The effect of the welfare implication of moral hazard on health care

With health insurance, reducing price increases the consumption of health care. The welfare-loss of moral hazard would occur when the consumer buys more health care because they don't need to pay off all marginal cost. This paper investigates the special case of moral hazard welfare-loss on the grounds of the realities of Chinese health care and health insurance. In China, in virtue of the costliness of health care expenses and the lowness of average consumer income, parts of consumers are unable to purchase enough health care to meet their true health care demand. Health insurance would improve this situation. Therefore, a certain part of the welfare-loss, namely the excess usage of health care, meets the consumer's true demand for health care. From the view of social health insurance significance, it should be regard as welfare gain instead of welfare loss. We define the welfare-gain of moral hazard, and classify it into general welfare gain and special welfare gain. We analyze the effect of health insurance on health care demand among different income groups by using these new definitions. Moreover we discuss the principle of social insurance design based on the true demand for health insurance even the theory of moral hazard welfare gain. The large welfare gain suggests the welfare loss is always overrated. The overrated welfare loss will do harm to the total utilities of insured very much in China, though it cut down the health care expenditure by influencing health insurance designer decreasing the coinsurance rate.