Under the Patient Protection and Affordable Care Act, every American is to receive health insurance coverage regardless of the status of their health; therein lies the problem for the insurance companies commissioned to provide this coverage.
When a terminally ill patient is offered the same coverage as a 21 year old, in good health and no previous health impairments, this is called "adverse selection" or, to use insurance jargon, "buying a claim."
In normal insurance company health insurance underwriting of an individual insurance policy, the insurance company excludes particular health impairments, perhaps will increase the premium, but will assume the risk and issue the policy.
By contrast, if an individual, with a health impairment, applies for a life insurance policy, the insurance company, depending on the severity of the impairment, will increase the premium and issue the policy or decline the policy altogether.
If a health insurance company insures older and sick people along with young and healthy people, the absence of outside subsidies, and/or substantial increases in premiums from the younger and healthier group, will soon put the health insurance company out of business.
William O. Jordan
Jordan is a financial advisor.