Moral hazard impacts on the cost of healthcare services
Healthcare services are usually costly and can easily get an individual below the poverty line because of the expenditures they incur while treating for unexpected illnesses. Thus, a lot of people go out to take health insurance so that it can act as a safety net to help pay for hospital bills in case one gets ill. However, while taking such insurances, there may be a situation where one party knows more than the other when there is asymmetric information between them (Barati et al., 2018). Due to the presence of asymmetric information, a situation known as moral hazard is created. After an individual has taken health insurance, they pay less when they get sick as such they will go on and take even more care plans which will in turn increase healthcare costs (Barati et al., 2018). Moral hazard is the phenomenon where the behavior of both consumers and service provider are changed because of a given factor.
Moral hazard can be created when an individual indulges in risky activities such as excessive intake of alcohol and other drugs like; inhalants, heroin, cocaine, steroids, and so forth. These drugs deteriorate an individual’s health but because an individual has insurance, they will go ahead and abuse them because they know they will not fully pay for the healthcare cost but their insurance will. When taking these drugs, individuals usually take them unsafely because they share needles thus transmitting multiple diseases to one another.
Moral hazard has various impacts on the cost of healthcare services. For instance, when individuals indulge in risky behaviors at high rates, the cost of insurance is increased by the providers. This is to enable providers to effectively cater for all the healthcare costs (Barati et al., 2018). Furthermore, premium insurances are usually split into two. The first part is where a consumer pays to protect themselves against danger with the assumption that there is no moral hazard (Barati et al., 2018). The second part is a surplus created in case the consumer indulges in moral hazard. All this is done to protect the insurance provide and also combat moral hazard.