An insurance company relies upon a large number of people willing to pay a monthly premium for coverage that often far exceeds the costs of a single monthly premium. They make money when more people pay monthly premiums than those that collected a benefit from a claim, often on a massive scale. The insurance company removes much of the risks associated with “what if” scenarios, and basically gambles based on the probability that those what if situations will not come true.
What Does This Mean?
This means that there are people out there that will pay far more in insurance premiums than they will ever receive in benefits. For most of us, this is actually the case; only a very small percentage of people ever actually “make” money through insurance premiums. The risk element associated with the possibility that the insurance company could actually lose money, especially on a large scale, is one reason that insurance rates range based upon type of coverage, area in which coverage is sought, and personal risk factors associated with each applicant.
Health Insurance Specifically
To put it quite simply, the largest factors for health insurance costs are centered around the average health of the individual or group combined with the type and level of coverage provided. Health insurance tends to get more expensive as we age, primarily because the costs commonly associated with older populations is higher. Because the group, on average, uses coverage more often than a group of younger people do, each individual’s costs are higher, additionally, a history of expensive medical expenses can also lead to an increased cost of coverage.
Health insurance companies make nearly all of their money by pooling together premiums from healthy people and using some of that money to pay benefits for those that aren’t. If the entire state of Colorado, or specifically the city of Fort Collins, had higher health insurance claims than the rest of the region, it would be expected that each individual’s health insurance rates may rise to cover the increased risk associated with insuring this group.
Not only is health insurance coverage now mandatory for all eligible Americans, but getting insurance coverage is also just a wise idea. Our current healthcare system is built under the expectation that insurance companies can, and will, pay large medical expenses. If you attempt to go it alone in this system, you could end up buried under mountains of medical debt. Paying more, over the entire course of your life, for coverage than you will use, is still worth it when a major expense comes up.