Health insurance
The process
When one purchases an individual health insurance policy, one is assigned to a risk pool "group" specifically for subscribers to that policy. That group is not everyone who holds a similar policy issued by the company but only a very small portion of subscribers who hold similar policies. A group is typically open for only a set enrollment period, after which it is closed to any new subscribers. The group size never increases after it is closed, but decreases. Over time, many policyholders in the group acquire health conditions. Hence, the claims costs for the entire group increase and so does the average health cost for the individuals in the group. The insurer then raises the rates to cover the higher costs. Subscribers with better health realize that they can reapply for and obtain other similar health insurance at low rates for new subscriber that are similar to the original rates of the current policy. Often, the insurer will promote the "new" similar health plans. When one applies for the "new" policy, one's health will be re-evaluated, and one will have to requalify and be re-Motivation
In most US states, it is illegal for health insurers to individually re-underwrite a subscriber (re-evaluate their health risk and increase their premium) after the subscriber files a claim under the policy, unless the subscriber withheld information about a pre-existing medical condition. The process described so far can best be described as "group re-underwriting": evaluating the group's medical costs and adjusting the group's premium accordingly. It accomplishes the same effect: purging companies' risk pool of higher risk individuals or allowing the insurer to eliminate any high-risk pool altogether or excluding individuals' health conditions even though the health conditions were acquired during the terms of the policies with the company and while the premiums were faithfully paid. That has the advantage to insurers to decrease their liability without violating the terms of the policy or being accused of individual re-underwriting. It also allows the insurer to claim that the policy offers protection against rises in premiums because of the policyholder acquiring health conditions even though that protection is limited.Consequences
Through the process of "group re-underwriting", as healthy people transfer to new pools, the insurer is able to keep down the premiums of their health plans at the cost of increasing premiums for those who later become sick. During the lifetime of a specific risk pool, the sick bear an increasing share of their medical costs, negating the benefits of signing up for health insurance in the first place.References
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