Problems With Medical Insurance

Abstract

Abstract This chapter explores the wide‐ranging and well‐known problems of medical insurance, including uncertainty about future probabilities, adverse selection, and moral hazard, which lead to uninsurable conditions and upward pressures on medical spending. The chapter goes on to discuss methods of cost containment, and to assess different strategies: private funding plus private production, public funding plus public production, and public funding plus private (or mixed) production. A key conclusion is that attempts to adapt private arrangements end up looking like social insurance, in the sense that premiums are not based on individual risk and insurers are not allowed to exclude high‐risk applicants. A second key conclusion is that different strategies for financing health care have different but largely predictable problems.