Risk_equalization

Risk equalization is a way of equalizing imbalances of risk in an insurance or some other collective setting.

In health insurance risk equalization enables private health insurance to operate in some countries to be offered at a common rate for all-comers even though insurers are not allowed by law to reject clients or impose special conditions for their health insurance.

This is achieved by transfer payments through a risk equalization pool usually run by a neutral party (e.g. a government agency) which assesses risks for individual policy holders and requires insurers either to pay more into the equalization pool (low risk individuals) or receive money from the equalization pool (high risk individuals. This system operates in countries such as Australia, http://www.oecd.org/dataoecd/5/54/22364106.pdfGermany, the Netherlands and Ireland.

For a video which explains how risk equalization works in the new Dutch health care system see the video at http://www.minvws.nl/en/themes/health-insurance-system/the-new-health-care-system-in-the-Netherlands-video/. (Warning: 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).

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