Health insurance is the source to protect us from the high costs of medical care. You need to pay the premium, weekly, monthly, or yearly and later when required, your insurance company will pay the hospital bill.
But the question comes, how do health insurance companies determine what premiums to charge? Here comes the concept of risk pooling in health insurance.
Risk pooling in health insurance is the foundation of health insurance. While giving health insurance, insurer creates a pool of few people having different healthcare needs. Some might need extensive care, while others might need less care. Everyone in this pool contributes a set amount to the central fund i.e., the insurer. This fund is then used to pay for the medical expenses of those who need them, regardless of their individual contribution.
Imagine a large pot filled with money collected from a group of people. This pot is your health insurance pool. These people come from different walks of life, with varying health requirements. Everyone in this pool contributes a set amount of premium to the pot. Have a look below for example and consider these five people in one pool.
Now, the total pool collected is Rs 500 monthly. But, let us say Vikram fell ill and needed hospitalisation. The cost of the hospitalisation is Rs 400.
With the example above, you might have an idea of how risk pooling is beneficial for every one of us. For a glance have a look below to the pointer where we have explained the benefits of risk pooling in health insurance.
All in all, risk pooling creates a system in a society where everyone supports each other. Everyone contributes, and everyone benefits from access to affordable healthcare when in need. By understanding this concept, you can get a chance to appreciate the value of a health insurance plan and the importance of maintaining a healthy risk pooling.
Though there is no drawback to risk pooling, it can be challenging to make sure that everyone participates. Especially, healthy people need to join the pool.
In traditional individual plans, premiums are based on your own health history and risk factors. Risk pooling spreads the costs across a larger group, resulting in a more predictable premium for everyone.
The size of the pool is very important, but the average health of the people in the pool also matters. A large pool with a high proportion of unhealthy individuals will still have higher premiums as compared to the smaller pools with a healthier mix.
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An explorer and a curious person, Simran has worked in the field of insurance for more than 3 years. Traveling and writing is her only passion and hobby. Her main agenda is to transform insurance information into a piece that is easy to understand and solves the reader’s query seamlessly.
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