Final answer:
The U.S. Census categorizes health insurance into employment-based and direct-purchase insurance, designed to address adverse selection problems in the insurance market.
Step-by-step explanation:
The U.S. Census (2011) divides health insurance into employment-based insurance and direct-purchase insurance. Employment-based insurance is a health plan coverage that is usually provided by an employer or a union, which may cover the employee alone or along with their family. Direct-purchase insurance, on the other hand, is coverage that an individual purchases directly from a private company.
In the U.S. health insurance market, grouping individuals based on employment is one way to mitigate adverse selection problems, which occurs when insurance companies fear that they will attract only high-risk individuals. The Affordable Care Act sought to expand this approach by creating state government-sponsored health exchange markets, thus mandating that all Americans obtain health insurance and preventing insurance denial based on preexisting conditions.