Moral Hazard Insurance Design Explorer

Explore how insurance changes the price a patient faces, healthcare use, spending and financial protection. The conventional welfare-loss estimate is shown separately from the value of insurance.

1. Set the insurance design and demand

Move the controls or choose a preset. The model uses a simple downward-sloping marginal-benefit curve and a constant resource cost.

The cost to the health system, regardless of who pays.
The percentage of the price paid by the patient.
Higher values shift demand outward.
A larger value makes demand less responsive.
Used only to illustrate the burden of out-of-pocket spending. It does not change clinical benefit.
Healthcare demand, resource cost and patient price A graph comparing healthcare use at the full resource cost with use at the lower insured patient price.
Patient price per service
Use without insurance
services at the full price
Use with insurance
Total healthcare spending

2. Interpret the result

Do not label all additional use as waste

The shaded triangle is the conventional partial-equilibrium estimate of use for which marginal benefit is below the full resource cost. Real insurance can also improve access, protect against financial risk and produce health benefits that this simplified diagram does not capture.

Patient out-of-pocket spending
Insurer or public-payer spending
cost shifted away from the patient
Additional use after insurance
the utilisation response, not automatically inefficiency
Conventional potential welfare loss
excludes financial protection and wider health effects

3. Model logic and limitations

The patient chooses healthcare where marginal benefit equals the price they face. Without insurance, that price is the full resource cost. With insurance, the patient price is the full cost multiplied by the coinsurance rate.

Patient price = coinsurance rate × full resource cost
Chosen quantity = (marginal benefit of first service − patient price) ÷ rate at which marginal benefit falls

This is a teaching model, not a clinical or policy recommendation. It assumes a linear demand curve, constant cost, identical services and no provider response. It does not model uncertainty, selection into insurance, health outcomes, liquidity constraints, provider-induced demand, administrative costs or equity effects. The income setting provides context for affordability only and does not estimate an individual patient’s welfare.