Which statement about moral hazard is true?

• A. Moral hazard is the risk that a health insurer will not pay for covered services.
• B. Moral hazard refers to the increased use of health care services because of insurance coverage.
• C. Moral hazard only occurs when there is no insurance.
• D. Moral hazard is the risk of overpayment due to billing errors.

Answer: (B)

Moral hazard in health care is the tendency for people to use more health services when they don’t bear the full cost at the time of care because insurance covers the bill. When out-of-pocket costs are lowered or eliminated, the perceived price of care drops, making patients more likely to seek services, tests, or procedures, sometimes beyond what is medically necessary. This increased utilization drives higher overall spending for insurers and the health system.

This isn’t about the insurer failing to pay for services, nor about the absence of insurance. It specifically describes the demand-side response to having coverage. It also isn’t about billing errors or overpayments from improper billing; those are separate issues related to payment accuracy or fraud.