Health insurance acts as a buffer between the consumer and cost of health care goods and services. Goods and services cost the consumer less than the charged price because of the presence of health insurance. Because a consumer does not pay the full cost of a good, the consumer may purchase more than goods than he would otherwise purchase without insurance. Providers act as patient’s agent and act in patient’s best interest. Providers may have a financial incentive to act or refrain from acting in a certain way due to insurance arrangements or the lack of insurance. Supplier-induced demand is the provider version of moral hazard. Providers create a demand beyond the amount the well-informed consumer would have chosen. How do we create an alignment of incentives that creates the best possible outcomes for the provider, supplier and the patient?
