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Short term health insurance
If you are between jobs or are awaiting another health insurance policy to come into effect you may find that you have a gap in your health insurance coverage. This period is a high risk as you are effectively uninsured when it comes to health...

Help! I Lost My Health Insurance!
It can literally be one of the scariest places to find yourself - without health insurance coverage. When a simple trip to the emergency room can lead to thousands of dollars in charges, the last thing you need is to not have health insurance....



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Health Insurance seems like a simple exchange. You pay an insurance company a premium and insurance pays your bills. You get rid of risk and the insurance company takes your risk. However, there is more to it that this. What does the insurance company do with your risk? Do they keep it? Do they also get rid of it somehow? When you understand what the insurance company does with your risk, then you can better evaluate your options and perhaps get a better deal on health insurance.

One measure of risk is the potential for ups and downs. Having a stock that pays $100 in dividends each year and seldom changes in price is not very risky. Having a stock that goes up or down wildly from one period to another is risky. The same is true for health care costs. Paying $100 each year for eyeglasses is not risky. Having a chance of winding up in the hospital and having to pay $100,000 is risky.

"Risk Pooling" happens when many people get together and share their losses by averaging them together. Risk pooling works because of the "law of large numbers." As you average together more and more numbers in a certain range, the average becomes more and more stable. Unusually high or low numbers tend to cancel each other out. For example, if you roll dice once, the result can be anywhere from 2 to 12. If you roll dice more and more, the average will get closer and closer to 7. By the time you roll the dice 1,000 times, the average will be very stable around 7.

Health Insurance companies use risk pooling to get rid of the risk they take from you. They charge you a premium based on average cost plus their administrative cost. When they pool many people, the average cost is very stable and they have little risk themselves. Risking pooling is also used in finance. When people buy a bunch of different stocks in a diversified portfolio, their average return from the portfolio is more stable and less risky than the return from a single stock.

In order for risk pooling to work, the individual risks that are pooled must be independent. "Independent" risks go up and down at different times, not together. When risks go up and down at different times, they tend to cancel each other out. If they go up and down together, the do not cancel out. For example, it is less risky to provide accident insurance for 100 people traveling on 100 different boats than for 100 people traveling on the same boat. Health care risks for individuals are generally independent, although contagious diseases or widespread disasters can change that. This is one reason why many life and property insurance policies exclude losses from catastrophic events such as war.

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Health Insurance Expert


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Additional Reading

Getting The Right Health Insurance Coverage - 5 Strategies
You need it. You don't want to pay an arm and a leg for it. Health insurance coverage is something that every person in the United States needs to have. But, the problem lies in knowing what to get, where to get it and how much you need. In...

Solutions for Health Insurance Coverage
When it comes to health care, there is no "one size fits all." Ideally, working for an employer who offers non-contributory health insurance is what most of us would aspire to. However, that is not a realistic scenario. Finding affordable,...

Health Insurance for the Self-Employed
Having health insurance and being able to afford it is a great concern for many who leave a corporate job to run their own business. The national crisis in health coverage is hitting the small business owners especially hard. About 24 million...



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