The basic methods for risk management – avoidance, retention, sharing, transferring, and loss prevention and reduction – can apply to all facets of an individual’s life and can pay off in the long run. Here’s a look at these five methods and how they apply to managing health risks.

Avoidance

Mitigate risk by not participating in activities that may incur injury, sickness or death

  • Smoking cigarettes is an example of one such activity because avoiding it may lessen both health and financial risks
  • Life insurance companies mitigate this risk on their end by raising premiums for smokers than nonsmokers under the Affordable Health Care Act

Transferring

Health insurance is an example of transferring risk because the financial risks associated with health care are transferred from the individual to the insurer

  • Insurance companies assume the financial risk in exchange for a fee known as a premium and a documented contract between the insurer and individual
  • The contract states all the stipulations and conditions that must be met and maintained for the insurer to take on the financial responsibility of covering the risk

Loss Prevention and Reduction

This method of risk management attempts to minimize the loss, rather than completely eliminate it

  • While accepting the risk, it stays focused on keeping the loss contained and preventing it from spreading
  • Preventative care
  • Health insurers encourage preventative care visits, often free of co-pays, where members can receive annual checkups and physical examinations

Retention

Retention is the acknowledgment and acceptance of a risk as a given. Usually, this accepted risk is a cost to help offset larger risks down the road.

  • The initial risk is the cost of having to pay more out-of-pocket medical expenses if health issues arise.

Sharing

Employer-based benefits that allow for the company to pay a portion of insurance premiums with the employee

  • In essence, this shares the risk with the company and all employees participating in the insurance benefits.
  • The understanding is that with more participants sharing the risks, the costs of premiums should shrink proportionately

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