In government-provided health insurance, what can moral hazard lead to?

Moral hazard refers to the phenomenon where individuals alter their behavior when they have insurance coverage because they do not bear the full cost of their actions. In the context of government-provided health insurance, this situation can lead to more frequent utilization of health services. When individuals know they are insured, they may be more likely to seek medical care, even for minor issues, since they do not personally incur the entire cost of that care. This can result in an increase in demand for healthcare services, as people feel less constrained by potential financial burdens.

The dynamics of moral hazard emphasize that when patients are insulated from the costs associated with their medical care, they might overuse services, leading to higher overall healthcare expenditures. This trend is important for policymakers to consider, as it can impact the sustainability of public health insurance systems and overall healthcare costs.