Moral Hazard

Three mechanisms by which moral hazard can manifest? (2)

Engage in risky decisions - now that the individual is insured, they feel it is okay to put themselves in possibly dangerous situations because they are covered by insurance

What is Moral Hazard?

Insurance lead to inefficient outcomes. Someone does something because they don't have to pay the full cost of doing this thing - people seek out treatment because they don't have to pay for it

Three mechanisms by which moral hazard can manifest? (3)

Long-Term: if you have a system where insurance is widespread, it can move the whole healthcare system to change the types and number of services offered to cater to individuals that engage in moral hazard (example: now, hospitals have many MRI machines - it becomes the norm to engage in services that are inefficient)

Three mechanisms by which moral hazard can manifest? (1)

People can demand more services than they would otherwise need: over-utilize care