What best describes the moral hazard concept in health insurance?

• A. A policy to reduce hospital costs.
• B. The phenomenon where insured individuals use less care to avoid co-pays.
• C. The tendency for individuals with insurance to consume more care because insulated from costs.
• D. The risk that providers will never charge patients.

Answer: (C)

Moral hazard in health insurance describes how having coverage changes how people use care because they don’t bear the full cost. When out-of-pocket costs are low or zero, individuals are less price-sensitive and may consume more medical services than they would if they were paying the full amount themselves. This increase in utilization occurs because the financial consequence of using services is insulated from the consumer. That’s why the description “insured individuals consume more care because insulated from costs” best captures the concept. The other options miss the behavioral change caused by insurance: one talks about a policy to cut hospital costs, another implies using less care to dodge co-pays, and the last concerns providers charging patients, not patient behavior.