Here is an important clarification
about an issue that comes up in the
debate over health care.
By definition, there is no such thing
as insurance that covers pre-existing
conditions. What does exist is
pre-existing insurance that covers
conditions that happen to you
after you sign up for insurance.
The point of insurance is to pool risk.
Bad things can happen to anybody, so
it helps if everyone pays into a fund
that can be used to compensate those
people that have bad things happen
to them. This works when the
probability of the bad thing
happening can be accurately estimated,
and that the chances of one person
having the bad thing happen is
independent of the chances for
anybody else.
For an example of where this would
not work, suppose someone tries to
sell toothpaste insurance that provides
toothpaste to people whenever they need
to brush their teeth. Assuming that
everybody brushes their teeth every day,
the daily cost of the insurance would
have to be the same as the daily cost
of toothpaste (the insurance would
have to provide toothpaste to everybody).
Insurance doesn’t work if insurance companies
are allowed to drop customers when they
need help, and it also doesn’t work if
people can avoid paying for insurance
until something bad happens. The 2010
Affordable Care act had the right idea
in requiring everyone to be part of the
insurance pool, but it would have helped
if it hadn’t imposed as many regulations
on qualifying policies.
……………..
–Douglas Downing
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