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At its best, the largely private U.S. system of health insurance and healthcare delivery provides an extraordinarily high quality of care, along with generating a seemingly endless parade of life-saving innovations. But the system also struggles to control its high costs and to provide basic medical care to all. Other countries have lower costs and more equal access, but they often struggle to provide rapid access to health care and to offer the near-miracles of the most up-to-date medical care. The challenge is a healthcare system that strikes the right balance between quality, access, and cost.

Government regulation of insurance

The U.S. insurance industry is primarily regulated at the state level; indeed, since 1871 there has been a National Association of Insurance Commissioners that brings together these state regulators to exchange information and strategies. The state insurance regulators typically attempt to accomplish two things: to keep the price of insurance low and to make sure that everyone has insurance. These goals, however, can conflict with each other and also become easily entangled in politics.

If insurance premiums are set at actuarially fair levels, so that people end up paying an amount that accurately reflects their risk group, certain people will end up paying a lot. For example, if health insurance companies were trying to cover people who already have a chronic disease like AIDS, or who were elderly, they would charge these groups very high premiums for health insurance, because their expected health care costs are quite high. Women in the age bracket 18–44 consume, on average, about 65% more in health care spending than men. Young male drivers have more car accidents than young female drivers. Thus, actuarially fair insurance would tend to charge young men much more for car insurance than young women. Because people in high-risk groups would find themselves charged so heavily for insurance, they might choose not to buy insurance at all.

State insurance regulators have sometimes reacted by passing rules that attempt to set low premiums for insurance. Over time, however, the fundamental law of insurance must hold: the average amount received by individuals must equal the average amount paid in premiums. When rules are passed to keep premiums low, insurance companies try to avoid insuring any high-risk or even medium-risk parties. If a state legislature passes strict rules requiring insurance companies to sell to everyone at low prices, the insurance companies always have the option of withdrawing from doing business in that state. For example, the insurance regulators in New Jersey are well-known for attempting to keep auto insurance premiums low, and more than 20 different insurance companies stopped doing business in the state in the late 1990s and early 2000s. Similarly, in 2009, State Farm announced that it was withdrawing from selling property insurance in Florida.

In short, government regulators cannot force companies to charge low prices and provide high levels of insurance coverage—and thus take losses—for a sustained period of time. If insurance premiums are going to be set below the actuarially fair level for a certain group, some other group will have to make up the difference. There are two other groups who can make up the difference: taxpayers or other buyers of insurance.

Questions & Answers

what is monopoly
Sewu Reply
Monopoly is a market structure where there is single seller or producer of a commodity which has no close substitute.
Jose
explain law of increasing opportunity cost
Glennis Reply
how many labour market are there in Nigeria
Ayinde Reply
what is monopoly?
Prince Reply
it is a type of imperfect market where there are single seller of a product
Kehinde
what is society's basic economic problems?
ABDI Reply
scarcity
Solomon
another definition of economic s
Louisa Reply
what is economic s
Louisa
is the study of the individual interest
Tut
or the study of the scarcity
Tut
Is an inquiry to the nature and causes of wealth to the nation
IBITOYE
economic as social science which covers the actions of individuals and groups of individuals in the processes of producing, exchanging and consuming of goods and services.
ABDI
compar and contrast the four market structure
Alamuddin
The study or principles of the way money, business and industry organized.
Arsh
what is optimal biomass
Sheikh Reply
biological approach in economics
Sheikh
What is the difference between pure monopoly and natural monopoly
Joseph Reply
what is price elasticity demand
Alex
Explain the law of demand
Manoj
hello my name is Godwin David am an economics student
GODWIN Reply
what's the opportunity cost for free goods?
Bah
A free good is a good with zero opportunity cost . This means it can be consumed in as much quantity as needed without reducing its availability to others.
Wilfred
yes tucker, a free good is available without limit therefore, it is not scarce at all. ...Aviation economist.
Frank
I'm Daniel
Daniel
I'm new here
Daniel
U welcome
Wilfred
what is the demand and supply of QD is equal to 4040 thousand
Prince Reply
uses and limitations of elasticity of demand concept
Tinodaishe
Elasticity of demand refers to the degree of responsiveness of quantities
grace Reply
Thanks
Ogbonna
Hi everyone
Ogbonna
I need all the formula for elasticity of demand
Dogbeda Reply
%∆QD/%∆P formula for elasticity of demand
divine
for that of income elasticity %∆QD / %∆I
divine
and that of cross elasticity of demand %∆QDx / %∆Py
divine
economics is a science which studies human behavior and it's alternative uses as means and scarce resources
Joycelyn Reply
I think the right way to put it is, Economics is a social science that studies human behavior as a relationship between ends and scarce means which has alternative uses.
IBITOYE
given that following demand and supply equation
Issah Reply
factors affecting demand and supply
Francis Reply
consumer's chioce price substitute effect quality of product
Arsh

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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