Equalization pool

An equalization pool is a term used in many different industries or national settings to describe an attempt to level out differences in collective enterprises due to imbalances, often across long periods of time.

In health insurance, equalization pools are used in countries such as Ireland, Germany and Holland to balance risks in insurance pools and ensure medical risks are covered. In normal insurance markets, insurers price high risk individuals at a higer premium to discourage them from joining the pool and price lower risk individuals with lower premiums. This can make insurance phenominally expensive for the elderly and those in poor health at a time when they can least afford to pay for insurance because they are not earning. The young on the other hand, for whom ill-health is not a major concern, often do not buy health insurance, even though it is relatively cheap for them to do so. But in national policy terms, health insurance should be a life-long investment... you should pay in when you are well and have earnings and should receive benefits when you are ill and unable to work. To overcome this problem some governments have made basic health insurance compulsory and have created a risk equalization pool to even out differences in risks carried by insurance companies in the health market. Thus the policies of younger and healthier people must pay into the risk equalization pool and the older and sicker policies will receive money from the equalization pool. A government agency usually assigns the risks and manages the risk pool. Governments can then subsidize health for the unemployed or the retired through the risk pool system. The presence of a risk equalization pool and a common health benefits system makes competition more transparent between health insurers and prevents them from behaving in ways which discourage the achievement of a universal health care system for the nation.

In co-operative marketing ventures with near monopoly power, especially of perishable goods such as milk or fruit, equalization pools are sometimes used to even out price fluctuations that might otherwise happen through the seasons or from year to year.

Some governments use equalization pools to achieve social balance, so that richer regions with fewer needs for state aid pay taxes into an equalization pool from which poorer regions needing financial assistance to provide the same level of services as the richer regions can draw on.