Demand for Health Insurance11Research on this chapter was partially supported by NIA P01 AG032952, The Role of Private Plans in Medicare, and NIMH R01 MH094290. I am grateful to Martin Anderson, Sebastian Bauhoff, Pedro Pita Barros, Emily Corcoran, Jacob Glazer, Mark Pauly, Anna Sinaiko, and Jacob Wallace for many helpful comments

This chapter reviews topics related to the demand for health insurance, including the question of how choice of health insurance should be structured for consumers. After the first section summarizes some of the institutional features of health insurance in high- and middle-income countries, a second section synthesizes the normative and empirical literature on demand-side cost sharing in health insurance, integrating new developments in multiple goods, consumer errors in valuing health care and “offset effects†with the traditional risk protection-appropriate incentives trade-off. The practice of selective contracting on the supply side is an alternative to demand-side cost sharing. A third section proposes a theory of selective contracting and relates this supply-side policy to the question of optimal demand-side cost sharing. We observe two distinct approaches to structuring choice of health insurance in the US, private employers who severely limit choice, and public payers’ (and individual insurance markets’) market-determined choices. A fourth section reviews the pluses and minuses of these alternatives, and discusses the implications for structuring health insurance markets in the US.