Health insurance: Risk equalization

Risk equalization evens out the financial risk between health insurance providers with different risk structures. It currently takes the following indicators into account: “age”, “sex”, “stays in hospital or nursing home during the previous year” and “cost of pharmaceuticals dispensed in the previous year”.

Compulsory health insurance is financed through uniform premiums. This means that each insured person – irrespective of their age, sex or any other indicator of their state of health – pays the same premium to the same health insurance provider in the same canton, or the same premium region, for the same insurance model. This uniform premium does not, however, correspond to the effective risk of an insured person becoming ill and incurring costs for the compulsory health insurance.

Risk equalization was introduced in order to counter the incentive for health insurers to insure only healthy persons as far as possible, i.e. to engage in risk selection. It provides financial equalization to offset the insurers' different risk structures. Insurers who insure only a small number of high risks (i.e. persons with a high risk of falling ill) pay levies into the risk equalization scheme. Insurers who insure a large number of high risks receive contributions from the risk equalization scheme.

Calculation of risk equalization

The Gemeinsame Einrichtung KVG performs the risk equalization. The risk equalization is calculated on a cantonal basis and takes the following indicators into account: “age”, “sex”, “stays in hospital or nursing home the previous year” and “cost of pharmaceuticals dispensed in the previous year”.

The insured persons are divided into risk groups for the calculation based on these indicators. The average costs are established for each risk group (group average). These are then compared with the overall average costs. For insured persons in risk groups with a group average that is below the overall average, the insurers pay a levy equivalent to the difference. For insured persons in risk groups with a group average that is higher than the overall average, the insurers receive a contribution equivalent to the difference. 

The total levies paid into the risk equalization scheme correspond to the total contributions paid out of it (zero-sum situation).

The prospective nature of the risk equalization scheme means that it effectively evens out the risks and not the cost differences.

Relief for young adults in the risk equalization scheme

On 17 March 2017, parliament amended the Swiss Federal Health Insurance Act (KVG/LAMal) on the basis of two parliamentary initiatives, 10.407, “Waiver of premiums for children”, and 13.477, “KVG/LAMal. Change in premium categories for children, young people and young adults”. Up to that point young adults (aged 19 to 25) had been treated as adults for the purposes of risk equalization. Now the risk equalization scheme grants insurers relief for young adults, with their payments into the risk equalization scheme reduced by 50 per cent. This enables insurers to offer young adults lower premiums than would be possible without this relief. The relief is funded equally via an increase in the levies paid into the risk equalization scheme and a reduction in the contributions paid out of it for insureds aged 26 and over. The formula for calculating risk equalization in the ordinance governing the risk equalization scheme (VORA/OCoR) has been ad-justed accordingly.
The Federal Council passed this amendment on 11 April 2018, and thus also put the above-mentioned change in the law relating to premiums for young adults into force. The changes enter into force on 1 January 2019.  

Reduction in risk selection incentives for insurers as part of the Health2020 strategy

Reducing risk selection incentives for the insurers constitutes part of the equal opportunities field of action in the Health2020 strategy. With the further refinement of the risk equalization scheme, the incentive to engage in risk selection is to be reduced still further. In this way, competition between the insurers is to be located at the point where the legislator originally intended it to be, namely in the:       

  • quality of the insurance offerings,
  • services,
  • cost control.

Refinement of risk equalization

The FOPH has commissioned various studies over the past few years with a view to further refining the risk equalization scheme.

In its 2011 report compiled in response to Postulate 07.3769 “Inclusion of a further morbidity factor in risk equalization”, the Federal Council states that, over the medium term, the risk equalization scheme is to be refined through “pharmaceutical cost groups” (PCG). In view of the long preparatory period, a transitional solution is also proposed.

Since then, a start has been made on refining the risk equalization scheme: the “cost of pharmaceuticals dispensed in the previous year” is included in the risk equalization as an additional indicator in 2017 already. In this way, expensive insured persons who receive outpatient treatment, in particular, can be better captured and their insurers better compensated. In 2020 this indicator will be replaced by indicators based on PCG. These indicators have advantages over the transitional solution, especially from the incentive point of view. 

Last modification 04.07.2018

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Federal Office of Public Health FOPH
Health and Accident Insurance Directorate
Premiums and Solvency Oversight Section
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