The Moral Hazard And Its Control In Chinese Health Insurance

Health insurance refers to the social insurance system aimed at granting social members medical fees, service and assistance by the government. As an essential part of China's social security system, health insurance exerts an immeasurable impact on social stability and people's well-being. With the further health security system, the original framework of covered medical assistance has been broken and the package practice of the government abolished. However, defects in the present medical insurance system persist: limited coverage of medical insurance; limited scale and level; inappropriate distribution of health resources(health resources concentrate in East China, big cities and large-scale hospitals); lack of proper medical fund raising mechanism and stable medical fund sources; lack of efficient restrictive mechanism as to the supplier and receiver of medical service; decline of the previous cooperative medical system in the vast rural areas where the new mode is far from perfect, etc. Among those defects the most vital one is the acute moral hazard prevalent in China's medical insurance market. This paper is devoted to the moral hazard in China's medical insurance market and its prevention and avoidance.Moral hazard is universally found in the insurance market, especially in the medical insurance market. Compared with the moral hazard in other types of insurance, the moral hazard in medical insurance displays a special resulting mechanism. After the introduction of health insurance to the medical service market, a highly specialized market with highly unsymmetrical information, the former doctor-patient relationship in the traditional medical service market develops into four-party relationship among government, health insurance institution, hospital and the insured. With the principle of maximum profit, the severe asymmetry among the four agents is bound to bring about moral hazard, which is anything but beneficial. By distorting the normal interaction between doctors and patients and their respective role, moral hazard gives rise to the sharp increase of medical fees as well as discrimination and inequality. Indirect fee payment method of the patient caused by the specific conditions of medical science and the third-party payment adopted in China's health insurance market, along with the implementation of the practice in which doctors'salary mainly comes from medicine, eventually result in the rigorous moral hazard to both demand side and supply side on the medical service market. As moral hazard in such situations is avoidable, the sole solution is to exert control on it and minimize the prospective harms. The purpose of control strategy of moral hazard is to minimize the disadvantages of moral hazard, maximize the effectiveness of the limited medical resources and ensure the insured comparatively good medical service at a reasonable expense.With a large range of analytical perspectives available as regards moral hazard in health insurance, this paper attempts to analyze the specific reasons for the emergence of moral hazard, its impacts and benefit loss from two aspects, namely demand side and supply side in medical service market. Two chapters are devoted to study the prevention and avoidance of moral hazard on health insurance market: Chapter 4 focuses on optimizing policy design based on moral hazard on health insurance market, and its capacity to avoid moral hazard; Chapter 5 covers relevant research concerning moral hazard prevention on both demand side and supply side, puts forward a series of policy measures to control moral hazard and is of certain significance to China's present health insurance system. The whole paper falls into six chapters.Chapter 1 serves as an introduction to the whole paper. It is further divided into three part. Part 1 deals with the present conditions, features and problems of China's health insurance market. There are a lot of imperfections in China's present health insurance system, the two major ones being on the one hand the inherent defects and insufficiencies in the system and on the other hand the severe moral hazard on health insurance market. The problems resulting from the inherent defects with china's health insurance system are the main concern of this part where problems of five aspects are listed out. Part 2 provides a picture of the research on moral hazard on the health insurance market already done home and abroad, based on which the author clarifies her own orientation of study. Part 3 is an introduction of the research method and framework of the paper.Chapter 2 is an analysis of the causes of moral hazard on health insurance market. Under this chapter there are two sections. In Section 1, a detailed definition is given on the basis of an extensive study of research papers written by both domestic and foreign scholars. Section 2 is a cause analysis of moral hazard on China's health insurance market, which is stated from five aspects: asymmetry of information is the origin of moral hazard on health insurance market; third-party payment system is the root ; uncertainty of medical treatment provides a premise; the compensation mechanism of medical service in which doctors'income is connected with the sale of medicine causes and spread moral hazard on the part of medical service supplier; post-payment system employed by health insurance market easily leads to moral hazard on the part of medical service provider and in turn, sharp increase of medical fees.Chapter 3 is an analysis of the impacts of moral hazarad on health insurance market. Under this chapter there are two section. In Section 1, a detailed analysis of unfavorable impacts of moral hazard is given from the demand side and the supply side. Disregard in practicing prevention measures and over consumption of medical service represents the moral hazard on the part of the demand side, while the supply side will employ'adduce demand'targeted at the patients because of moral hazard. The second section is an analysis of benefit loss from the parties: the demand side and supply side.Chapter 4 gives an analysis of optimal policy contract based on the moral hazard on health insurance market. It consists of four parts as well. Part 1 is a brief introduction of principal—agent theory, which paves the theoretical way for the model establishment in Part 3 and Part 4. In Part 2, diagrams and equations are applied to introduce categorized attitudes of consumers towards moral hazard and their rates. Through establishing a model to study the optimal insurance contract on the premise of symmetrical information, the author reaches the conclusion in Part 3 that full insurance of optimal insurance contract when information is symmetrical is able to realize the best optimal insurance and meanwhile the optimal insurance is equal to the expected sum for an accident. As an extension of Part 3, Part 4 looks at the optimal insurance contract with moral hazard being taken into consideration and motivation factor is added. In this case, for purposes of motivation, the optimal insurance contract is required to provide part of the insurance. As a result, the optimal insurance is outnumbered by the prospective loss caused by an accident. In addition, the greater the loss from the accident, the greater the actual loss the insured will suffer.Other means of moral hazard control are provided in Chapter 5. Two parts constitutes the chapter. Part 1 deals with moral hazard control from the angle of the demand side of medical service, and three aspects, a reasonable growth of the self dependent proportion of medical fees of the patients, greater coverage of health insurance and heightening national health consciousness are employed. Part 2 is about moral hazard control from the angle of the supply side of medical service, where seven perspectives are to be found: the design of payment system, establishment of information service system, introduction of competition mechanism among medical institutions, implementation of separation of doctors'payment and medicine in the price system and forming a scientific and reasonable doctor income system.Chapter 6 functions as the summary, during which the limits and defects of the paper will be mentioned and further research direction is to be put forward.Major contributions of the paper.With the reform of health insurance system, health insurance has become the focus of attention while moral hazard on health insurance market has exerted a considerable influence on the stable and good operation of health insurance market. Moral hazard being a direct cause for the irrational growth of medical fees, the study of control strategy of moral hazard has become the vital way to curb the irrational increase of medical fees. However, despite of various perspectives towards moral hazard control strategy found in the literatures available, domestic scholars mainly focus on the defects of former free medical service and labor health insurance in terms of economics and sociology. They are limited to a surface analysis of the system and fail to delve into the origin behind the phenomena. Besides, a lack of theoretical verification and logical reasoning as well as a systematic study are evident in their research work. Thus, starting from the causes of moral hazard and through an in-depth probe into the deep mechanism of moral hazard, this paper is aimed at revealing its forms and hazards moral hazard brings about in social health insurance system, setting up a mathematics model, coming up with control strategies on the basis of the operating practices of both domestic and overseas social health security systems and exploring control strategy and system innovation about moral hazard according to China's national conditions. To summarize, the discussion of the paper is of practical significance.The following research methods are employed in the paper:A. combination of standard analysis and exemplification. In this paper, a detailed analysis of causes of moral hazard on health insurance market, moral hazard on the part of the demand side and supply side, benefit loss resulting from moral hazard and avoidance of moral hazard is provided; moreover, on the basis of sufficient material and an extensive study of other scholars'research work available, proper examples are introduced to support the thesis of the article.B. Combination of theory and practice. Relevant theories in such fields as west economics, information economics, insurance science, etc are applied to help analyze the moral hazard on China's health insurance market and meanwhile, some specific solutions are provided in accordance with China's national conditions.Any criticism about the mistakes arising from the limits of the author's command of theories and practices is welcome.