Healthcare Demand and Supply

From a demand standpoint, everyone needs (or should have) health insurance. Health insurance is not the type of product that can be purchased only when needed, but needs to be purchased in anticipation of its use. From a supply standpoint, companies would be willing to sell this product to everyone as long as the cost of care could be anticipated as to when and how much would be needed. The cost of insurance is based on several factors; the actual cost of care, such as the cost of a visit to the doctor, x-rays, lab tests, surgery, medication, etc., makes up 80-85% of the price of health insurance. The other large factor is how much of this care is going to be needed and by how many people who own the insurance. Health insurance premiums are calculated utilizing actuary tables which estimates the utilization of benefits for those insured (based on the premise that not everyone is going to need benefits at the same time or to the same extent). Health insurance premiums also include a certain amount of money to be placed in reserve for future needs of health care expenses. If everyone had a crystal ball as to when medical care is needed and how much it would cost, they could set this amount aside their own reserve until it is needed. The problem is, we never know how much medical care is going to cost or when it will be needed. If for example, we decided we were going to build our own reserve but after one month we broke our leg, the amount we had saved would not cover the costs to repair the broken leg. However, if money were put into a pooled reserve and it was agreed that anyone who contributed to the pooled funds could use it when they needed it, there would be enough money if something happened after that first month. This is the same idea behind health insurance. The health insurance company pools money together in the form of premium payments and keeps it until it is needed for each person who contributes to the pool. The thought is that not everyone will...