Paul Krugman has a couple of good posts on administrative costs for private health care insurers vs. Medicare.
One of his commenters makes the excellent point that denying care from someone who has been paying premiums has an extremely high ROI - you get to bet after you play the hand. It's not clear to me that that's an incentive you can easily manage out of the system. Despite laws against discriminating against people once they make a claim, most of the recision abuse has been completely legal.
Also, someone made the point that all groups are underwritten pre-sale, I believe that's true of small groups, but large groups are underwritten after initial sale with some experience factored in going forward. Large groups tend to benefit from the law of large numbers both prospectively when the insurer does initial pricing, and at renewal time when the averages tend to come through as expected. Small groups taken together should as well (the idea behind community rating), but insurance companies take the win from healthy groups and claw back from groups in which there has been an illness by upping the rates (which doesn't really sound like insurance). Overall this another case where the bulk of insurance companies bet is after the hand has been played.
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