Health insurance: Risk equalisation

Risk equalisation evens out the financial risk between health insurers 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.

Compulsory health insurance is financed by standard premiums. This means that each policyholder in the same canton (or premium region) – irrespective of age, sex or any other health status indicator – 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 equalisation was introduced in order to counteract the incentive for health insurers to insure, as far as possible, 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 equalisation scheme, while those who insure a large number of high risks receive contributions from the scheme.

Calculation of risk equalisation

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 equalisation scheme correspond to the total contributions paid out (zero-sum game).

The prospective nature of the risk equalisation scheme means that it evens out risks, rather than differences in costs.

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 equalisation

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 Council 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 treatment, in particular, can be better recorded and their insurers better compensated. 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 Insurance (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 compensation is calculated, the PCG list will be updated as regards medicinal products and the corresponding active ingredients.

 

Last modification 13.07.2020

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