A statistical analysis of mandatory pooling across health insurers

Risk-adjusted capitation payments from a central fund to competing health i nsurers or health plans form an essential feature of market-oriented health care reforms in many countries. If these premium-replacing payments do not adequately reflect risk, it may lead to solvency problems for plans with re latively many high-risk members and to selection against such individuals. Mandatory Fooling across insurers may alleviate both problems by making the market as a whole financially responsible for high-cost or high-risk indiv iduals. To finance the pool, every insurer would be obliged to pay, for eac h of its members, a uniform contribution that would depend on the projected size of the pool. The statistical analysis indicates that mandatory poolin g may substantially mitigate solvency and selection problems while retainin g incentives for efficiency and cost containment.