Question

Economist disagrees about the likely extent of moral hazard in the health care system. What are 2 arguments/evidence to suggest that moral hazard does exist? What are 2 arguments/evidence to suggest that moral hazard does not exist? Please list them separately, 2 arguments/evidence for moral hazard exist in the health care system, and 2 arguments/evidence for moral hazard does not exist in the health care system.  

Answer 1

Moral Hazard is a case when one of the two parties lacks the incentive to guard against the risk i.e. when you have the insurance cover of your motorbike through which if someone steals it, you can claim the 100% amount against the insurance company. In this case you have no incentive of taking care of your bike, it does not takes anything of yours except some pain.

Reasons why Moral Hazard exist :

• There are cases when you have medical insurance and do not take care of your health. You eat unhealthy food, does not takes care of obesity, do not take routine medical checkup, because they have medical insurance which would cover the cost if the person suffers from any disease.
• If you are suffering from such a disease which spread very fast and you do not have enough money to take care of your disease. In this case you do not have enough incentive to take care of this, there could be a case when the society or any social welfare programme helps you.

Reasons why Moral Hazard does not exist:

• If the society in which individuals are living are very conscious about their health, even if they have full body insurance with them, they will eat healthy, live healthy and will take care of themselves which does not create moral hazard.
• As we are growing number of hospitals in our society with updated technology and fully features which will help in treating every customer well and even if they are raising the prices with new technology, no one will have the objection against the raised prices. This does not reduce the incentive for customer because they are getting better facilities and hospitals are getting better prices.This does not create moral hazard.