1. Moral Hazard in health care usually refers to the additional consumption of m
ID: 1100455 • Letter: 1
Question
1. Moral Hazard in health care usually refers to the additional consumption of medical care by the insured relative to the uninsured; that is, as the price falls to zero, people consume more services. Should all of the additional "insurance-related consumption be considered waste? why or why not?
2. The implication is that if we raise prices at the point of service, using deductibles and copayments, we can reduce consumption. Is it possible that we can reduce it too much?
3. To what extent can this strategy...Excepting certain kinds of primary care from deductibles and copayment...be adopted for other kinds of health care? are there "optimal" copayments for all medical procedures and service, ones that can discriminate between welfare enhancing versus welfare reducing moral hazard?
Explanation / Answer
1. No it should not be considered waste. Generally when people seek out medical help it is because they truly need it whether they can acquire it or not. This means that just because someone is insured and receives health care does not mean that they would simply be over indulging their benefits but rather just making the best of their own situation and treating themselves of whatever they may have because they have the ability to.
2. Yes you could definitely reduce it too much. You could reduce it to the point where no one would even be able to afford health care anymore. If consumption of a certain product or service in health care were to be reduced then it would only negatively affect the market. Of course you would not however want to have consumers exceed what they should be using on average as a reasonable amount for health care service. You would just want the market to find its equilibrium at this point. Not too much and not too little, but in short yes you can reduce it too much through higher fess or deductibles and co-payments.
3. It can be adopted for other kinds of health care perhaps by following a similar pricing strategy and marketing procedure. Generally there are not always optimal co-payments for all medical procedures and service as each hospital or doctor tend to do things a little bit differently however there usually is some common ground in between them. It really all comes down to who the doctor is and or service. In a sense most procedures however will have some sort of co-payment or service feature for the patient making the process a lot easier for them and preserving efforts from being wasted.
Hope this helps, good luck.
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