title: Severity of illness and the welfare effects of moral hazard.
abstract: The extent to which the moral hazard caused by health insurance represents economic inefficiency has been the subject of much debate. This paper incorporates health status in a model of moral hazard, and finds that seriously ill patients are likely to exhibit greater moral hazard than healthier patients but the proportion of moral hazard that is inefficient declines with the severity of illness. Because of these competing tendencies, the cost of resource misallocation is parabolic in the severity of illness. The effect of the consumer's initial wealth endowment is also considered.
authors.affiliation: Department of Economics, Canisius College, 2001 Main Street, Buffalo, NY 14208-1098, USA. eisenhauer@canisius.edu
authors.forename: Joseph G
authors.initials: JG
authors.lastname: Eisenhauer
mesh_terms: D004526:Efficiency; D019981:Health Care Sector / Q000706:statistics & numerical data; D006301:Health Services Needs and Demand / Q000191:economics*; D006304:Health Status; D006801:Humans; D007348:Insurance, Health / Q000706:statistics & numerical data; D017057:Medically Uninsured / Q000706:statistics & numerical data; D017059:Models, Econometric; D017060:Patient Satisfaction / Q000191:economics* / Q000706:statistics & numerical data; D040841:Resource Allocation / Q000706:statistics & numerical data*; D012309:Risk-Taking; D012720:Severity of Illness Index; D012946:Social Welfare / Q000191:economics*; D014481:United States; D026712:Value of Life / Q000191:economics