Risk pools: Basic for understanding health care coverage problems.
In the world of health insurance, a risk pool is a group of people for whom statisticians have figured the odds that a certain number are likely to need a lot of health care, a certain number likely to need a moderate amount and a certain number are not likely to much at all. This provides the basis for decisions about whom to cover, how much to charge for premiums and so forth.
A good example of a risk pool, though it's not generally described at way, is all adult women. The odds are usually given that 1 in 8 women are likely to get breast cancer. This means in the total pool of adult women, 1.25% are likely to get breast cancer. This does NOT mean that if you collect women in a group and count them individually every eighth woman will get breast cancer. The figure of 1 in 8 or 1.25% doesn't tell you anything about the odds of any one woman in the group of adult women getting it since the only definition of the group was that it included adult women. It didn't say anything about women with a family history, women of a certain age, etc.
For health coverage purposes, we can start with the population of the United States as a whole. As a risk pool, the odds are that in any given year one per cent of the group will need very expensive health care, nine per cent will need expensive healthcare, 40 per cent will need moderately expensive health care and 50 percent will need pretty inexpensive healthcare. This snapshot of the population doesn't tell you anything about which individuals will get very sick or not sick. The only thing we know is that statistically, it is likely that this is how healthcare costs will break down.
What we can generally also say about this pool is
- the sickest 1% will use 30% of the health care funds,
- the top 10% (which includes the top 1 percent) will use 72% of the available funds,
- the sickest 50% will use 97% of the funds
- the remaining, relatively healthy 50% of the population will use only 3% of the funds.
So, put numbers of people, this means that if you have a group of 100 people using a healthcare expenses fund of $10,000,
- The most expensive person will use $3000.00
- The top ten most expensive people will use $7200.00
- The top fifty most expensive people will use $9700.00
- The remaining fifty people will use only $300.00
You can see that half the population will be pretty inexpensive to cover and half will be very expensive to cover. When we pay our health insurance premiums, the more or less healthy among us essentially pay for the coverage of the sick among us. We should do this because for so many reasons we need to care for the least among us. But that aside, we should do it because the sickest among us are likely at some point to be us. The sickest one percent may recover; we may become the sickest. We need each other if not today then someday.
Next post will deal with insurance companies and risk pools.