Risks and benefits in health care: the view from economics

This paper discusses the meaning of the term risk from the economic perspective. It argues that some consumer decisions about insurance and the use of medical care are consistent with the economic model, but many are not. When decisions are inconsistent, real-world democratic governments' ability to intervene is limited by politicians' desire to please voters. The choice of incomplete insurance coverage in private markets is often said to present a case for governmental intervention, but the choice of insurance design in the Medicare drug benefit shows that the political process also may fail to select insurance that is optimal from an economic viewpoint.