What does "risk pooling" mean in health insurance?

Risk pooling in health insurance refers to the concept of uniting individuals to share healthcare costs and risks. This is a fundamental principle of insurance, where a group of individuals contributes to a collective fund through premiums. When members of the group require medical care, the costs incurred are drawn from this pooled fund rather than being borne solely by the individual requiring care.

The pooling of risk ensures that no single member faces the full financial burden of unexpected healthcare expenses. By including a diverse group—comprising both healthy individuals and those who may need more medical attention—the risk is spread out, allowing for more predictable overall costs and minimizing the financial impact on any one individual. This mechanism is essential for making healthcare more accessible and affordable, as it relies on the principle of collective responsibility.

In contrast, increasing premiums for healthy individuals, reducing the number of covered individuals, or separating individuals based on health status all undermine the concept of risk pooling. These approaches could lead to higher costs and inequities in access to healthcare, contradicting the fundamental objective of spreading risk across a broader population.