Question

"Public provision of health care financed through taxes should overcome the problems of Moral Hazard and Adverse Selection." Discuss this statement.

Answer 1

Public provision is usually financed through taxation; private provision is usually financed by private payments. Public provision insurance has generally low explicit administrative costs. The tax collected funds are costly thus scare, thus it is vital it overcomes the issues of moral hazard and adverse selection. Adverse selection occurs when one party is better equipped with information and thus while negotiation has more information the other party lacks; and moral hazard occurs when persons who have become insured purchases an additional health care. Government monitoring and regulations can also help to prevent health insurers from adverse selection and moral hazards.