Cost-sharing and the demand for healthcare - Health insurance might increase the demand for health care
3 important questions on Cost-sharing and the demand for healthcare - Health insurance might increase the demand for health care
What is moral hazard?
- The increase of spending because the insurance reduces the price for health care for the consumer
- People can behave more risky because of insurance because you know that insurance covers the cost, your incentive to avoid is smaller.
What are the three reasons we cannot escape moral hazard?
- Asymmetric information
- Regulation
- Transaction costs
What is asymmetric information
The insurer can not observe the efforts made by consumers and therefore he is not able to write down those efforts in a contract.
- Another consequence from asymmetric information is adverse selection.
- Important: this is different from moral hazard.
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