What is moral hazard in health care?

Moral hazard in health care refers to the phenomenon where individuals are more likely to engage in risky behavior or overutilize health care services after obtaining insurance coverage. The reasoning behind this is that when individuals have insurance, they may not feel the full financial impact of their health-related choices. This can lead to actions such as seeking medical care for minor issues that they might otherwise have managed themselves or engaging in risky health behaviors, knowing that they are protected by their insurance.

Understanding this concept is critical in economic discussions of health care because it highlights the need for proper incentives and structures within insurance plans. If patients believe that their insurance will cover any costs, they may take to heart less cautious health practices, potentially leading to increased health care spending and strain on resources.