subject: Creating a Moral Hazard With Health Care Reform [print this page] Plenty of debate and legal challenges will continue into the foreseeable future. Some of that debate will center around the moral hazard created by the new law, something that should have been obvious to the legislators behind it.
The term "moral hazard" should be familiar to anyone who has studied economics. It is covered in many university courses to some extent when studying financial instruments such as insurance. One of the simplest examples of creating a moral hazard is fire insurance. A fire insurance policy that would pay more than the value of a structure under any circumstances would create an incentive to burn the structure for profit, hence creating a moral hazard.
Another example would be a very large life insurance policy that would pay regardless of cause of death, creating an incentive for a broke and despondent person to commit suicide in order for their family to receive a substantial insurance benefit. Insurance companies try to mitigate such moral hazards by placing limitations on benefit amounts and disqualifying certain events from coverage. Suicide, for example, usually means no benefit is paid.
It would appear that the moral hazard introduced by the new health care reform law weren't considered or addressed in advance. For one, the requirement that all Americans purchase health insurance or face a fine creates a moral hazard for anyone who examines the relative costs. Published studies show that in 2009 the average cost of health insurance was approximately $4,800. In other words the "average" person would be paying around $400 per month in health insurance premiums.
