Bill is an aging snowboard instructor at a local ski resort. All winter, he takes over the counter pain medication to deal with his aching joints. Each summer, he moves home with his parents and takes a part time job making minimum wage. This summer, he got qualified for and enrolled into state government subsidized health insurance. Now he plans to undergo arthroscopic surgery by the end of the summer to repair his knee. Though this is an economically rational decision for Bill, it represents a welfare loss to society as a whole.

Question

Quizplus · Accepted Answer

Having insurance gives Bill an incentive to use more care than he does when he doesn't have insurance. This is the definition of Moral Hazard. Moral Hazard imposes a welfare loss on society.

Bill Is an Aging Snowboard Instructor at a Local Ski