Suppose a law is passed that requires insurance companies to cover any pre-exist

Question

Suppose a law is passed that requires insurance companies to cover any pre-existing conditions that a patient has. a) how will the expected losses for the insurance company change after the law is passed b) what will happen to the premiums that the insurance company charges after the law is passed? Suppose a law is passed that requires insurance companies to cover any pre-existing conditions that a patient has. a) how will the expected losses for the insurance company change after the law is passed b) what will happen to the premiums that the insurance company charges after the law is passed? a) how will the expected losses for the insurance company change after the law is passed b) what will happen to the premiums that the insurance company charges after the law is passed?

Explanation / Answer

a) If the law is passed to cover all the pre-existing conditions then the insurance company are going to face a considerable loss as people who have pre-existing conditions will surely take insurance and it will all have to be covered by the insurance. As the chances of the insurance company paying for the conditions will increase considerably the expected losses for the insurance company will also increase.

b) The premiums that the insurance company charges after the law is passed will increase considerably, as now they have to cover all the pre-existing conditions.   

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