits system makes competition more transparent between health insurers and prevents them from behaving in ways that discourage the achievement of a universal health care system for the nation.

Ireland

Ireland's health insurance system was originally a state monopoly with premiums collected by Vhi Healthcare. The monopoly was later broken, and the British private health insurance company BUPA entered the Irish market and began competing with VHI, generally undercutting it by attracting mostly younger and healthier clients by offering them cheaper coverage. VHI complained bitterly because BUPA was effectively seen to be making an unacceptably-high amount of profits under the arrangements, saddling VHI with the cost of insuring the more high-risk end of the market. In 1999, private health insurance covered about 1.5 million people (42% of the population). To tackle the problem, on 1 July 2003, new risk equalization regulations came into force (SI No. 261 of 2003) with the aim to neutralize more equitably the differences in insurers costs from variations in the health status of their members. It introduced risk equalization transfers from insurers with low-risk profiles to insurers with high-risk profiles. Under the regulations, insurers covered by the scheme, both open insurers and the one restricted membership undertaking were required to submit biannual returns to The Health Insurance Authority, the independent statutory regulatory body for the industry, detailing the claims of their members. Under the system, if the market equalization percentage, the degree of difference between insurers' risk profiles, is less than 2%, the regulations specify that no risk equalization payments should be commenced. If it lies between 2% and 10%, the Authority must make a recommendation to the Minister for Health and Children as to whether or not payments should be commenced. If it is above 10%, the Minister is to sanction the commencement of payments unless, having consulted with the Authority, he determines that to do so would not be in the best overall interests of health insurance consumers.^[2]

In 2002, BUPA Ireland made a complaint to the European Commission, claiming that risk equalization constituted state aid, as transfers were likely to take place from BUPA Ireland to VHI Healthcare, and the latter is owned by the state. The Commission investigated and, in 2003, it determined that transfers under the equalization scheme did not constitute state aid. BUPA withdrew from the Irish health insurance market on 14 December 2006 by selling the Irish company to new owners. The company continued with its legal challenge on the issue of community rating and the application of the risk equalization levy. The Irish Supreme Court has since found for the Irish company, on the grounds that community rating is not the same as risk equalization, and the whole issue of VHI's predominantly-older clientele is now back in the hands of government, which has declared that it is not in a rush to move to propose new legislation.

Netherlands

Health care in the Netherlands has, since 2006, used a new system of health care that is based on a risk equalization model.

Co-operative marketing

In co-operative marketing ventures with a near-monopoly power, especially of perishable goods such as milk or fruit, equalization pools are sometimes used to even out zither price fluctuations that might otherwise happen from season to season or from year to year.

Regional balance

Some governments use equalization pools to achieve social balance so that the richer regions, with fewer needs for state aid, pay taxes into an equalization pool so that the poorer regions, needing financial assistance, are able to provide the same level of services.

Related Research Articles

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss.

Health insurance or medical insurance is a type of insurance that covers the whole or a part of the risk of a person incurring medical expenses. As with other types of insurance, risk is shared among many individuals. By estimating the overall risk of health risk and health system expenses over the risk pool, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to provide the money to pay for the health care benefits specified in the insurance agreement. The benefit is administered by a central organization, such as a government agency, private business, or not-for-profit entity.

Vehicle insurance is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury resulting from traffic collisions and against liability that could also arise from incidents in a vehicle. Vehicle insurance may additionally offer financial protection against theft of the vehicle, and against damage to the vehicle sustained from events other than traffic collisions, such as keying, weather or natural disasters, and damage sustained by colliding with stationary objects. The specific terms of vehicle insurance vary with legal regulations in each region.

Universal health care is a health care system in which all residents of a particular country or region are assured access to health care. It is generally organized around providing either all residents or only those who cannot afford on their own, with either health services or the means to acquire them, with the end goal of improving health outcomes.

Two-tier healthcare is a situation in which a basic government-provided healthcare system provides basic care, and a secondary tier of care exists for those who can pay for additional, better quality or faster access. Most countries have both publicly and privately funded healthcare, but the degree to which it creates a quality differential depends on the way the two systems are managed, funded, and regulated.

Social insurance is a form of social welfare that provides insurance against economic risks. The insurance may be provided publicly or through the subsidizing of private insurance. In contrast to other forms of social assistance, individuals' claims are partly dependent on their contributions, which can be considered insurance premiums to create a common fund out of which the individuals are then paid benefits in the future.

The Voluntary Health Insurance Board — which trades under the brand name Vhi Healthcare, and is still commonly referred to in Ireland as "The Vhi" – is the largest health insurance company in Ireland. It is a statutory corporation whose members are appointed by the Minister for Health. It is regulated by the Health Insurance Authority.

A risk pool is a form of risk management that is mostly practiced by insurance companies, which come together to form a pool to provide protection to insurance companies against catastrophic risks such as floods or earthquakes. The term is also used to describe the pooling of similar risks within the concept of insurance. It is basically like multiple insurance companies coming together to form one. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled in a voluntary insurance bracket unless there is a subsidy available to encourage participation.

Medical underwriting is a health insurance term referring to the use of medical or health information in the evaluation of an applicant for coverage, typically for life or health insurance. As part of the underwriting process, an individual's health information may be used in making two decisions: whether to offer or deny coverage and what premium rate to set for the policy. The two most common methods of medical underwriting are known as moratorium underwriting, a relatively simple process, and full medical underwriting, a more indepth analysis of a client's health information. The use of medical underwriting may be restricted by law in certain insurance markets. If allowed, the criteria used should be objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect the long-term viability of the insurance system.

Australia's insurance market can be divided into roughly three components: life insurance, general insurance and health insurance. These markets are fairly distinct, with most larger insurers focusing on only one type, although in recent times several of these companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates. With services such as disability insurance, income protection and even funeral insurance, these insurance giants are stepping in to fill the gap where people may have otherwise been in need of a personal or signature loan from their financial institution.

Insurance law is the practice of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer policies; and regulation of claim handling wise.

Laya Healthcare is a health insurance company in Ireland. Its headquarters are in Little Island, County Cork. It is regulated by the Health Insurance Authority.

Healthcare in the Netherlands is differentiated along three dimensions (1) level (2) physical versus mental and (3) short term versus long term care.

Risk equalization is a way of equalizing the risk profiles of insurance members to avoid loading premiums on the insured to some predetermined extent.

Insurance in the United States refers to the market for risk in the United States, the world's largest insurance market by premium volume. According to Swiss Re, of the $6.782 trillion of global direct premiums written worldwide in 2022, $2.959 trillion (43.6%) were written in the United States.

The British United Provident Association Limited, trading as Bupa, is a British multinational health insurance and healthcare company with over 43 million customers worldwide.

Hong Kong's medical infrastructure consists of a mixed medical economy, with 12 private hospitals and 43 public hospitals. Hong Kong has high standards of medical practice. It has contributed to the development of liver transplantation, being the first in the world to carry out an adult to adult live donor liver transplant in 1993. Both public and private hospitals in Hong Kong have partnered with the Australian Council on Healthcare Standards (ACHS) for international healthcare accreditation. There are also polyclinics that offer primary care services, including dentistry.

In the United States, health insurance marketplaces, also called health exchanges, are organizations in each state through which people can purchase health insurance. People can purchase health insurance that complies with the Patient Protection and Affordable Care Act at ACA health exchanges, where they can choose from a range of government-regulated and standardized health care plans offered by the insurers participating in the exchange.

The Empowering Patients First Act is legislation sponsored by Rep. Tom Price, first introduced as H.R. 3400 in the 111th Congress. The bill was initially intended to be a Republican alternative to the America's Affordable Health Choices Act of 2009, but has since been positioned as a potential replacement to the Patient Protection and Affordable Care Act (PPACA). The bill was introduced in the 112th Congress as H.R. 3000, and in the 113th Congress as H.R. 2300. As of October 2014, the bill has 58 cosponsors. An identical version of the bill has been introduced in the Senate by Senator John McCain as S. 1851.

A health insurance mandate is either an employer or individual mandate to obtain private health insurance instead of a national health insurance plan.

References

↑ "Health Reform Hits Main Street". The Henry J. Kaiser Family Foundation. 2010-09-23. Retrieved 2017-05-15.
↑ "Private health insurance and access to health care in the European Union: European Observatory on Health Systems and Policies" (PDF). Archived from the original (PDF) on 2007-07-29. Retrieved 2008-01-18.

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.

[1] "Health Reform Hits Main Street". The Henry J. Kaiser Family Foundation. 2010-09-23. Retrieved 2017-05-15.

[2] "Private health insurance and access to health care in the European Union: European Observatory on Health Systems and Policies" (PDF). Archived from the original (PDF) on 2007-07-29. Retrieved 2008-01-18.

[1]

[2]