ABSTRACT
Health insurance underlies any discussion of the health economy. Most Americans, and indeed most citizens of other countries, do not pay directly for their health care. Rather, insurance companies or other programs indirectly pay for much of the care, with the consumer paying directly only a portion of the bill. The chapter examines the impact of health insurance on health care demand. Economists commonly examine the efficient allocation of resources, which occurs when the incremental cost of bringing the resources to market equals the valuation in the market to those who buy the resources. For many years, US health insurance plans offered prescription drugs with very low copayment rates, suggesting the possibility of excess use due to moral hazard. Health care policy debate focuses on how to structure insurance policies in order to reduce purchases and minimize insurance costs without compromising the health of the insured.
