Thursday, March 11, 2010

Tangled Up In Blue | The New Republic

What enabled the Blue Cross plans to succeed was their effective monopoly on the health insurance business. They had a huge, diverse base of customers--one based heavily on large groups of employees, like the Dallas schoolteachers--which meant they had sound finances. The majority of people were relatively healthy, with few medical bills. Their accumulated premiums were sufficient to cover the bills for that small group of people who, because of accident or disease, had much higher bills.

But as enrollment in the Blue Cross plans swelled, the commercial insurance industry took notice--and saw an opportunity. If Blue Cross was selling to everybody and charging everybody the same rate, that meant some people--healthy people--were effectively paying a bit extra in order to subsidize the sick. The commercial insurers figured that if they could target just the healthier customers, by charging higher premiums or refusing coverage to people with medical problems, they could offer lower premiums to these people and still make a profit.

Tangled Up In Blue | The New Republic
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