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

Question

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.

Answer 1

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.