|Posted on March 18, 2017 at 2:50 PM|
Insurance companies do not have to sell their products (insurance policy) in every market. The most important reason for not offering insurance coverage is because the composition of the “risk pool” is cost prohibitive.
A risk pool is simply the total number of people living in a covered geographic area; city, county or state. Insurance companies will not offer policies if the experience rating of the individuals in the pool have medical service needs that yield high treatment costs which cannot be covered by insurance policy pricing.
Insurance companies will not enter markets unless they can mix a pool with insureds that make the sale of policies profitable. They are always trying to dilute the risk pool with low risk pool members. There is a need for healthy 18-25 year olds.
Insurance companies do not want in their pools young woman who are planning on having children. They are high risk pool members. Health care for mothers and children and those over 65 form pools with “incidents” of high medical costs. Their average costs rise faster than the average revenue from the sale of policies. Insurance companies do not want to sell to these individuals. They will avoid pools with their risk factors unless there is a subsidy. Medicaid which provides health and long-term care coverage to more than 70 million Low-income children, pregnant women, adults, seniors, and people with disabilities in the United States is that subsidy.
Insurance companies are also no friend to anti-poverty programs. They closely monitor the economics of a pool. When average income indicates pool members cannot afford to buy a standard policy the company will leave the market. These markets will have too many people below the poverty line, or who are minimum wage earners. As a consequence insurance companies make poverty worse.
There is no free market for anything unless firms are free to enter and exit. Capital requirements prevent this from occurring in an insurance market. Meaning there are barriers to market entry which create unnatural monopolies. These non-completive markets also arise because there are legal barriers to enter such as patents for medical technology. Insurance companies are heavily invested in these patents and hospitals.
In today’s market insurance companies may leave a market because profits cannot be sustained to satisfy shareholders demand for dividends. The insurance company cannot generate sufficient revenues to cover the costs associated with the dollar value of the high risk factor of the pool. In other words the risk expense of the pool cannot economically be covered by insurance rates that generate sufficient revenue for the company to maximize profits.
These artificially created firms crush competition. The business model for big insurers is the tried and true method of market growth: gobbling up smaller insurers. This practice continues like the proposed acquisitions of Cigna by Anthem and Humana by Aetna.
The current size of these firms which dominate the health insurance market inhibit competition. They have reach their current size through merger and acquisitions and patent purchases and not through the development and sale of new products. The trend for growth through acquisition is even more pronounced because banks, equity companies and insurance companies now coexist. With new unending financing resources the insurance market for health care will soon be dominated by these few “Mixed” corporate oligopolies. Also, as they continue to buy hospitals and merge, the health care insurance industry will become more risk adverse meaning less coverage, more poverty and more deaths.