A situation in which risk is encouraged because costs are borne by others is called?

A situation in which risk is encouraged because costs are borne by others is called?

• A. Reciprocity
• B. Right-to-self determination
• C. Moral Hazard
• D. Committee

Answer: (C)

Moral hazard describes a situation where risk-taking or higher resource use is encouraged because the costs are borne by someone else. When an insurer or another party absorbs the financial consequences, the decision-maker has less incentive to avoid risky or costly behavior. In healthcare, this shows up when insurance coverage lowers out-of-pocket costs, leading individuals or providers to use more services or pursue riskier options than they would if they bore the full price. This mismatch of incentives—where the payer bears the cost but the decision-maker takes the risk—drives increased risk-taking. Other concepts don’t capture this specific shift in incentives due to cost-sharing. For example, reciprocity is about mutual exchange or social norms of help; right-to-self-determination concerns autonomy; and a committee is a decision-making body. None of these center on costs being shifted to others and how that reality changes behavior.

Moral hazard describes a situation where risk-taking or higher resource use is encouraged because the costs are borne by someone else. When an insurer or another party absorbs the financial consequences, the decision-maker has less incentive to avoid risky or costly behavior. In healthcare, this shows up when insurance coverage lowers out-of-pocket costs, leading individuals or providers to use more services or pursue riskier options than they would if they bore the full price. This mismatch of incentives—where the payer bears the cost but the decision-maker takes the risk—drives increased risk-taking.

Other concepts don’t capture this specific shift in incentives due to cost-sharing. For example, reciprocity is about mutual exchange or social norms of help; right-to-self-determination concerns autonomy; and a committee is a decision-making body. None of these center on costs being shifted to others and how that reality changes behavior.