ABSTRACT
Insurance is a way of pooling risk within groups of people. This chapter explains a model of how people decide to insure against missing work due to illness. The model helps to think about why people might prefer public health care over a private system and ways of differentiating patients with a variety of needs and risks. The chapter focuses on two models, one to examine the ramifications of different modes of insurance and another to look at electoral competition in the health care context. Health care is often modeled as any other type of insurance or another form of redistribution when publicly provided. But there are issues beyond the adverse selection and inequality captured in those models. Specifically, health care involves lack of information for consumers, lack of competition, externalities from communicable diseases, and indirect effects of increasing costs of health care. Moves to counteract rising costs would require regulation of increasingly complex medical procedures.
