I was reminded in the comments to my last post (found here) that the concept of “insurance” leading to increased risk taking behavior is known as “moral hazard.” To oversimplify, to those who do not want to cut their feet, shoes are form of insurance. That makes them a moral hazard. Wearing them encourages risk behaviors (such as walking where nails might be sticking up out of boards). If  you want to be extra-sure not to cut your feet, go around barefoot all the time, so the argument goes. In this vein, health insurance (pooled resources paid out to the sick for purposes of correcting illness sequelae) leads to ill-advised health behaviors (smoking, drinking, whoring) and should be abolished. This theory was first brought to the public square in 1963 (article here) when health insurance in this country was about 10 years old and there were no NICUs, very few cardiac care units, limited (or no) effective treatments for cancer, and health care quality was pretty much a crap shoot.

The theory was effectively put to bed in 2004. For a lay person’s discussion of the fallacy of the moral hazard argument of as it related to health insurance, there is an essay by Malcolm Gladwell which lays out the concept quite well. Some of the questions we are asked to consider regarding the role of health insurance include:

Do you think that this kind of redistribution of risk is a good idea? Do you think that people whose genes predispose them to depression or cancer, or whose poverty complicates asthma or diabetes, or who get hit by a drunk driver, or who have to keep their mouths closed because their teeth are rotting ought to bear a greater share of the costs of their health care than those of us who are lucky enough to escape such misfortunes?

For the advanced reader, the New Yorker article refers to a body of work by John Nyman, reviewed in an article from Health Affairs (found here). He presents a hypothetical case

For example, consider Elizabeth, who has just been diagnosed with breast cancer.Without insurance, she would purchase only the $20,000 mastectomy required to rid her body of the cancer. If she had purchased an insurance policy for $4,000 that paid off with a $40,000 cashier’s check upon diagnosis of breast cancer, she might purchase the $20,000 mastectomy and also a $20,000 breast reconstruction procedure.

He points out that a moral hazard exists, according to some, because the additional cost to Elizabeth for the reconstruction in the scenario is $0 and the real cost therefor is artificially elevated. In real life, he astutely observes, few would have a mastectomy just to get a “free” new breast and many would make exactly the same decisions regardless of the payment structure. Thus the effect of the moral hazard on care decisions remains unknown but it is likely that the presence of insurance does not effect peoples behaviors as much as other pressures. Nyman goes on to say that providing access to money dedicated to paying for health care leads, oddly enough, to appropriate purchase of health care all other things being equal.

The solution to our health care PAYMENT woes are invariably low co-pays for appropriate care, low premiums so everyone is in the game, and low (even subsidized) prices for the right care. The solution for the DELIVERY side is a well regulated care delivery system to negate the effect of information asymmetry. More on that, later.

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