Essay on Reducing Risk in Health Insurance

Is there any way to reduce the risk and uncertainty for health insurance on the part of the insurer, on the part of the insured? How does risk relate to pricing of health insurance? Explain and support your position.
Choosing health insurance that is optimal and economical involves a compromise between reducing risks and misuse of health care. The purpose of insurance from an economic standpoint is to reduce uncertainties and promote social well-being. This paper will discuss ways through which insurers can promote social well-being by reducing risks and uncertainties and also the relationship between risk and pricing.
Pooling of risk is one strategy that can be employed to reduce risks (Brown, 2010). Risk polling occurs when losses are shared by many people by averaging them together. Health insurance companies usually charge the insured a premium that is based on the cost of the insurance and the administrative costs of managing it. Thus, when many people are pooled together, the average cost reduces and risks are also spread across the insured.

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