Moral Hazard

Moral Hazard A few years ago when Hurricane Katrina wake, many people fled the ravaged Gulf Coast were spending disaster relief paid for by taxpayers, on tattoos, expensive handbags and making trips to their favorite places. In this case the damage has already done and people are using the debit cards issues by FEMA (Federal Emergency Management Agency). The debit cards are issued to buy the necessities like food and clothing. But the damage was done and people misused its money. FEMA swore that it would never hand out money like that again. Behind this up roaring confusion was that Americans were preoccupied by the “Moral Hazard” -an obscure insurance term that has taken on new currency in our troubled economy. In other words, if the money is free, why not spend it on a designer purse? Today, insurers battle moral hazard with co-pays and deductibles. If you have health insurance, you are based on the theory of moral hazard, less likely to avoid smoking, and more likely to go to the doctor for a common cold.
Under the theory of moral hazard, it is postulated that insured people overuse health care services and that patients themselves are a leading cause of health care inflation. If they would just have more "skin in the game" through enough cost-sharing (co-payments, deductibles and other restrictions), it is assumed that costs could be reined in. Instead of cutting health care spending, cost-sharing leads many patients to delay or forego necessary health care, resulting in later diagnosis of illness and higher costs down the road, together with decreased quality and outcomes of care. Overall health care costs are not reduced. Cost-sharing just shifts more costs to patients and families at a time when these costs are already unbearable for many.
Despite the widespread and increasing use of cost-sharing over many years, health care inflation remains completely out of control. Physicians push the buttons for health care services much more than patients.