The value of health insurance: the access motive

Why do people purchase health insurance? Many economists would answer that it permits purchasers to avoid risk of financial loss. This note suggests t hat health insurance is also demanded because it represents a mechanism for gaining access to health care that would otherwise be unaffordable. For ex ample, although a US$300,000 procedure is unaffordable to a person with US$ 50,000 in net worth, access is possible through insurance because the annua l premium is only a fraction of the procedure's cost. The value of insuranc e for coverage of unaffordable care is derived from the value of the medica l care that insurance makes accessible. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: I10; D81; D61.