What is Moral Hazard and discuss the consequences and why they might not be desirable. Also, the deductible feature of an insurance policy can affect the impact of Moral Hazard. How so?
What is Moral Hazard? In economics, moral hazard is the lack of incentive to guard against risk when one is protected from its consequences. As an example, we can use the recent events leading to the market crash. Banks were issuing loans to people knowing it was not in their best interest, which lead to default loan and the subsequent decline of the housing market. So, how does moral hazard affect healthcare managers in today's healthcare market? Let us look at health care insurance as a prime example. Many young adults feel they don't need health insurance because they are young and healthy. Emergency rooms also have to treat the uninsured which means that even if they don’t have insurance they will always get treated. If the cost of care is beyond your means to afford it then taxpayers foot the bill, in the form of increased health care costs. The same reason you buy car insurance to protect yourself from the “what if”, the same applies to your health as a “what if” scenario could happen that finds you in the hospital.
There have been numerous horror stories in the news of individuals who were denied coverage based on pre-existing conditions, or cases where individuals had to raise the money to cover a procedure their health insurance denied. Before the ACA became law, health insurance policies could deny a person based on a pre-existing condition. In this case, by denying the individual a policy, the insurance company would not be responsible for a potentially expensive medical bill. For the individual that is in need of health insurance this would be a very undesirable consequence. For as the deductible on an insurance policy, there should be no effect in regards with Moral Hazard. A person who pays their deductible towards their insurance policy is taking to a...
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