Question

In the real world, the extent to which health insurance leads to ex-ante moral hazard (i.e, the chance of risky health behavior in response to insurance) is large

T or F

Answer 1

Answer: TRUE (T)

Reason: Suppose Mr. X gets his health insurance done such that if he falls sick suddenly in the future, he will get refund of all the money spent on medical treatment, such an assurance often leads to moral hazard. Moral Hazard is a situation wherein the insured person becomes carefree or less cautious of his health (in this case) because he knows that he will get repayment of all medical bills. Had he not got his insurance done, he would have taken care of his health in a better way. Hence, health insurance always leads to large chance of risky health behaviour in response to insurance.