Advertisement

Health Benefits Costs: The Value of an Integrated Approach

  • Richard J. Butler

Abstract

In the first chapter we discussed the problems of moral hazard and adverse selection in employee benefit programs. Risk and human resource managers who administer these employee benefit schemes increasingly recognize that moral hazard and adverse selection can be costly. If they could make the disability claim process entirely “objective” such that worker-participants in the insurance contract would not change their behavior, they would. That is, the owners of firms needing to cover costs to survive would like to write enforceable contracts that would make the whole disability process “objective,” in the sense of providing only the appropriate and well-defined level of medical care and disability payments. Completely monitoring the behavior of all participants in a benefit scheme, however, is a costly activity and generally the costs of such monitoring exceed the benefits. The workers know this, and since they have considerable latitude to change their behavior to benefit themselves, they will. Therefore, the root of the moral hazard problem is an information asymmetry between employees and employers-workers know more about their own health status and preferences than employers do. Bridging this information gap is costly. Hence, workers can exploit this information asymmetry to their advantage.

Keywords

Information Asymmetry Moral Hazard Adverse Selection Insurance Contract Group Disability 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Copyright information

© Springer Science+Business Media New York 1999

Authors and Affiliations

  • Richard J. Butler
    • 1
  1. 1.University of MinnesotaUSA

Personalised recommendations