Health Insurance And "The Law Of Large Numbers"

Insurance companies know that a small percentage of people will get cancer each year. What they don't know is who will get it. The law of large numbers says that an insurance company can accurately control their risk by insuring as large a pool of people as possible. The larger the pool is, the better their prediction will be regarding how many people in the pool will have any specific health issue, so the better they can predict their expenses and keep costs lower.

This is the reason why the health insurance mandate is needed. By spreading the risk of expensive health problems across a larger number of people, the cost for each person is kept lower.

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