- Defining risk pooling
- How it works?
- Why it is important?
Risk Pooling in Health Insurance
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.
What is 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.
How Does Risk Pool Work?
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.
- Rajeev is a young and active person who pays Rs 100 per month. The health risk is low with him.
- Anjana is a healthy adult who also pays Rs 100 per month. Her health risk is also low.
- Harish is a middle-aged man having some pre-existing diseases. He also pays Rs 100 per month but the risk is higher in this case.
- Vikram is a diabetic person and needs regular medications. He also pays Rs 100 per month but again the risk is higher in his case.
- Kirti is also a middle-aged girl but sometimes falls ill. She also pays Rs 100 per month but in this case, the risk is moderate.
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.
What are the Benefits of Risk Pooling?
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.
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Shared financial burden
Risk pooling in health insurance can spread the cost of medical care across a large group of people. This creates a fairer system in health care where everyone participates and shares the responsibility for healthcare expenses. -
Predictable premiums
With the diverse risk pools, insurance companies get a fair idea of overall healthcare costs. This ultimately allows them to set more stable premium prices. Consider, that there is no risk pool, in this case, the premiums for those who are at high risk will be extremely high. Risk pooling helps even things out and creates a more predictable cost structure for society. -
Wider access to the coverage
By sharing the risk across a pool, people who have pre-existing conditions or major health problems can still get health insurance. Also, it makes sure that these people at high risk get access to essential healthcare services. -
Increased stability for the company
Risk pooling creates a more stable financial environment for the insurance company. This stability allows them to operate more efficiently and offer more competitive plans.
Conclusion
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.
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What is Risk Pooling in Health Insurance?: FAQs
1. Is there any drawback of 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.
2. How does risk pooling differ from individual health insurance plans?
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.
3. Does a larger risk pool always mean lower premiums?
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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Written By: Simran Saxena
An explorer and a curious person, Simran has worked in the field of insurance for more than 3 years. Travelling and writing are her only passion and hobby. Her main agenda is to transform insurance information into a piece that is easy to understand and seamlessly solves the reader’s query.
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