The Canadian Independent

Why the Obama health bill cannot work

Posted in America, The Economy by dave on March 22, 2010
The way insurance works is simple. Its a risk pool. Individuals pay premiums into a central pool, and claims are paid out from the central pool. Actuaries gauge the statistical risk of potential clients to either accept them, reject them, or accept them with various exclusions or a rated policy.
A rated policy is one where premiums are higher than they would be due to extra risk from a pre-existing condition or habit. An exclusion is where the policy won’t cover certain pre-existing conditions, for instance if you had problems with your back they may accept you but exclude claims based on your back.
The Democrats have suggested rhetorically that companies will no longer be able to reject people because they have pre-existing conditions. This means the average amount of risk per client will rise, as people with serious medical problems will be able to get insured and immediately add a considerable expense load on the risk pool.Insurance firms generally only make 3-4% profit margins at the end of the day.
The idea that you can force companies to have a considerably higher expense load on the risk pool, without significantly raising premiums is a fantasy. If you block them from raising premiums, the companies become insolvent.

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