Revisiting the welfare economics of moral hazard, Dr Nadia J. Sweis
Dr Nadia J. Sweis
Princess Sumaya University for Technology
Jordan
Purpose: The aim of this paper is to confi rm that using indemnity health insurance decreases the problem of Moral
Hazard in which people are over utilising healthcare services.
Approach: This paper modifi ed the microeconomic model of utility that explains the relation between risk and incentives of using healthcare services developed by Thomas McGuire.
Findings: The model concludes that individuals with high probability of getting sick do not over utilise medical services when having indemnity health insurance.
Social implications: This paper suggests that using indemnity health insurance reduces Moral Hazard by the placing of
responsibilities on both the insured and the insurer. The insured will be more careful when using healthcare services and might use preventive care.
Value: This paper adds to the literature a new mathematical approach that supports the provision of indemnity health insurance and why it might be preferable to universal health insurance.
Keywords: optimal health insurance coverage; demand for health insurance; moral hazard; cost sharing; private health
insurance; welfare loss of moral hazard; indemnity insurance.
Citation: Sweis, N. J.(2016): Revisiting the welfare economics of moral hazard. In Ahmed, A. (Ed.): Europe at a Crossroads and the Impact of Globalization, Vol. 14, pp. 293-298.
