One way that insurance companies can reduce the moral hazard problem is to
A) make insurance customers pay a deductible before the company pays on a claim.
B) engage in genetic testing to determine who is more likely to be high risk.
C) eliminate copayments on insurance claims.
D) insure only customers with good morals.

Question

Quizplus · Accepted Answer

By making insurance customers pay a deductible before the company pays on a claim, it reduces the likelihood of people making small and frivolous claims, as they would have to pay a portion of the claim themselves. This reduces the moral hazard and encourages people to be more careful and only claim when there is a significant loss. The other options, such as genetic testing or only insuring customers with good morals, can be unethical, discriminatory, and also raise privacy concerns. Eliminating copayments on insurance claims may encourage people to make more claims, leading to an increase in moral hazard.

One Way That Insurance Companies Can Reduce the Moral Hazard