Suppose That the Disability Insurance (DI)program Was Changed So That

question 35

Essay

Suppose that the disability insurance (DI)program was changed so that individuals who want to receive DI must first go 10 months without working to demonstrate that they are truly disabled instead of the current 5 months.
(a)How would this change affect the moral hazard costs of DI?
(b)A critic of this change does some research and finds out that the acceptance rate (the share of those applying who are accepted into the program)of the DI program increased as a result of the change.He says that this is evidence that the change in the program has increased the moral hazard costs associated with workers' compensation.What do you think?

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Definitions:

Departmental Overhead Rate Method

The departmental overhead rate method allocates overhead costs to specific departments based on their respective operational metrics, helping in accurate product costing and profitability analysis.

Plantwide Overhead Rate

The rate calculated to allocate the total overhead costs uniformly across all products or services in a plant or factory.

Overhead Allocation Base

A measure or standard used to distribute indirect costs to various cost objects, such as products or departments, typically involving labor hours, machine hours, or cost centers.

Departmental Overhead Rate

A rate used to allocate overhead costs to specific departments, based on criteria such as department size or usage of overhead resources.