Health insurance: Risk compensation

Risk compensation evens out the financial risk between health insurers with different risk structures. It takes the following indicators into account: “age”, “sex”, “stays in hospital or a nursing home during the previous year” and “pharmaceutical cost groups (PCG)” based on medicinal products dispensed in the previous year.

Compulsory health insurance is financed by standard premiums: each policyholder aged 26 or over in the same canton (or premium region) – irrespective of age, sex or health status – pays the same premium to the same health insurer for the same insurance model. This standard premium does not, however, reflect the actual risk of a policyholder becoming ill and giving rise to costs for compulsory health insurance.

Risk compensation was introduced in order to counteract the incentive for health insurers to insure only healthy individuals, i.e. to engage in risk selection. It evens out the financial risks between insurers with 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 compensation scheme, while those who insure a large number of high risks receive contributions from the scheme.

Calculation of risk compensation

The HIA Collective Institution performs the risk equalisation. The insured persons are divided into risk groups using the indicators “age”, “sex” and “stays in hospital or a nursing home during the previous year” in order to calculate the cantonal levies and contribution rates. In addition, insured persons are allocated to individual PCGs based on their use of medicinal products in the previous year, in order to determine a uniform surcharge across Switzerland for each PCG. PCG surcharges are financed within the risk groups by adjusting the levies and contribution rates.The total levies paid into the risk compensation scheme correspond to the total contributions paid out ("zero-sum game").The prospective nature of the risk compensation scheme means that it evens out risks, rather than differences in costs.

Since 1 January 2019, insurers are being granted relief for young adults: their payments into the risk equalisation scheme are reduced by 50 per cent. This enables insurers to offer young adults lower premiums than would be possible without this relief.

The Federal Department of Home Affairs (FDHA) adopted the Ordinance on Risk Compensation in Health Insurance (VORA-EDI) and – in its annexes – the PCG list according to Art. 4 of the Ordinance on Risk Compensation (VORA/OCoR). Due to its size and format, the PCG list is only published in electronic form by reference in the Official Compilation ans as an Excel document on the FOPH website.

Each year, medical advances result in numerous changes to the list of pharmaceutical specialities (SL). With a view to the cal-culation of the risk compensation the FDHA updates the PCG list.

Introduction of PCGs shows effect

On behalf of the FOPH, a consortium comprising two institutes from the Zurich University of Applied Sciences and the University of Lucerne has analyzed the effectiveness of the PCGs introduced in 2020 in risk compen-sation. The effectiveness analysis clearly showed that the integration of the PCG indicator into the risk compensation mechanism has led to numerous improvements. The report and the FOPH's position paper are available under Evaluation reports on health and accident insurance (in german).