When buying health care, most of us don’t behave like regular consumers: Seven out of the eight dollars we spend is somebody else’s money, and we don’t have very good information about doctors or hospitals. You can go online and find out your physician’s fee before you make an appointment. That’s helpful for a routine service, but when you have a serious condition, you really want to know about the physician’s quality. Now, with physicians collaborating to agree on quality standards and all health plans willing to pool their data, consumers can look at a set of performance indicators that physicians think are appropriate, and be able to judge the quality of their physicians.
a. Explain how the adverse selection problem applies to health care.
b. How does the moral hazard problem apply to health insurance?