"ADVERSE SELECTION" AND "MORAL HAZARD"

CYNTHIA DUDEK

Planning Resources Inc: An insurance industry viewpoint (USA)

Economists acknowledge “Adverse Selection” and “Moral Hazard” as two main causes of market failure. Since these are main causes which negatively impact insurance, and therefore every sector of society, they must be addressed, and not dismissed, ignored, or politicized.

“Moral hazard” simply means that the person who is causing the problem is not paying for the consequences of their actions, or they may actually be profiting from them.

Insurance companies use the term “adverse selection” to describe a serious economic condition in their risk pool. The use of a broad term is necessary as there may be numerous sources associated with various problems, so those acting as insurers should be diligent in identifying and managing risks, to protect economic security.

Consequences of prior induced abortions have many tentacles that result in increased morbidity and mortality for women, and their future children. Consequences include cervical incompetence, placenta previa, ectopic pregnancies,Asherman’s Syndrome, endometrial ossification, post-traumatic stress disorder, substance abuse and more. For more information see Women’s Health after Abortion: The Medical and Psychological Evidence – http://www.deveber.org/text/whaa-chapters.html

Preterm birth risk and the abortion/contraceptive breast cancer links are both of great concern. Abortion is a very common procedure, with abortions exceeding a million a year. Abortion consequences may be short term, occurring at the time of the abortion, or within six weeks of the abortion. Other consequences may not be known by a woman until some time in the future......

Damage to the womb or the cervix is of great concern because of the initial catastrophic nature of these claims, as well as the long term costs associated with on-going medical care. The cost of preterm births is dependent on how early the child is born. It is possible for claims to cost $200,000; $300,000; $500,000 or more. In addition, the special needs of children have to be addressed in terms of delayed developmental concerns, as well as the emotional impact on women and their families.

In the US in 2005 in an average week 79,584 babies were born. Of those: 10,056 babies are born preterm; 6,511 babies are born low birth weight; and 536 babies die before their first birthday. Eleven percent of newborns covered by employer health plans are born prematurely. The direct health care costs to employers for a premature baby average $41,610, which is 15 times higher than the $2,830 for a healthy, full-term delivery. Additional costs to employers in lost productivity average $2,766. Hypothetically, the cost of the 861,484 preterm births and low birth weight babies, at an average cost of $41,610, totals $35,846,349,240.