In the discussion about cost increase for German health care, the existence of a moral hazard problem is often mentioned. A bigger part of the costs are ascribed to the insured persons´ behavior or lifestyle. The insured person is led to an increased demand of medical services than without an insurance. But also doctors or pharmacists may be evidenced „unethical“ behavior on the part of supply-induced demand. Is it really an unethical or rather a rational behavior? Which experiences have been made with a higher self-participation of the insured people? In which context stay health care services and price elasticity? And how can you reduce the problem of moral hazard? These are just a few questions which will be examined in this paper.
The first chapter begins with health insurance in general and explains the benefits and the risks of being insured. The second chapter gives a generally valid definition of moral hazard as well as in terms of health insurance in particular. The third chapter shows the empirical perspective from the point of view of insured people and doctors. Thereby, it will enlarge on the RAND experiment and the price elasticity in the German market. The fourth chapter gives a few solutions for moral hazard effects, whereby solutions for insured people and for alternative financing are here in the focus. The last chapter will give a conclusion to the discussed topic.
Table of Contents
1. Introduction
2. Health insurance
3. Moral hazard
3.1 Moral hazard general
3.2 Moral hazard in health insurance
4. Empirical perspective
4.1 The RAND Health Insurance Experiment
4.2 Price elasticity for health services in the German market
4.3 Health care providers and the external moral hazard
5. Solutions of moral hazard effects
5.1 By the insured persons
5.2 Medical Savings Accounts
6. Conclusion
Research Objectives and Key Topics
The primary objective of this paper is to examine the phenomenon of moral hazard within the context of health insurance, investigating both its economic theoretical foundations and its practical manifestations through empirical evidence. The research seeks to determine how insurance coverage influences the behavior of both patients and health care providers, and whether mechanisms like deductibles or Medical Savings Accounts can effectively mitigate the resulting welfare losses.
- Theoretical definitions of internal versus external moral hazard.
- Analysis of the RAND Health Insurance Experiment regarding demand elasticity.
- Evaluation of supply-induced demand by health care providers.
- Assessment of policy solutions, including co-payments and Medical Savings Accounts (MSA).
- Review of the conflict between individual rational behavior and collective welfare.
Excerpt from the Book
3.2 Moral hazard in health insurance
In the German health system the term moral hazard is often mentioned in the discussions about the cost increases and thereby in the context of the demand of medical care of the patients. With regard to health insurance, the term moral hazard stands for an individuum, who changes its behavior because of being covered by an insurance. The insured person asks for more medical care than he would do without insurance (Pauly, 1968, p. 535).
In health insurance, moral hazard was spread through the papers of Mark Pauly (1968) and Kenneth Arrow (1963). They used the expression to refer to the subjective risk attitude. Arrow (1963) focused in his article „Uncertainty and the Welfare Economics of Medical Care“ on the incomplete market of health insurance and the significance of the uncertainty as unquantifiable risk. The demand for medical care is not equivalent to the necessity of food and clothing. The necessity occurs irregularly and depends on the probability to be ill. The expenses of food depend on the income of an individuum can avoid its hunger. For health, this cannot be expected. On the one hand, health is a question of money with regard to quantity and quality of medical care, but on the other hand the risk of illness cannot be eliminated by money (Arrow, 1963, pp. 948-949; Osmers/Vauth, 2004, p. 8).
Summary of Chapters
1. Introduction: This chapter outlines the problem of moral hazard in the German health care market and defines the scope, research questions, and structure of the paper.
2. Health insurance: This chapter describes the function of health insurance systems, focusing on the principle of solidarity and the concept of risk pooling.
3. Moral hazard: This chapter defines the theoretical origins of moral hazard and differentiates between internal and external moral hazard in health insurance.
4. Empirical perspective: This chapter analyzes empirical studies, specifically the RAND Health Insurance Experiment and price elasticity models, to demonstrate the demand-side impact of insurance.
5. Solutions of moral hazard effects: This chapter evaluates potential solutions to mitigate moral hazard, including co-payments for insured persons and the implementation of Medical Savings Accounts.
6. Conclusion: This chapter synthesizes the main findings, reiterating that while insurance provides necessary welfare, it necessitates mechanisms to counter the inefficiencies caused by individual moral hazard behavior.
Keywords
Moral Hazard, Health Insurance, Price Elasticity, RAND Health Insurance Experiment, Medical Savings Accounts, Deductibles, Statutory Health Insurance, Supply-induced Demand, Welfare Loss, Asymmetric Information, Risk Pooling, Inpatient Services, Outpatient Services, Behavioral Economics, Cost Consciousness.
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on the economic concept of moral hazard within health insurance, analyzing how insurance coverage alters the behavior of patients and providers, leading to potential welfare losses.
What are the primary themes discussed?
The central themes include the theoretical definition of moral hazard, empirical evidence from studies like the RAND experiment, price elasticity of medical demand, and potential policy solutions such as Medical Savings Accounts.
What is the main objective or research question?
The main objective is to identify whether the "moral hazard" problem is an unethical or rational behavioral response to insurance coverage and to evaluate effective mechanisms to reduce such effects.
Which scientific methods are employed?
The paper utilizes a literature-based analysis of economic theory combined with a review of empirical studies and quantitative evidence from health economics research.
What topics are covered in the main body?
The main body covers the theoretical framework of moral hazard, the empirical evidence (RAND experiment, price elasticity in Germany), the role of external moral hazard by doctors, and practical solutions like MSA and co-payments.
Which keywords best characterize this work?
Key terms include Moral Hazard, Health Insurance, Price Elasticity, RAND experiment, Medical Savings Accounts (MSA), and Asymmetric Information.
How does the "external moral hazard" differ from the "internal" one?
Internal moral hazard refers to the behavior of the insured patient who demands more care due to coverage, while external moral hazard refers to doctors or pharmacists who influence service demand to their own benefit.
What is the role of the RAND Health Insurance Experiment in this analysis?
The RAND experiment serves as a crucial empirical foundation to demonstrate how different levels of deductibles and cost-sharing significantly impact the actual demand for health care services.
Why are Medical Savings Accounts considered a potential solution?
MSAs are considered a solution because they shift financial responsibility to the individual, thereby incentivizing cost-conscious behavior and reducing the demand for unnecessary medical services.
- Quote paper
- Anke Höhmann (Author), 2016, Moral Hazard Effects in Health Insurance. An Empirical Perspective, Munich, GRIN Verlag, https://www.grin.com/document/367889
