Final answer:
Hospital indemnity policies often contain benefits limits such as deductibles, copayments, and coinsurance to reduce moral hazard. These require the policyholder to shoulder some healthcare costs, which can discourage unnecessary use of medical services but also pose challenges for low-income individuals.
Step-by-step explanation:
Hospital indemnity policies typically include several limitations on benefits, such as deductibles, copayments, and coinsurance. These are cost-sharing mechanisms that require the policyholder to pay a portion of medical expenses out-of-pocket. Deductibles are the amount a policyholder must pay before insurance coverage kicks in. Copayments are fixed fees paid at the time of service. Coinsurance is a percentage of the costs that the policyholder must cover. These structures aim to reduce moral hazard by ensuring that policyholders have a financial stake in their own healthcare expenses, discouraging overutilization of services.
For those facing financial difficulties, especially prior to the Affordable Care Act, access to medical facilities was limited, and many had to rely on emergency room visits for healthcare. These visits are costly, and they pose an economic externality since the care expenses can be passed on to insured individuals or covered by charities. Hospital indemnity policies are one measure to help manage these costs, but they also have their own limits which affect their effectiveness.