Defining Health Insurance

Abstract

This chapter introduces the topic of health insurance. Health insurance can be thought of mainly as a form of healthcare finance, the mechanism by which people pay for healthcare. The majority of healthcare payments come well after the time that services are rendered, and payments come mainly from third parties. Like any economic service, there is a market for healthcare finance with a demand side and a supply side. Unlike many services that are purchased on credit, healthcare is a highly subjective product owing to the subjective nature of health. As a result, health insurance is not the only, nor necessarily the best, way to pay for healthcare. One of the most salient features of the health insurance market is how much it has grown over the past century. Health insurance originated in a number of financial products and organizations—mutual benefit societies, traditional insurance companies, employers, and even healthcare providers. Eventually, health insurance became professionalized, moving from a bespoke product on a small scale to a large industry that financed the majority of healthcare services. Along the way, public policy and regulation played a crucial role in health insurance by defining what was considered health insurance, by setting the parameters of acceptable forms of insurance, and eventually by directly providing health insurance for a large portion of the population. A complex aspect of health insurance policy is that the academic literature concerning health insurance is split into three separate but related fields. The main field that is concerned with health insurance is health economics, which defines health as a form of capital, meaning a valuable asset that people own, as described at greater length in Chap. 2. The field of risk management and insurance (RMI) covers the economics of insurance, and so findings from that literature are crucial to an understanding of health insurance. Finally, health capital is ultimately an asset with a subjective value, so judging effectiveness is more complex in health than in other lines of insurance. As a result, the findings from the health services literature are relevant to a study of health insurance. Integrating these three fields into a fuller understanding of health insurance is both the purpose of this book, and the way to develop policies that can increase the value of health insurance as described in Chap. 9.