Risk Equalisation and Community Rating10 April 2012
The purpose of risk equalisation is to support the community rating principal. Insurers are not allowed to risk rate premiums and risk equalisation partially compensates insurers with a riskier demographic profile by re-distributing money from those insurers paying less than average benefits to those paying higher than average benefits. The Risk Equalisation Trust is administered by PHIAC.
The principal of community rating
To ensure that everybody who chooses has access to health insurance, the principal of community rating prevents private health Funds from discriminating between people on the basis of their:
- sexual orientation or religious beliefs
- age (except to the extent allowed under lifetime health cover)
- place of residence (except to the extent that they live in different risk equalisation jurisdictions
- any other characteristic of a person that is likely to result in increased need for hospital treatment or general treatment
- frequency with which a person requires treatment
- amount of extent of the benefits to which a person becomes entitles during a period
The Risk Equalisation Financial Year Report March 2012 is available for download form PHIAC and also provides an example risk equalisation calculation.