This chapter introduces the concept of insurance as a product and explores why people want to purchase insurance in general (and health insurance in particular). The main discussion centers around explaining that health insurance (and all insurance) is primarily financial protection: health insurance does not protect your health but instead protects your wealth from health-related risk. The chapter then moves on to discuss the operations of an insurance company: how premiums are set, the difference between correlated and uncorrelated risk, group insurance, and experience rating. The chapter ends by discussion moral hazard in the context of an individual with insurance coverage. The end of chapter supplement provides a mathematical example of why someone who is risk averse would want to purchase insurance.

This chapter takes the basics of demand developed in Chapter 3 and applies them to understanding how features of a health insurance plan influence individual decision-making in the market for medical care. The chapter unpacks how plan cost sharing characteristics (copayments, coinsurance, and indemnity), as well as pricing change and triggers (deductibles and payment limits) influence demand and individual consumption decisions.

This chapter goes over the decision to purchase health insurance (or not). The way information is presented to individuals has a significant impact on their decision to purchase insurance to protect themselves from the financial consequences of health risks. Eliminating minor inconvenience costs or simplifying the insurance selection process can influence whether or not people purchase insurance. This chapter examines the roles of adverse selection and moral hazard in insurance-related behaviour, as well as the barriers to insurance uptake for individuals ranging from affordability to unobservable quality and information/choice overload. The chapter investigates the role of various nudges in increasing health insurance uptake.

In Smith v. Rasmussen, an Eighth Circuit case from 2001, the original opinion upheld Iowa’s Medicaid ban on coverage for gender confirming surgery, finding it was reasonable and consistent with the federal Medicaid Act. Craig Konnoth’s feminist rewrite finds that the ban on gender confirming surgery is discriminatory on its face and impermissibly relies on gender stereotypes because it permits coverage of particular procedures for individuals perceived as sufficiently cisgender—such as those who are intersex but have conformed to expectations associated with their sex assigned at birth—but not for others. Konnoth draws on empirical research showing that enforcing gender roles in this context seeks to prevent men from debasing themselves as women and to prevent women from claiming the privileges of men. Heather Walter McCabe’s commentary highlights how litigation related to transgender issues reveals the socially constructed nature of gender and provides useful insight into how gender and sex relate to each other and to theories of antidiscrimination.

In Does v. Gillespie, Medicaid beneficiaries sued the director of the Arkansas Department of Human Services claiming that terminating Planned Parenthood’s Medicaid provider agreements violated their federal right under the Medicaid Act to choose any “qualified” provider that offers covered services. The Eighth Circuit held that the free choice of provider provision in the federal Medicaid Act did not create rights enforceable by individual beneficiaries. In their feminist judgment, Melissa Alexander and Jennifer Oliva argue that the clear language of the Medicaid Act unambiguously demonstrates that Congress intended to confer a private right of enforcement under the free choice of provider provision. Elizabeth Kukura’s commentary emphasizes the importance of focusing on the lived experience of Medicaid beneficiaries who rely on Planned Parenthood for basic health care needs. Kukura highlights the influence of anti-abortion politics and ideology on health care access and the structural forms of discrimination that shape it.

In Doe v. Mutual of Omaha Insurance, a Seventh Circuit case from 1999, the plaintiffs challenged lifetime coverage caps for AIDS-related conditions, which blocked patients with HIV/AIDS from accessing antiretroviral therapies and other lifesaving medical care. Doe and Smith alleged that the caps violated the public accommodations clause of the ADA. The original opinion sided with the insurance company, finding the caps permissible under the ADA, even though the defendant offered no proof they were supported by sound actuarial data. Professor Valarie Blake’s feminist judgment focuses on the plain text of the disability rights statute, relevant legislative history, and valid guidance from the Department of Justice. Blake also highlights the social and cultural context in which gay men and people with AIDS have been subjugated and stigmatized. Professor Christina Ho’s commentary contrasts the disability-rights approach the plaintiffs advanced before the court with the statutory restrictions on health insurance underwriting based on health status-related factors eventually included in the Affordable Care Act passed more than a decade later.

Monopsony is the inelegant term that refers to a market in which there is a single buyer (or employer) of a well-specified good or service. Provided that the supply of inputs is positively sloped, the monopsonist may have market power. Profit maximization will lead the monopsonist to depress the price of the input by reducing its purchases, which harms input suppliers and also consumers. Although it is somewhat counterintuitive, this apparent cost saving does not result in lower output prices. In this chapter, we will show how the exercise of monopsony power has deleterious economic effects in both the input market and the output market. We also extend our discussion to dominant buyers and oligopsonists. We observe monopsony in many health insurance markets. Dominant health insurers generally represent a large share of business for health care providers. This allows an insurer to depress reimbursement rates for health care providers by adjusting the quantity of the services that it buys. Those lower reimbursement rates may lead to a reduction in the availability and quality of care for patients.

Chapter 9 is on healthcare reforms. First, it examines different government health insurance programs: the new rural cooperative medical system, health insurance for urban workers, health insurance for urban residents, health insurance for government employees, and health insurance for urban and rural residents. Next, it analyzes the healthcare supply system, particularly the state-owned hospitals (SOHs). Then, it scrutinizes the problems with the healthcare system, including under-developed healthcare insurance, heavy government subsidies to SOHs, excessive government intervention in healthcare service provisions, the shortage of qualified doctors, urban-rural healthcare disparity, and unsustainability of the healthcare insurance system. Finally, it offers policy suggestions on healthcare reforms.

Chapter 4 chronicles the status quo and innovations in underwriting practices in the life insurance domain and shows how private markets deal with information problems and how they eagerly capitalize on novel ways – such as tracking devices – to mitigate asymmetric information. Using quantitative analysis, the chapter also shows that private life insurance markets are more developed in country-years with better information, but that partisanship mediates this relationship. Life insurance is an interesting domain to study because it has many parallels to health insurance, yet the former is mostly private, while the latter is mostly public. The chapter discusses the emergence of a supplementary private health insurance market, but it also documents the continued popularity of public solutions in areas where the time-inconsistency problem cannot be overcome by private actors.

The first chapter presents seven models through which it is possible to finance healthcare services (and protect oneself from the risks of disease). Seven different funding models are introduced: (1) The direct market; (2) Voluntary health insurance; (3) Social health insurance; (4) Targeted programs; (5) Mandatory residence insurance; (6) The universalist model; (7) Medical savings accounts. For each model discussed, attention is paid to the following dimensions: who pays and who benefits from the system; the number and legal status of the insurers; the methods by which users contribute financially; the freedom of choice granted to citizens; the relationships between insurers and providers; the role played by the State.