Health Economics: Market Failure, Health Insurance, and Healthcare System Design

Abstract

This article systematically examines healthcare market failures, health insurance mechanisms, and healthcare system design from the perspective of health economics. It argues that uncertainty surrounding illness, information asymmetry between physicians and patients, healthcare externalities, and social obligations to protect the sick prevent healthcare markets from achieving efficient resource allocation through competition alone, thereby justifying government intervention and institutional safeguards. The article focuses on adverse selection and moral hazard in health insurance, compares major healthcare financing models—including national health services, social health insurance, single-payer systems, regulated competition, and multi-payer private insurance—and suggests that universal coverage systems generally achieve better population health outcomes at lower cost. It also introduces health technology assessment and the Quality-Adjusted Life Year as key tools for evaluating cost-effectiveness and guiding reimbursement decisions, while emphasizing the important influence of social determinants such as income, education, housing, and employment on health inequalities. Overall, health economics provides an essential analytical framework for balancing healthcare accessibility, service quality, and fiscal sustainability, while future research should further explore how artificial intelligence may affect information asymmetry, healthcare costs, and quality of care.