Final answer:
The risk of refusing care is equivalent to a concept known as moral hazard, where individuals conduct riskier behavior when insured, as costs are defrayed by insurance. Health insurance is one example where coverage may lead to less caution against illness as the patient is not directly bearing the costs. Businesses, too, might invest less in preventative measures if they have insurance to cover potential damages.
Step-by-step explanation:
Understanding the risk of refusing care is equivalent to what is called moral hazard. Moral hazard occurs when individuals or entities take on riskier behavior because they are insulated from the consequences, often by insurance. For instance, health insurance can lead to fewer precautions taken against illness, as the insurance covers doctor visit costs. Conversely, without insurance, there is a stronger incentive to prevent damage or illness because the individual or business would bear the full cost of the consequences.
Businesses may install comprehensive security systems if uninsured, but with insurance, they may opt for minimal systems. Deductibles and copayments have been noted to reduce moral hazard as individuals with these types of insurance plans consume less medical care than those with full coverage but do not exhibit differences in health status, indicating a balance between cost and use of services.
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