Moral Hazard in Healthcare and Its Implications

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Moral Hazard in Healthcare and Its Implications
In public discourse, the most common explanation is that an automobile owner is far more likely to be reckless in taking risks because they have car insurance. Since such owners are protected from the associated repair expenses, they are more likely to visit repair and maintenance far more often than necessary. Insurers strive to overcome this problem by allocating some auto-repair costs to the auto owner in the auto insurance industry. Since there is a potential to spend, auto-owners become more careful in how they drive; by driving less recklessly to avoid out-of-pocket expenses. In other words, moral hazard occurs when an individual facing risk changes their behavior depending on whether they are insured or not (Perelman). Like the auto insurance industry, the health insurance industry is also susceptible to the theory of moral hazard. However, the manifestation of moral hazard in the healthcare sector takes three distinct yet related forms that make it challenging to find solutions and prevent deadweight losses and undesired returns on investments (ROI) involving quality improvement programs.
Moral Hazard in Healthcare
In the Netherlands, an individual’s average healthcare expenditures without a voluntary deductible are two times those without a voluntary deductible (Remmerswaal et al. 3). Essentially, a person who has medical coverage is more likely to visit the doctor because the expenses are, after all, incurred by a different party. Traditionally, people without insurance would be expected to be less likely to seek services because of the out-of-pocket expenses involved. The finding by Remmerswaal et al. is consistent with the most common explanation of moral hazard in the auto-insurance industry. Those with insurance have an incentive to seek medical services and do so at the slightest discomfort, even when not necessary. They enjoy this freedom because they are not obliged, at any point, to pay for medical expenses. In contrast, those without cover understand the costs and will not visit the doctor at any unnecessary convenience. Thus, a moral hazard in healthcare is when those with insurance tend to overuse healthcare services because they are not, in their capacity, footing the bill (Light).
Additionally, individuals who have insurance may elect not to take care of their health because medical expenses will be covered when they get ill. This prevents the second way in which insured individuals may misuse health resources. Even they can take precautions to avoid over-the-counter drugs, for instance, through subtle lifestyle changes, they still prefer ensuring that the insurance is in use. While this is not wrong from a business point of view, within lies a moral dilemma in which health resources are not utilized optimally to address pertinent health issues.
The above explanation of moral hazard in healthcare focuses on the patients, one of the three core stakeholders in an insurance policy. The other two stakeholders are medical service providers and the insurer. The same way moral hazard manifests through the consumer (policyholder) is the same it manifests among the two other stakeholders, albeit with relatively different ou...