I don't think it is widely understood that an insurance company is really a cooperative. We all pool our money to protect ourselves from a known risk. The problem occurs when there isn't enough money in the pool to cover the costs. That happens when there is something called "adverse selection".
Here's an example: an insurance company goes to a small company to offer health insurance. People are allowed to join or not, their choice. There are 10 employees at the company. Two are marathon runners and never take an aspirin. Six are average and have the usual minor health issues. Two have major on-going health issues such as diabetes, heart disease, etc. Guess who the first two to sign up will be? The next most likely will be the six average people. The least likely will be the healthy. Because those two and maybe some others don't join the pool, there's not enough money in there to cover the expenses of the sicker members. Either the company must raise the premiums to put more money in, cut benefits, or stop offering the coverage altogether. A mandate without any teeth, allowing peope to pick and choose and jump into a plan when they need services, is adverse selection. The result will be higher premiums for all those participating. It won't bring insurance prices down.
posted 3 years, 7 months ago
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