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Moral Hazard Essay

9362 words - 37 pages

WHEN MORAL HAZARD IS GOOD:A CRITIQUE OF THE UNITED STATES HEALTH INSURANCE SYSTEMAshley GrayEconomics Senior ThesisUniversity of Puget SoundSpring, 2006TABLE OF CONTENTS:1. Abstract 32. Introduction 33. Insurance Concepts and Definitions 43.1 Moral Hazard4. Historical Background 84.1 History of Health Care in the United States4.2 Types of Insurance4.2.1 Publicly Funded Health Insurance4.2.1.1 Medicare4.2.1.2. Medicaid4.2.2 Private Insurance4.3 Current State of Health Insurance in the U.S.4.4 A Comparison to Other Industrialized Countries5. Models of Health Insurance 195.1 Social Health Insurance5.2 Actuarial Health Insurance6. The Conventional Moral Hazard Critique 226.1 The Critique6.2 Policy Solution6.2.1 Deductibles6.2.2 Coinsurance6.2.3 Co-payments6.2.4 Terms and Limits6.2.5 Preexisting Conditions6.2.6 Health Savings Accounts7. The Challenge 277.1 RAND Corporation Study7.2 The Distinction7.3 The New Theory7.4 Policy Implications8. Conclusions 341. ABSTRACTHealth plays an immensely significant role in an individual's life; it can determine both the quality and the length of a person's existence. It is therefore no surprise that health care is such a prevalent and controversial topic in the world today. In contrast to the historically public and non-exclusive health insurance in Europe, the health care system in the United States is exclusive and relies heavily on the private market for financing (Geyman 2005). This American preference toward consumer-directed health care is explained by the conventional "moral hazard" theory of health insurance. According to this theory, full insurance encourages individuals to overuse health services because they appear "free" or highly subsidized. New theory, however, indicates that this dominant view of moral hazard is fundamentally flawed, that full insurance is in fact effective and efficient.2. INTRODUCTIONThe dominance of the United States in health care research is clear. Since 1975, the Nobel Prize in medicine or physiology has been awarded to more Americans than to researchers in all other countries combined. As of 2002, eight of the ten top-selling drugs in the world were produced by companies headquartered in the United States (Ayres 1996). While the U.S. health care market provides excellent incentives for innovation and technological progress, American citizens, in general, have yet to receive good health care outcomes in comparison to citizens in other industrialized nations. In fact, the health insurance system in the United States is often discussed as an explanation for some of these negative effects on health care consumers. Concerns within public discourse regarding the fundamentals of the current health insurance system are not new developments. The U.S. ranks 37th in a current World Health Organization examination of the world's health care systems (World Health Organization 2000). Modifying the health insurance system offers an especially attractive target for cost-saving reform....

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