Question

Insurance companies often have both a fixed premium regardless of health care expenditures and a variable co-pay that the consumer must pay for every visit to the doctor. Identify and explain the motive for this payment structure in insurance plans.

Answer 1

Answer -. The co payment rule by the insurance companies , on every visit to the doctor helps to resolve the problem of the Moral Hazard which is prevalent in the insurance contracts. When the insurer will impose the co payments on every visit , this will increase the cost to the insured person , he will pay more attention to his health , in order to avoid going to doctor and paying the amount to insurer. Hence this reduces the risk of moral hazard to the insurance company.