Moral Hazard

Refers to the risk that individuals will be more likely to seek more health care services when costs are distributed evenly across the population covered within a particular insurance plan. Moral hazard occurs whenever individuals are not responsible for paying all the costs associated with their medical treatment. This risk may result in health plans with the best coverage attracting individuals whose health care needs are greater than an average risk, which drives up the costs to all. Managed care, exclusions, deductibles and co-pays are tools intended to reduce moral hazard. The difficulty with moral hazard is that insurance companies may employ ethically questionable means to reduce costs, e.g., excluding persons with preexisting conditions, disabilities, and chronic illness. (See: CCHC Position Statement on Managed Healthcare).

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