ABSTRACT
This chapter analyses two aspects of insurance markets. First, it talks about the supply side of health insurance and then sees how insurance markets have evolved to deal with the fundamental dilemma created by health insurance. These new forms of insurance, dubbed "managed care", provide ways to control medical care utilization, but only at a cost of inconvenience and annoyance to insured individuals. The operating costs of insurance companies include the tasks of processing insurance claims and making appropriate payments. Thus, the observable products of insurers are claims payments, and we can talk meaningfully about the production function for these products. As in the case of hospitals, many health insurers in the United States operate as not-for-profit (NFP) organizations, although conversion from not-for-profit to for-profit status has become very common, and the for-profit model now dominates the market. These NFP companies, most commonly "Blue" plans, were organized under special enabling legislation passed during the first half of the twentieth century.
