Moral Hazard in Health Insurance

Abstract

This history of moral hazard in health insurance shows that this concept is different from how moral hazard is understood in economics outside of health. Health economists are divided on their understanding and conceptualization of moral hazard in health insurance and we show that these divisions can be organized along two main questions: one on the nature of demand for health care and one on the nature of demand for health insurance. The former revolves around the ability of consumers to make informed choices and, as a consequence, how we value the health care services that are consumed. The latter revolves around the idea that utility of consumption is significantly affected by changes in health status, and that health insurance might work, as a result, as an income transfer across states of the world rather than as protection against financial risk.