Question

The deductible feature of an insurance policy can affect the impact of moral hazard. Explain this context either of probability of treatment and/or amount of treatment demanded

Answer 1

Moral hazard arises when the insured whose actions are unobservable by the insurer can increase the probability of an event against which the party is insured. Moral hazard also refers to the increased usage of services when the pooling of risk leads to decrease marginal price for service.

Using a model of plan choice and medical utilization,it present evidence of heterogeneous moral hazard as well as selection on it, and explore some of its implications. For example, we show that, at least in context, abstracting from selection on moral hazard could lead to over-estimates of the spending reduction associated with introducing a high-deductible health insurance option.