Risk equalisation

What is risk equalisation?

Risk equalisation is a redistribution mechanism between health insurers in basic health insurance. It compensates for the fact that insurers have insured persons who are “expensive” to different degrees. An insurer whose insured persons are younger and healthier than average pays money into a pot. An insurer with many older or sick insured persons receives money from it.

The reason lies in the rules of basic health insurance. Every insurer must accept everyone in its area of activity; this is the obligation to accept. And it must in principle charge all insured persons the same premium, graded only by canton, region, age group, deductible and model, never by state of health. Without risk equalisation, an insurer could still be cheaper simply because its advertising or offers mainly attract young, healthy people. Risk equalisation is intended to make this so-called risk selection unattractive.

Risk equalisation only concerns basic health insurance under the Federal Health Insurance Act (KVG). It does not exist in supplementary insurance under the Insurance Contract Act (VVG/ICA); there, insurers may ask health questions and turn people down.

It is carried out by the Common Institution under the Federal Health Insurance Act, a foundation of the health insurers with statutory tasks. Risk equalisation is not a state contribution. The money flows between the insurers: the levies of some finance the equalisation contributions of others.

How it works

Risk equalisation is calculated separately for each calendar year and for each canton. The basic idea: for each group of insured persons, the average cost across all insurers is calculated. If an insurer has more insured persons in expensive groups, it receives contributions; if it has more in inexpensive groups, it pays levies.

The groups are formed from four indicators:

1. Age. The year of birth is what counts. There is a group for 19- to 25-year-olds, five-year groups between 26 and 90 and a group for those aged 91 and over.
2. Sex.
3. Stay in a hospital or nursing home. An increased risk is assumed if someone spent at least three consecutive nights in a hospital or nursing home in the previous year, at the expense of basic health insurance. Stays due to maternity do not count.
4. Pharmaceutical cost groups (PCG). Anyone who obtained a certain minimum quantity of medicines used for a particularly cost-intensive illness in the previous year is assigned to a PCG. The insurer receives supplements for such insured persons.

Two groups have special rules. Children who are under 19 on 31 December of the year are excluded from risk equalisation. For young adults aged between 19 and 25, the insurers receive relief: it amounts to 50% of the difference between the average costs of all adults and those of young adults. This makes lower premiums for young adults possible.

Every year, by 31 March, the insurers send the data to the Common Institution, in pseudonymised form for each insured person. This includes canton of residence, year of birth, sex, hospital stays, medicines obtained, months insured, benefits and co-payments.

Legal basis

Risk equalisation is governed by Art. 16 to 17a of the Federal Health Insurance Act (KVG). Art. 16 para. 1 and 2 KVG stipulate that insurers with fewer people with an increased risk of illness than the average pay risk levies to the Common Institution and that insurers with an above-average number of such people receive equalisation contributions. Under Art. 16 para. 3 KVG, the levies and contributions must fully compensate for the average differences in risk between the risk groups. Art. 16 para. 4 KVG names age, sex and other indicators of morbidity; Art. 16 para. 5 KVG excludes children.

Art. 16a KVG governs the relief for young adults aged 19 to 25 at 50% of the cost difference. Art. 17 KVG specifies that the insured populations in the equalisation year are decisive and that the differences in risk are calculated from the previous year. Under Art. 17a KVG, the Common Institution carries out risk equalisation within the individual cantons; Art. 18 KVG governs this foundation of the insurers.

The details are set out in the Ordinance on Risk Equalisation in Health Insurance (VORA). Art. 1 VORA names the four indicators, Art. 2 the age groups, Art. 3 the stay of at least three nights in a hospital or nursing home, and Art. 4 and 5 the pharmaceutical cost groups. Art. 6 VORA governs the delivery of data by 31 March.

Example: two insurers, same benefits

The following example is greatly simplified and calculated with assumed figures. It only shows the principle, not the actual calculation by the Common Institution. Two insurers in the same canton each have 1,000 adult insured persons. Assume that insured persons without an increased risk cost CHF 3,000 a year on average in the canton and insured persons with an increased risk CHF 12,000. The average across both insurers is CHF 5,250.

What this means for you

As an insured person, you have no direct contact with risk equalisation. However, it has consequences for your choice:

1. You can choose any insurer. Because chasing good risks is less worthwhile, insurers have less incentive to keep sick insured persons away. In basic health insurance, every insurer has to accept you anyway.
2. Premium differences have other causes. Compare the premiums for your place of residence in the premium calculator. You can find key figures such as the administrative costs and reserves of individual insurers in the profiles under Health insurers.
3. You can switch every year. The deadlines are under Deadlines.

Risk equalisation is part of the system with many insurers in competition; the alternative model would be a single health insurance fund. The FOPH (Federal Office of Public Health) publishes the insurers’ key figures, including the amounts from risk equalisation, in its supervisory data.

Common mistakes

• Thinking risk equalisation is a state subsidy. It is an adjustment between insurers. The state does not pay anything into it.
• Believing equalisation applies to supplementary insurance. It only applies in basic health insurance.
• Assuming that all insurers must then cost the same. Equalisation covers differences in risk, not differences in efficiency, reserves or models.
• Thinking your health data goes openly to other insurers. The insurers send the data in pseudonymised form to the Common Institution, not to other insurers.

We explain how we build examples and key figures under How we calculate.