The Immorality of Moral Hazard
Via WII, a good piece in the current New Yorker from Malcolm Gladwell (for whom I usually have scant time), on the fatally flawed theoretical/ethical underpinnings of the Bush Administration's plans for health coverage, the much-hyped Health Savings Accounts initiative.
A particular strength of this piece, beyond the fact that it takes the time to clearly delineate both the deprivations suffered by Americans lacking health insurance and the manifest failings of our health system across the board, is its focus on the pernicious effects of moral hazard theory.
Moral hazard, a primary linchpin of the motivation behind cost-sharing measures like HSAs, is an economic theory positing that easy (e.g., free or low-cost) availability of a commodity leads to profligate consumption of that commodity. It's usually used in the context of insurance, to describe the phenomenon in which having insurance causes the insured to engage in riskier behaviors, presumably because her personal liability for bad outcomes is now greatly limited.
As Gladwell points out, moral hazard has been a major factor in health economics for the better part of the last four decades, and underlies cost-cutting efforts like HSAs and high deductibles and co-payments on the grounds that, if you force personal health liability back onto the individual, she will make more economically sensible choices with respect to healthcare consumption.
There are two big problems with this model. The first, ideologically, is that it commodifies healthcare in ways that simply don't stand up to scrutiny. Health consumption is manifestly not analogous to the consumption of commodities like cars, TVs, &c. Nor is it analogous even to consumption of staple commodities like food. The dynamics of healthcare consumption are vastly more complex than this, taking into account, for example, preventive care: the decision to forgo a dermatological checkup may appear to be a sensible economy in the short term, but if it allows an undetected malignancy to spread it will eventually prove much more expensive, both in economic terms (exponentially greater cost of treatment) and in terms of the individual's actual life. Multi-factored, diachronic calculations like these are not reducible to the economics of commodity demand. And from a purely philosophical perspective, to attempt to do so has the additional negative effect of discounting any notion of healthcare as a human right, distinct from the discretionary consumption of material goods. Which is, of course, very much part of the point.
More concretely, studies have shown that, while moral hazard-type incentives do in fact play a significant role in healthcare consumption, they don't play out the way the classical theorists would have us believe:
Mark Pauly, one of the architects of the conventional insurance theory, recognized this ambiguity as early as 1983. He pointed out that his original theory of moral-hazard welfare loss was intended to apply only to “routine physician’s visits, prescriptions, dental care, and the like” and that “the relevant theory, empirical evidence and policy analysis for moral hazard in the case of serious illness has not been developed. This is one of the most serious omissions in the current literature.” This distinction, however, has been lost on most health economists. For example, health economics textbook writers continue to present moral hazard as being unambiguously welfare decreasing, and health policy analysts continue to use the conventional theory in developing their recommendations for optimal cost-sharing rates, managed care programs, and other policies designed to curb U.S. health care costs.If even Mark Pauly, Mr. Moral Hazard himself, recognizes these limitations, you can bet they're pretty glaring. In fact, the use of moral-hazard reduction measures like increased cost-sharing has been shown (note here the actual data findings, not the tendentious interpretation) to reduce consumption of healthcare not merely for 'frivolous' needs like cosmetic surgery, but across the board. That is to say, people who will have to pay more for their healthcare consume less healthcare regardless of how urgent their need is. Heart meds or Viagra, Botox or broken bones, people who can't afford their health care will do without any or all of it. This result is a perversion of the ostensible intent of moral hazard reduction, i.e., to minimize unnecessary or excessive expenditure, and in fact shows up instead the real nature of healthcare cost-cutting initiatives, which are by and large indifferent to questions of welfare increase or decrease, so long as costs are reduced. This is the inevitable result of the commodification of healthcare.
I've said it before: for-profit healthcare is the moral equivalent of war profiteering. It is morally bankrupt and relies for its perpetuation on demonstrably false shibboleths of market efficiency, the primary importance of 'consumer choice', and capitalist incentivization. The United States stands practically alone in maintaining this barbaric let-them-eat-cake system of 'caring' for its citizens' health. When will we join civilization?