Health Care Economics: Moral Hazard
Deductible
-set minimal levels of expenses below which the insurer does not help reimburse medical expenses -requiring people to pay deductible can limit or eliminate the moral hazard from insurance if high enough Ex: a person paying first $10000 of medical bill then insurance pays the rest
Coinsurance
-insurance provision in which enrollees pay a percentage of each medical bill & the insurer pays the rest
Ways of Limiting Moral Hazard
-coinsurance -co payment -deductibles -monitoring
Moral Hazard & Risk Reduction
-social loss associated w/moral hazard may allow insurance itself to provide positive welfare gains that may offset the harm from moral hazard
Moral Hazard
-when someone takes more risks because someone else bears the burden of those risks
Price Distortion
-a function of the completeness of the insurance, the fuller the insurance, the greater the distortion
Ex Post Moral Hazard
-behavior changes that occur AFTER an insured event happens & makes recovering from that event more expensive Ex: using expensive drugs instead of generic Ex: knee replacement surgery instead of pain killers
Ex Ante Moral Hazard
-behavior changes that occur BEFORE an insured event happens and make that event more likely Ex: leaving the stove on Ex: not getting a flu shot
Price Sensitivity
-depends mostly on the nature of the risk being insured, & how controllable it is
Co Payment
-enrollees pay only a fixed amount, insurer pays the rest
Advantages of Moral Hazard
-extra preventative care -income effect -insurance makes people richer by making expensive surgeries or treatments affordable when they may have been unaffordable without insurance
Moral Hazard w/Health Insurance
-some insured people take risks w/their health that similar uninsured people wouldn't take, & demand more expensive treatment from their doctors when they get sick -moral hazard raises society's level of health care expenditures
Moral Hazard Leading to Social Loss
-takes form of extra money, labor, time, & effort that others expend on caring for people w/health problems
Price Discrimination & Sensitivity
-when both are high, insured individuals bear little costs, which results in large social loss -when both are minimal, insured individuals bear most costs, which still results in moral hazard, but smaller social loss
Monitoring
-when insurance companies try to observe & guide the preventative measures their customers take, while others choose to supervise the medical care received