Moral Hazard In Health Insurance

Overview

The term moral health hazard can be used for a situation within which one party gets involved within a risky task, knowing that it is subjected to high levels of protection against the risk and the other party is prone to incur the possible loss. As stated by Einav & Finkelstein (2018), moral hazard is likely to occur when both the parties have incomplete inform due to poor modes of communication, between one another. In the context of healthcare dissertation help, understanding these dynamics can provide valuable insights into risk management and communication strategies within the healthcare system.

The history in relation to moral hazard within health insurance and the possible controversies associated among the health economists. The term moral health hazard is used to characterise the fact insured use more services for treating a specific kind of illness than the uninsured (Keane & Stavrunova, 2016).The moral hazard within the domain of insurance literature is taken to mean deviation from correct behaviour or failure to uphold the standard moral qualities. Martinon, Picard, & Raj (2018), argued the fact that the concept of health insurance can be termed misnomer. Under the provision of insurance contract that reduces price at the point of use, there remains nothing immoral or unethical in response by an insured individual to use services. Rather, the insured individual was simply reacting as any rational individual would react, if subjected to change. The taste could be easily translated to demands and the changes could be made. However, Sengupta & Rooj (2019), opposed the value laden view operating within the insurance industry in favour of what the author perceived as value neutral economic analysis.

The root of moral hazard is asymmetric information. The party taking the risks in transaction has more information about the intentions, as compared to the party, suffering from any significant consequences.

Impact of moral hazard

The cost sharing is not appropriate: The healthcare policies and associated insurance terms. Imposing coinsurance for health care services can work on reducing the costs. However, it becomes important to understand the fact that moral hazard creates a gap in cost sharing activities, making it difficult to go for cost sharing services

Reluctance: The increasing costs make the service users. As stated by Einav & Finkelstein (2018), medical insurance companies often exhibit reluctance to offer full insurance as doctors exhibit an incentive to over-prescribe the treatment. Doctors are often seen to implement risky treatment as the cost is borne by the insurance companies.

Disparity in information: As stated by Keane & Stavrunova (2016), the party with extra information harbours greater rates of motivation or behaves poorly to benefit from the transaction. The benefit of asymmetric information generally occurs after the transaction has concluded.

Ways to control moral hazards

Penalise bad behaviour: The government should work on penalising the ones making reckless decisions and work on reinforcing good behaviour within the domain of healthcare system (Martinon, Picard & Raj, 2018)

Performance related payment: To avoid the moral hazard within the labour market of the healthcare industry, there needs to be a suitable performance evaluation with no guarantee of job for life.

Building incentives: The insurance companies should work on ensuring that they design a contract to give incentive every time an insurance is made. The mentioned ways can work on reducing the potential chances of moral hazard and ensuring that the proper moral work guidelines are followed.

Reference list

• Einav, L., & Finkelstein, A. (2018). Moral hazard in health insurance: What we know and how we know it. Journal of the European Economic Association, 16(4), 957-982.
• Keane, M., & Stavrunova, O. (2016). Adverse selection, moral hazard and the demand for Medigap insurance. Journal of Econometrics, 190(1), 62-78.
• Martinon, P., Picard, P., & Raj, A. (2018). On the design of optimal health insurance contracts under ex post moral hazard. The Geneva Risk and Insurance Review, 43(2), 137-185.
• Sengupta, R., & Rooj, D. (2019). The effect of health insurance on hospitalization: Identification of adverse selection, moral hazard and the vulnerable population in the Indian healthcare market. World Development, 122, 110-129.