Final answer:
Insurance companies often prefer to fund medications over psychotherapy due to the measurable and immediate results of the former. The concept of moral hazard explains why insured individuals might consume more healthcare services and engage in less healthy behaviors when their financial risk is reduced by insurance. Methods like copayments and deductibles are employed to reduce this moral hazard, leading to less consumption of medical services without impacting health status.
Step-by-step explanation:
Insurance companies often show a preference for funding medications over psychotherapy because medications usually provide quicker, more visible, and more verifiable results. This contrast to the potentially lengthy and less objectively measurable outcomes of psychotherapy addresses a broader concern in health economics related to moral hazard. Moral hazard refers to the notion that having insurance can lead to increased consumption of health care services, and potentially less healthy behaviors, due to the reduced financial risk.
Notably, cost-sharing mechanisms such as deductibles and copayments aim to mitigate moral hazard by ensuring that insured individuals bear some out-of-pocket costs, leading to approximately one-third less consumption in medical care without a noticeable difference in health status. Furthermore, there is a discussion about the efficiency of preventative healthcare and the influence of insurance on health behaviors, where insured individuals might engage in more smoking, drinking, and less exercise.