Health insurance leads to _____ because doctors, patients, and hospitals all know that the insurance company will be paying the bills.

Question

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The presence of health insurance leads to moral hazard, which is the tendency for individuals to consume more healthcare services than they would if they were paying out-of-pocket. This is because insured individuals may not perceive the full cost of their healthcare, and therefore may not make fully informed decisions about their healthcare consumption. Doctors, patients, and hospitals may all contribute to this increased consumption, knowing that the insurance company will be paying the bills. Adverse selection refers to the tendency for people with higher healthcare needs to seek out insurance coverage more than those with lower needs, while information asymmetry refers to situations where one party has more information than the other in a transaction. The principal-agent problem refers to the misalignment of incentives between a principal (such as a shareholder) and an agent (such as a company manager).

Health Insurance Leads to _____ Because Doctors, Patients, and Hospitals