HEALTH CARE/Joan Retsinas

Health Insurance and Moral Hazard: A Conservative Myth

Economists use the notion of "moral hazard" to explain the impact of insurance. Homo economicus takes more risks when somebody stands in the wings, ready to cushion the impact of rashness. Impoverished countries will pile on more debt if they know the International Monetary Fund will rescue them. Developers will build more skyscrapers on flood plains if federal insurance will bail them out after a flood.

Lately conservatives have extended this notion to health insurance. The reasoning is exquisitely simplistic. The United States spends much more than any other industrialized nation on health care. The problem: we are over- insured. In the August 29 issue of The New Yorker Malcolm Gladwell describes conservatives' embrace of "moral hazard" as an explanation for our soaring health expenditures: We the insured have no incentive to purchase services frugally, because we are spending somebody else's money.

If over-insurance is the problem, then Health Savings Accounts are the solution. These accounts are premised on "moral hazard." With these accounts, people purchase catastrophic insurance, but set aside a pot of money for other medical expenses. The person who does not spend the entire pot keeps what is left -- a reward for frugality. Conservatives expect these accounts to push down the nation's healthcare tab. Whatever the merits of moral hazard in explaining nations' fiscal policies, or corporations' decisions, this explanation for health spending should be shelved as a conservative myth, at odds with the facts-of-illness. Here are some of those facts.

The Randomness of Disease: Multiple sclerosis, Parkinson's, glaucoma, arthritis, cancer -- physicians cannot predict who will get these diseases, and who won't. The insured don't get them more than the uninsured. And poor decisions, or risky behavior, are not part of the calculus. Call it bad luck.

The Good Luck of Health: Just as many wealthy people owe their wealth to entrepreneurial forbears, so too many healthy people owe their robust health to their ancestors. Huntington's, cystic fibrosis, sickle cell anemia, Tay-Sachs, even some breast cancers -- a laundry list of diseases has a genetic component. Indeed, longevity seems to run in families. Call it good luck. The Aging-Disease-Spending Linkage People who are lucky enough to make it into their eighties often develop diseases and disabilities. The incidence of Alzheimer's, Parkinson's, glaucoma, arthritis and diabetes rises with age. Treatment will cost money. So in an aging nation like ours, healthcare spending will inevitably rise. Maybe the hale and hearty economists enamored of health savings accounts don't see this linkage.

The Black Hole of Changing Behaviors: People who stop smoking, stop drinking and stop gulping down fat-laden calories lower their risk of disease. If moral hazard has validity in explaining people's health behavior, then the uninsured, who can least afford medical care, should exercise more, drink less and never smoke. But there is no evidence that they do. Getting somebody to change behavior is hard. If the fear of an early death doesn't propel smokers to stop smoking, or snackers to stop snacking, the fear of a high hospital tab won't do it either.

The Benefits of Medical Care, or The Danger of Frugality: Conservatives liken healthcare spending to other consumer spending. But health care is hardly so discretionary a good. And while measures to lower healthcare spending may help the nation's fiscal health, those same measures may hurt individuals' health.

Consider some components of the healthcare tab: physician visits, tests, medications, hospital stays, rehabilitation and surgical procedures. Now take any one person and analyze his annual healthcare tab. What would you eliminate? The person with diabetes may need monthly monitoring; the person with asthma may need daily medications; the person after an accident may need intense physical therapy. If frugal patients cut back on services, they may end up sicker.

"Moral hazard" might explain the behavior of homo economicus, but homo economicus does not get sick, grow old or need help to stay healthy.

Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email

From The Progressive Populist, Nov. 1, 2005

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