Suppose that a government agency guarantees to pay all of an individual's future health care expenses after the end of this year, so that the effective price of health care for the individual will be zero from that date onward. All of the following may result except
Part 2
A.
a moral hazard problem for individuals who will not have an incentive to follow a healthy lifestyle.
B.
a substitution of current health care expenses with higher health care expenses in the future.
C.
a fall in the health care costs.
D.
a lack of incentive on the part of health care providers to control their costs in the future.
C. a fall in the health care costs.
When an individual is guaranteed to have all their future health care expenses paid for by a government agency, there is no longer a financial burden for them to bear. This may result in a moral hazard problem where individuals do not have an incentive to follow a healthy lifestyle (option A), as they do not have to worry about the costs of their future healthcare. It may also lead to a substitution of current health care expenses with higher health care expenses in the future (option B). Additionally, there may be a lack of incentive on the part of health care providers to control their costs in the future (option D). However, this scenario is unlikely to lead to a fall in health care costs as the guarantee to pay all future expenses removes any financial pressure to reduce costs.