Question

Suppose that we 2 individuals, Jim-Bob and Billy-Bob, have been suffering from illnesses for 10 years. Jim-Bob suffers from continuous eczema (itchy and irritated skin). Billy-Bob suffers from gout (a painful swelling of the joints). Both Jim-Bob and Billy-Bob agree that Billy-Bob’s disease (gout) is MUCH WORSE than Jim-Bob’s disease. Because of an expansion of low income health insurance offerings, both Jim-Bob and Billy-Bob now have the opportunity to purchase health insurance. Who is likely to increase their consumption of healthcare services MORE (relative to how much they utilized before) with their health insurance?

Answer 1

In our question, it is clearly mentioned that the disease of Billy-Bob is MUCH WORSE than Jim-Bob. As both the individuals are now going to take the health insurance despite of the different level of seriousness of their disease, there arises a question of Moral Hazard. Moral Hazard is the theory of additional healthcare which is purchased when the person become insured, since this additional healthcare was not necessary it raises the demand of healthcare. It is worth to note that Moral Hazard doesn't arise in the case of serious disease, the healthcare for which is necessary for survival of an individual. Here in our example Billy-Bob disease is serious and the health insurance demand is also created because of this. So for Billy-Bob the demand for healthcare is going to remain same due to the seriousness of disease. Whereas Jim-Bob was not using healthcare much before but now after purchasing healthcare he may start using the healthcare so consumption for Jim-Bob is likely to increase.