insurance Flashcards
Types of moral hazard
Reduced precaution against entering the adverse state. Examples: because you have medical insurance that covers illness, you reduce preventive activities to protect your health, or because you have workers’ compensation
insurance, you aren’t as careful at work.
Increased odds of entering the adverse state. Examples: because you have workers’ compensation, you are more likely to claim that you were injured on the job, or because you have unemployment insurance, you are more likely to become unemployed.
Increased expenditures when in the adverse state. Examples: because you have
medical insurance, you use more medical care than you otherwise
would, or because you have workers’ compensation, you don’t work
hard to rehabilitate your injur
What is DI?
To apply for DI, individuals must have a medical impairment that leaves
them unable to work. In order to prove disability, the DI program mandates
that individuals cannot receive benefits until they have been disabled for five
months; that is, individuals who want to receive DI must first go five months
without working to demonstrate that they are truly disabled. DI applications
go to state medical determination boards for a decision, and these boards are
fairly stringent in awarding benefits; the DI acceptance rate—the share of those
applying who are accepted into the program—is only about one-third
What is WC?
workers’ compensation
State-mandated insurance,
which firms generally buy from
private insurers, that pays for
medical costs and lost wages
associated with an on -the-job
injury.
How hard is to verify DI vs WC
Disability for DI is
somewhat difficult to verify. WC has the most generous benefits of all, and
the duration of benefits is as long as a physician is willing to say that the
worker is not recovered. Injury for this program is often much harder to
verify than for DI
consumption smoothinh for WC vs DI
It seems clear that DI should play a stronger consumption -
smoothing role than UI: disability is usually unexpected and permanent, soindividuals are unlikely to be able to use their own savings (for example) to fully
finance their consumption. The case for WC is less clear. On the one hand, true
on-the-job injuries are probably even more unexpected than is unemployment,
and can often last longer. On the other hand, many claimed on -the-job injuries
are really planned, according to the moral hazard evidence presented next, so
individuals may be well prepared to smooth their consumption
