Health insurance: Risk equalization

Risk equalization compensation 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 a nursing home during the previous year” and “cost of pharmaceuticals dispensed in the previous year”. In 2020 this indicator will be replaced by the “pharmaceutical cost groups (PCG)” indicator.

Risk compensation evens out the financial risk between insurers with different risk structures.

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 per-son becoming ill and incurring costs for the compulsory health insurance.

Risk compensation 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 compensation 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 compensation scheme. Insurers who insure a large number of high risks receive contributions from the risk compensation scheme.

Calculation of risk compensation

The HIA Collective Institution 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 HIA Collective Institution performs the risk compensation. The risk compensation is calculated taking the following indicators into account: “age”, “sex”, “stays in hospital or nursing home the previous year” and, from 2020, “pharmaceutical cost groups (PCG)”. The new indicator replaces the previous indicator “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 insured persons are allocated to risk groups using the indicators “age”, “sex”, “stays in hospital or a nursing home during the previous year” in order to calculate the cantonal issuing and contribution rates. In addition, insured persons will be allocated to individual PCGs based on their use of medicinal products, in order to determine a uniform surcharge across Switzerland for each PCG. PCG surcharges are financed within the risk groups by uniformly adjusting the issuing and contribution rates.

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

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

Relief for young adults in the risk compensation scheme

On 17 March 2017, parliament amended the 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 peo-ple and young adults”. Up to that point young adults (aged 19 to 25) had been treated as adults for the purposes of risk compensation. Since 1 January 2019, the risk compensation scheme has granted 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 formula for calculating risk compensation in the Ordinance onRisk Compensation (VORA/OCoR) has been adjusted accordingly.

Refinement of risk compensation

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

In its 2011 report compiled in response to Postulate 07.3769 “Inclusion of a further morbidity factor in risk compensation”, the Federal Coun-cil states that, over the medium term, the risk equalization scheme is to be refined through PCG. In view of the long preparatory period, the indicator “cost of pharmaceuticals dispensed in the previous year” was additionally included in the risk compensation from 2017 to 2019 as a transitional solution.

In this way, expensive insured persons who receive outpatient treat-ment, in particular, can be better recordet and their insurers better com-pensated. In 2020 this indicator will be replaced by the indicator based on PCG. This indicator will further reduce incentives for risk selection.

On 14 October 2019, the Federal Department of Home Affairs (FDHA) adopted the Ordinance on Risk Compensation in Health Insur-ance (VORA-EDI) and – in its annexes – the PCG list according to Art. 4 VORA. Due to its size and format, the PCG list is not being published in the Official Compilation but instead in electronic form on the FOPH website. Each year, medical advances result in numerous changes to the list of pharmaceutical specialities. Before the 2020 risk compensa-tion is calculated, the PCG list will be updated as regards medicinal products and the corresponding active ingredients.

 

Last modification 17.10.2019

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Federal Office of Public Health FOPH
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