Page 299 - Ebook health insurance IC27

Sashi Publications

diseases or obesity that increases the chance of heart disease. For example, if a smoker
develops a lung cancer, the peril, or cause of loss is the cancer. Cigarettes are the
physical hazards, which cause the lung cancer.

Moral Hazard
Moral hazard arises from the human tendency that results in higher than average chance
of loss because insurance is in force. Both insured persons and care providers attempt
to overuse the benefits in order to profit from an incurred loss. Examples of moral
hazard include exchange of drugs for cosmetic items at pharmacies; adjusting diagnosis
to justify excluded procedures or prescribing unnecessary procedures.

Risky individuals often rationalize their actions based on a false perception that medical
insurance is an "open cheque" policy that covers all their health care needs or they think
that "the insurer has plenty of money".

Q. How does moral hazard affect the medical insurance premium?
A. High moral hazard leads to inflated claims. Since premium rates are mainly based
on the insurer's past claims experience, higher claims will lead to higher premiums.

Morale Hazard
The condition, which exists when an insured becomes lax, careless or indifference in
matters of safety and prevention. An example is some individuals' tendency to undertake
or continue unhealthy or self-abusive lifestyles because of the knowledge that insurance
is in force to pay for any loss which, may occur.

Website : www.bimabazaar.com, PH: 033 22184184/40078428 303