What is the purpose of health insurance risk pools?

Health insurance risk pools are designed specifically to spread financial risk among a large number of policyholders. The fundamental principle behind this pooling is that by collecting premiums from many individuals, the insurer can cover the healthcare costs of the few who may require significant medical care. This sharing of risk helps ensure that the financial burden of medical expenses does not fall disproportionately on a single individual or a small group of individuals.

When health insurance operates as a risk pool, it allows for healthier individuals to subsidize the costs of those who may be less healthy or have higher medical needs. This dynamic enables insurance companies to provide coverage to a more extensive range of individuals, including those who may otherwise be uninsurable due to pre-existing conditions or higher health risks.

In this context, the other options do not accurately represent the primary function of risk pools. Creating individual savings accounts for policyholders, limiting claims from a single policyholder, or increasing premium rates for high-risk individuals do not align with the essential purpose of a risk pool, which is fundamentally about collective support and shared financial responsibility among all policyholders. This approach ultimately contributes to the affordability and accessibility of health coverage for everyone involved.