One of the problems with creating the “optimal” health insurance plan is accounting for moral hazard....

One of the problems with creating the “optimal” health insurance plan is accounting for moral hazard. Give an example of moral hazard in healthcare and a way to help eliminate it.

Expert Solution

Moral hazard is of economic interest because it creates an obstacle to the consumption smoothing purpose of insurance. In the health insurance market, when the insured party or individual behaves in such a way that costs are raised for the insurer, moral hazard has occurred. Individuals who don't have to pay for medical services have an incentive to seek more expensive and even riskier services that they would otherwise not require. It can be eliminated by providing institutes a copay and deductibles, which require individuals to pay for at least the part of the services they receive.

Rahul Sunny answered 2 years ago

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