Question

Which of the following situations is Consumer Moral Hazard?

A person chooses an insurance policy with a higher deductible because the monthly premium is cheaper.
An uninsured person buys insurance coverage when a new law is introduced requiring them to buy insurance or pay a fine.
An insured person drops their insurance coverage when the law requiring them to buy insurance is eliminated.
An insured patient accepts a generic medication instead of the branded medication, because they pay a lower copayment for the generic medication.
An insured patient accepts more physical therapy sessions for an injury than they would have if they had to pay the full price.

Answer 1

Consumer Moral Hazard occurs when insured individuals engage in riskier behaviors or consume more healthcare services than they would if they were paying entirely out-of-pocket. The example of an insured patient using more physical therapy sessions illustrates this, as insurance coverage lowers their direct cost, altering their behavior.

Step-by-step explanation:

The situation that represents Consumer Moral Hazard is when an insured patient accepts more physical therapy sessions for an injury than they would have if they had to pay the full price out-of-pocket. Moral hazard occurs because the insurance coverage reduces the individual's personal cost for receiving medical care, leading them to consume more services than they would if they bore the full cost.

Insurance plans use cost-sharing mechanisms like deductibles, copayments, and coinsurance to discourage moral hazard. A deductible is a fixed amount the insured must pay before the insurance kicks in, a copayment is a specified amount paid for each service, and coinsurance is where the insured pays a percentage of the costs. These tools create a financial responsibility on the part of the patient, which aims to mitigate excessive utilization of medical services.