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3. Is There Moral Hazard in Medical Insurance?

3. Is There Moral Hazard in Medical Insurance?

Moral threat is of financial interest since it creates a barrier towards the consumption-smoothing function of insurance coverage. Insurance is important since it brings a car for transferring use from (contingent) claims with low limited power of earnings (elizabeth.g., when a person is healthier) to claims with a high limited power of earnings (elizabeth.g., whenever one is sick). The initial most useful insurance deal would equalize marginal utility across various shows; the presence of ethical hazard helps it be infeasible to search for the first better. As Pauly (1968) very first described, if people’ health care usage reacts towards the rates they should pay it off and main health condition is not contractible, the expense of providing insurance coverage will increase and folks might no lengthier feel willing to shell out the break-even cost of full insurance. (suite…)

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