This is a truly great system. However, it doesn't take to capitalism very well. Applying free-market forces to an inherently Socialist business tends to cause problems.
One of the worst problems is that of "cherry picking", or the practice of refusing to insure all but the least risky clients. This provides the lowest possible rate for those low-risk clients, as one would expect a free enterprise system to. But it leaves the high-risk clients out in the cold, paying outrageous insurance premiums or worse, being unable to find coverage at all.
For those in the low-risk group, this looks great. But in fact it defeats the entire purpose of insurance. If taken to extremes, each and every individual could form his own risk category, and pay exactly what his emergencies are expected to cost. This being the case, we might as well not have insurance at all, and everyone can pay for their own emergencies.
I have formulated a simple fix for this problem, at least in the area of health/medical insurance: a regulation on the insurance industry that clients cannot be separated into risk categories or denied coverage based on factors beyond their control.
The idea is simple: if you wanna do things that increase your risk for medical problems, you must be willing to pay higher premiums. But you cannot be asked to pay higher premiums or be denied coverage for things you can't control.
For example: If you choose to smoke, drink, ride motorcycles, skydive, have unprotected sex, drive a car without seatbelts, or any other activity which statistics can prove increases the likelihood of a medical expense, you may be required to pay higher premiums accordingly. On the other hand, if you have a genetic disorder, previous medical condition, have a bad family medical history or are merely getting old, there's not a damn thing you can do about it -- and you cannot be charged higher insurance rates for anything beyond your control.
The result, of course, would be that those presently in the low-risk categories (young, never been ill) will have to pay higher premiums. But that is how it should be. Those who, through no fault of their own, are not as healthy as others, deserve to have insurance coverage at similar rates. Only those who deliberately increase their risks should be expected to pay higher rates.
Interestingly, this change solves many of the "ethical dilemmas" that seem to be cropping up every now and then. There has been concern about genetic research, because insurance companies might figure out which genes cause various expensive medical problems and charge premiums or deny coverage accordingly. Under this regulation, that cannot happen; there wouldn't even be any reason for the insurance company to check your genetic makeup.
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Of course, if you have questions or comments, you are welcome to send e-mail to me at palmk@nettally.com.