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Health Insurance, Moral Hazard, and Managed Care
Author(s) -
Albert Ma ChingTo,
Riordan Michael H.
Publication year - 2002
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.2002.00081.x
Subject(s) - copayment , moral hazard , morale hazard , actuarial science , incentive , marginal utility , price elasticity of demand , economics , managed care , health insurance , casualty insurance , business , insurance policy , auto insurance risk selection , health care , microeconomics , economic growth
If an illness is not contractible, then even partially insured consumers demand treatment for it when the benefit is less than the cost, a condition known as moral hazard. Traditional health insurance, which controls moral hazard with copayments (demand management), can result in either a deficient or an excessive provision of treatment relative to ideal insurance. In particular, treatment for a low‐probability illness is deficient if illness per se has little effect on the consumer's marginal utility of income and if the consumer's price elasticity of expected demand for treatment is large relative to the risk‐spreading distortion when these are evaluated at a copayment that brings forth the ideal provision of treatment. Managed care, which controls moral hazard with physician incentives, can either increase or decrease treatment delivery relative to traditional insurance, depending on whether demand management results in deficient or excessive treatment.