The Concept of Health Insurance Risk Pooling

A risk pool can be defined as a form of managing risk where different parties come together to form a pool of protection against catastrophic risks like floods. Risk pooling is a term mainly used in insurance. It refers to the act of the parties coming together to hedge against an impending risk that will affect all parties. Insurance companies extend insurance services to individuals and businesses that are likely to suffer losses. Risk pooling arises in case a natural disaster happens where all members in the insurance contract spread the loss among them. Thus, this prevents an insurance company from going bankrupt. Therefore, risk pooling is about combining the uncertainty of individual people into a single calculable risk for a large group.

A health insurance risk pool is a program initiated by the government in the public domain. It was meant to help people access health services where their resources are pooled together to help those who get affected. The population is obliged to pay a certain amount of premium to cater to high medical conditions. This will benefit the insured people who cannot afford such high medical costs. This is due to low income among some groups in the population. Actuarially fair premium is a term for describing where a certain premium is equal to the expected payout for a risk. Actuarially fair premium is a term mostly used in the insurance sector where a client pays a certain periodical amount of money to protect his or her interests from suffering a loss.