What is Moral Hazard?

Moral Hazard takes place when a consumer and a health insurer agree on a particular contract that is under symmetric information. Moral hazard occurs when one side, either the customer or the insurer executes a particular activity without taking into account the things specified in the contract, thus modifying the value of the agreed insurance. Moral hazard is battled by certain forms such as deductibles, co-payments and other health insurance policies for services that have a wide range of demands. These mentioned insurance forms have one thing in common. They all hold the customer responsible for such occurrence of moral hazards.