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What is the motive then for a for-profit company to even exist? If every insurance company has to take everybody, that implies they have to also provide the sam
by LargeWu 8y ago
What is the motive then for a for-profit company to even exist? If every insurance company has to take everybody, that implies they have to also provide the same coverage to everyone at the same rate. Barring cartel-like collusion, which is already illegal, the market price would quickly converge towards the cost of insurance. There would be basically no upside, but almost unlimited downside.
- maxxxxx 8y ago"What is the motive then for a for-profit company to even exist? If every insurance company has to take everybody, that implies they have to also provide the same coverage to everyone at the same rate. " Correct. And whoever is more efficient wins. That's no different from any other retail business. My grocery store sells lettuce to anybody. Some are more efficient and can offer better prices. Or they sell better lettuce. But regulation sets minimum requirements so nobody can sell fake or toxic lettuce. I thought that's how the market works.
- s73v3r_ 8y ago"More efficient" in this case meaning whoever can discriminate the most, and whoever can deny the most claims without getting caught.
- maxxxxx 8y agoThat can be checked by enforcing regulations. Grocery stores don't compete over circumventing food safety regulations.
- monocasa 8y agoHaving worked in a grocery store, I know that's not true.
- s73v3r_ 8y agoYeah, this idea of comparing insurance companies to grocery stores doesn't really fly.
- maxxxxx 8y agoWhy not? Both have to operate within rules as long as they are enforced. So if the rules tell them to not discriminate they have to follow them or face consequences.
- LargeWu 8y agoBecause the upside to these companies has a pretty low ceiling, especially if there is downward price pressure because insurance companies can't differentiate on risk or coverage. This leads to very thin profit margins. However, due to the nature of insurance, even a relatively small number of people developing expensive conditions can be catastrophic. Remember, in your scenario, you are REQUIRED to cover them. If you're going to have only one combined risk pool, you need to be able to guarantee coverage even facing catastrophic insurance costs. The only real way to do this is to be backed by somebody with very, very deep pockets, like, say, the federal government.
- james1071 8y agoThere are certain features of insurance that make it very different from other products - competition does not necessarily lead to optimum outcomes with insurance. Checkout adverse selection and moral hazard.