Unbiased Analysis of Today's Healthcare Issues

On moral hazard and insurance

Written By: Jason Shafrin - May• 16•06
One of the major reasons why President Bush’s plan for Health Savings Accounts (HSA) required that participants use high-deductible health plans (HDHP) was to lessen the incidence of moral hazard. When an individual is insured against medical expenses, they are not liable for the full cost of medical services and thus are more prone to use more services than they would have if they faced the full cost.Shavell (QJE 1979) lays out a model which analyzes the impact of moral hazard on insurance offerings. Typically, separating moral hazard and adverse selection is difficult but Shavell assumes identical individuals in order to focus on the moral hazard phenomenon. For a summary of the article, click on the link below.
Steven Shavell (1979) “On moral hazard and insurance,â€? Quarterly Journal of Economics, Vol 93, No 4, pp. 541-562.

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