Comment by taeric | Hacker News Reader

Comment by taeric | Hacker News Reader

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That isn't how insurance works. To do an insurance pool, you have to have a lot of people, knowing that you won't be paying out to most of them. Otherwise, it is not insurance, but some sort of group savings/pay as you go.

That is, the main variable that gets you to lower rates, is higher participation. Anything else doesn't come close.

You have to let it sink in that you can not have a small subset "save up" enough to pay for "their share." It just doesn't work without having large groups lose out and be completely unable to cover the costs in their group. Instead, this would be akin to group gambling where eventually one loser will bankrupt the entire pool.

Now, there is a related concept that you need to diversify your risk pool such that you don't fall prey to the same risk on everyone. This is what hit some major flood insurance providers after Katrina. I could see similar arguments for not wanting to insure a bunch of folks from the same locale. (Oddly, insurance doesn't typically branch out beyond locales...)

There is a concept of trying to get the higher risk pool to pay more through some rough proxies (typically age, for car insurance) to pay higher premiums. Again, though, most young drivers do not have accidents. Nor do the insurance companies typically actually need such high premiums to cover costs. As evidenced by their fairly mediocre savings plans they offer folks for not having an accident.

All of this, though, really just points out that calling this an "insurance" for health is just silly and is ultimately the wrong model.

> "That isn't how insurance works. To do an insurance pool, you have to have a lot of people, knowing that you won't be paying out to most of them. Otherwise, it is not insurance, but some sort of group savings/pay as you go."

Seriously, not only this is clearly not how it works, but it actually makes zero economic sense, it doesn't work like that at all.

Insurance companies have people there calculating the expected costs with the different groups and - whenever legal - they DO DISCRIMINATE amongst them. Why do you think woman pay less for life insurance than men? Or why do woman pay less than men for car insurance? According to your rational that shouldn't be the case, you should just put them all together and everyone would pay less.

Let's just reduce this at absurdum for you to get it.

You have a group of 100 people. 50 completely healthy according to a medical check-up, 50 with HIV needing constant medication: Now, where do you think the health insurance premium would be lower for the 50 healthy ones:

1 - If we charged all the 100 people the same?

2 - If we divided the group and charged the 50 people with HIV differently than the 50 healthy people?

Answer this question and immediately you will understand why what you are claiming is wrong.

You are missing my main point here. In large because I did a poor job making it, so I can't even remotely be upset. :)

Insurance works by getting people to pay in to it that will not get paid out of it. Pretty much by definition. This is why we pay insurance for cars, instead of just avoiding cars. Same for title insurance. Same for life insurance. The vast majority of people that pay into these schemes do not get paid out of them.

Now, the only way you can use a pool of "healthy" people to get low costs, is to have a pool of healthy people that are not using medical procedures. You can do this by discriminating out people that need procedures, but realize this also means you discriminate out people as soon as they start to need these procedures.

Car insurance kind of works here. Many will take on "higher risk" kids for insurance. But as soon as those kids make a claim, they will refuse to re-insure them. Same with houses. Make a claim, find that you have a chance of needing to get new insurance policy.

So, for your little hypothetical. My point is take the 50 that are healthy, and have them pay lower rates. And then, as soon as one of them hits a high cost procedure, find that you don't have enough to cover it. (Just one cancer patient will blow out a pool of 50 people in a heartbeat.)

Could it work to keep costs down? Yes, but only in a way in which would not benefit you. As soon as you needed what those costs were supposed to cover, you would be kicked out of the pool.

This is like the poor sods that think they can do a health savings plan. Only if you are very wealthy, and still only if you never actually get into an accident or need it.

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