Book contents
- Applied Healthcare Economics
- Applied Healthcare Economics
- Copyright page
- Contents
- Figures
- Boxes
- Exhibits
- Preface: What Managers Should Do
- 1 Management Mission Impossible
- 2 Ideal Decisions with and about Evidence
- 3 The Managerial Problem with Primary Care
- 4 Doctors and Hospitals
- 5 How Good Can We Be? How Big Should We Be? Should We Try to Conquer the World?
- 6 Dancing in the Dark
- 7 Managing Insurance and Managing with Insurance
- 8 Cost-Effectiveness and Insurance Coverage
- 9 Value-Based Everything in Healthcare
- 10 Pricing That Violates Economic Law
- 11 Who Is the Buyer of Insured Medical Care?
- 12 Competition, Antitrust, and Regulation in Hospital and Healthcare Markets
- 13 Cost Containment
- 14 Drugs
- 15 Social Determinants of Health and Health Spending
- 16 Conclusion: Don’ts, Dos, and Debunks from Economics
- Index
6 - Dancing in the Dark
Managing with Moral Hazard, Adverse Selection, and Other Information Imperfections
Published online by Cambridge University Press: 26 September 2025
Book contents
- Applied Healthcare Economics
- Applied Healthcare Economics
- Copyright page
- Contents
- Figures
- Boxes
- Exhibits
- Preface: What Managers Should Do
- 1 Management Mission Impossible
- 2 Ideal Decisions with and about Evidence
- 3 The Managerial Problem with Primary Care
- 4 Doctors and Hospitals
- 5 How Good Can We Be? How Big Should We Be? Should We Try to Conquer the World?
- 6 Dancing in the Dark
- 7 Managing Insurance and Managing with Insurance
- 8 Cost-Effectiveness and Insurance Coverage
- 9 Value-Based Everything in Healthcare
- 10 Pricing That Violates Economic Law
- 11 Who Is the Buyer of Insured Medical Care?
- 12 Competition, Antitrust, and Regulation in Hospital and Healthcare Markets
- 13 Cost Containment
- 14 Drugs
- 15 Social Determinants of Health and Health Spending
- 16 Conclusion: Don’ts, Dos, and Debunks from Economics
- Index
Summary
Health insurance does not work well when individuals have more information about illness than the insurer. Two problems arise as a consequence of this information gap. Moral hazard, which arises when individuals know more about their current needs than the insurer, generates an overutilization of care services. Adverse selection, caused by insureds having more information about future risk than insurers, leads high-risk individuals to buy high coverage (at a high premium) and low-risk individuals to buy lower coverage than optimal. This chapter covers these market failures and presents some evidence and thoughts about policies that have been used to reduce their negative effect, such as cost-sharing for dealing with moral hazard, and mandates and cross-subsidies for buying high coverage. I end by arguing that dealing with selection should not be a top priority.
Information
- Type
- Chapter
- Information
- Applied Healthcare EconomicsUnexpected Insights for Management and Policy, pp. 100 - 148Publisher: Cambridge University PressPrint publication year: 2025
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