Final answer:
Deductibles, copayments, and coinsurance reduce moral hazard by prompting the policyholder to share the cost of medical services, leading to more prudent use of insurance. These forms of cost-sharing result in decreased consumption of healthcare without negatively impacting health outcomes.
Step-by-step explanation:
To understand how deductibles, copayments, and coinsurance reduce moral hazard, we must first define each term. A deductible is the amount the insurance policyholder must pay out of pocket before insurance coverage kicks in. On the other hand, a copayment is a fixed amount the policyholder pays for a covered service, such as visiting a doctor. Finally, coinsurance represents the percentage of the cost of a covered service that the policyholder must pay.
The way deductibles, copayments, and coinsurance help to reduce moral hazard is by increasing the cost to the insured person of using medical services. They ensure that the policyholder bears a portion of the cost, which discourages overconsumption and unnecessary claims. A notable study observed that when faced with these cost-sharing mechanisms, individuals consumed about one-third less in medical care compared to those with complete insurance and no out-of-pocket expenses, evidencing a reduction in moral hazard. Additionally, this decrease in consumption did not adversely affect their health status.