Gather round boys and girls. Today’s lesson is on “risk pools.”
Before you pull out your iPhone to ward off the boredom you assume will come, know this: the concept of risk pools is at the heart of today’s healthcare reform debate.
To understand risk pools, you first have to understand the basic concept of insurance. Insurance is something you buy in case something happens. The more people buying the same type of insurance, the less risk the insurer faces that it will have to pay out for that aforementioned “something.”
So, for instance, if an estimated one out of eight women (about 12%) will get breast cancer in their lifetime, and an insurance company only insures eight women, then it knows, for sure, that one of those women will get breast cancer and it will have to pay large medical claims (in addition to all expenses) from the premiums it collects from just those eight women. So you can bet those eight women are going to pay huge premiums!
Now imagine that same health insurance company insuring 8 million women. Of those … Continue Reading