Question

3. Explain how health insurance results in the overuse of health care? (Answer should discuss the moral hazard issue associated with health insurance.) Does health and prescription drug insurance result in the inefficiently poor diets and little exercise?

Answer 1

i. The situation of moral hazard arises when an individual exposes himself to higher risk because the cost of that risk has to beared by someone else. The same is for the healthcare sector. Healthcare insurance covers an individual from higher health expenses. If health insurance is available at cheap rates, then a person will be less willing to take preventive measure for a disease or health complication. This will lead to overuse of the health care facilities in hospitals as expenses would be paid by the insurance company.

ii. Yes, this could lead to an inefficiently poor diet and little exercise as an individual is insured for health and prescription drug. This situation is possible only when the health could be controlled by taking the drug.

For example: If an individual knows that he could control his sugar level by taking a drug than he will be consuming more food items containing sugar as he is insured for a health drug.