Moral hazard (or maybe immoral hazard) is the strange title for the concept that if someone else pays for something, you might use more of it, and more specifically in regard to health care, that since someone else is paying for the consequences, you might engage in less healthy behaviors. A new study at the National Bureau of Economic Research presents current thinking and analysis on the topic. (NBER Paper) The authors start by emphasizing that the research very convincingly shows that moral hazard does exist in regard to health care service use in the United States. They also try to assess the extent of moral hazard, how and how much does it change service use and they discuss whether different plan structures may affect behavior differently. There are actually two different aspects of the impact of insurance coverage on health behavior. One is just the general fact that if something has less of an out-of-pocket cost, a consumer will buy more of it. The second is that behavior change mentioned above; that some of the additional health service use may actually be needed because of behavior change induced by the presence of insurance. Most of the research to date, and one recent piece was described in yesterday’s post, has focused on the first aspect of moral hazard in regard to health care use. I think the second is actually more interesting.
You might think that most consumers want to be in good health and avoid the need for health care, but this is obviously not the case. People smoke, use drugs, drink too much, eat too much, eat the wrong things, don’t exercise, don’t wear motorcycle helmets, etc. Now maybe they think nothing bad will happen as a result of this behavior, but maybe they also do at least implicitly recognize that if there is a bad result from the behavior, at least it won’t cost them much. Unfortunately most of the paper recapitulates research on the first aspect of moral hazard. Two seminal experiments, one old, one more recent, pretty well settle the issue of whether the first aspect exists. One is the Rand experiment, which demonstrated that having health insurance, and having lower cost-sharing within a plan, increased utilization. The second was a natural experiment created by the Oregon Medicaid lottery, and again, having Medicaid coverage increased use of all types of services, including the ER. As the paper covered in yesterday’s post suggested, it is difficult to estimate actual responsiveness to out-of-pocket costs because consumers don’t always understand those costs at the time of service and because consumers’ different financial situations mean they may react very differently to the same price. Research suggests that patients respond both to what appears to be the immediate price and to the expected future price of health care in making use decisions. As concluded yesterday, the value of this kind of research is in the design of health care coverage and systems to improve consumer behavior. That is why research on the second aspect of moral hazard would be so valuable; getting consumers to engage in healthy behaviors should be our highest social goal in regard to health.