What is the function of health insurance in the economics of health care?

Health insurance plays a vital role in the economics of health care by spreading financial risk and facilitating access to services. The fundamental premise of health insurance is that it allows individuals to pay a relatively small, predictable premium in exchange for coverage of potential large medical expenses. This risk-pooling mechanism enables individuals to share the burden of healthcare costs among a larger population, making it more manageable for each individual.

When medical care is needed, health insurance reduces the financial impact on an individual by covering a significant portion of the costs, which encourages people to seek necessary medical services without the excessive worry about their ability to pay. This is particularly important in promoting public health, as access to preventive care, routine check-ups, and necessary treatments leads to better health outcomes for the population as a whole.

The other choices do not accurately reflect the primary function of health insurance. While it does facilitate access to health services, it does not provide unlimited access or eliminate all medical costs for individuals. Health insurance plans typically come with limits, deductibles, and co-pays, ensuring that some costs are still incurred by the insured. Additionally, while health insurance influences the pricing dynamics of medical services, it does not dictate prices outright; prices are usually determined by multiple factors including but not limited to