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September 19, 2007

Hazardous Morals

Moral hazard is a pretty simple idea: The less you bear the consequences of your actions, the more reckless you'll be. And it's often applied to health care: The less it costs, the more you'll consume. That's why conservatives tend to want you to pay for everything out of pocket, and see universal coverage plans as surefire ways to send costs skyrocketing. If you're paying more for care, you'll be able to afford less of it. But it's a bit bizarre of a theory.

Currently, if I want a bar of precious, precious gold, I have to pay a lot of money for it. If someone let me into Fort Knox and said the gold was on them, however, I'd take as much as I could possibly carry. I like gold! The more the better. That's not really the case with colonoscopies, or triple-bypasses. Now, you could make it so I can't afford colonoscopies, in which case I can't get them, but making it so I can have an unlimited number won't compel me to make them a weekly event.

Indeed, the reason people get medical care -- in particular expensive medical care -- is because their doctors tell them to. I have never in my life sat up in bed and thought, "huh, I should really get some laparoscopic surgery." If I get a surgery, it's because my doctor told me to. And if I can't afford it, I have to ignore his diagnosis.

For that reason, if you want to safely cut back on care patients buy, you need to get doctors to stop recommending so much wasted care. You can do that in a few ways: Put them on salary rather than on fee-for-service deals, so they don't make more money when they recommend treatment. Create new research institutions that test the cost effectiveness of care so they have a better idea of which treatments are worth recommending. Offer bonuses for using proven therapies. Etc, etc. But this idea that the way to better run medical care is to rejigger the financial incentives so patients have to ignore their doctor's advice is really quite bizarre.

September 19, 2007 in Health Care | Permalink



Posted by: Petey | Sep 19, 2007 10:32:18 AM

How many times have we said this? It's the simplest, most logical way to approach the problem, but those who oppose universal coverage - whether they specify "single payer" or some other name - aren't going to be convinced of it.

They'll just ignore it, or bring up some anecdote. The problem is that those people who actually buy into that line of argument are apparently too dim to think logically, and those who don't really buy into it - probably the majority of those who employ it - have other reasons for opposing universal healthcare and so won't be won over by shooting wholes in their red herring argument anyway.

Posted by: Stephen | Sep 19, 2007 10:35:26 AM

The conservative healthcare pundit class must be full of hypochondriacs who enjoy spending a lot of time in doctors' offices and hospitals getting various tests and treatments and so assume that everyone else is the same way.

Posted by: KCinDC | Sep 19, 2007 10:40:11 AM

The problem is when the insurance company is paying we demand healthcare up to or beyond the point where the marginal value of the last treatment is $0.

The medical people mostly assume that a longer but less enjoyable live is best for everyone. So what if I am diagnosed with a form of cancer that is expensive and debilitating to treat and say 10 percent of the people who receive that treatment will live another year and only 1 percent of the people not receiving the treatment would live another year but the treatment makes me sick for 6 months. Without the treatment I will live 6 good months before declining. Well I might choose to go to Hawaii and live it up for the last 6 months of my life or I might try the treatment. If I am paying myself I am more likely to take the trip to Hawaii. If the insurance company is paying I am more likely to take the treatment. If I forgo treatment the insurance company benefits and if they would share that benefit with me I might go to Hawaii (I might also go to Apollo healthcare in India and Hawaii).

Another example:
If government is spending the money they could spend x dollars to treat a certain illness and extend the life of the average American by maybe 10 days but they could maybe spend the money on making the roads safer and extended life 20 days.

How about universal coverage with a deductible equal to the your last years adjusted income minus the poverty level. Or that is a function your last years adjusted income minus the poverty level. I would prefer that the deductible start at $300.00 for those at or below the poverty level and rise faster than income, because the richer people are the more capable and responsible they should be. Perhaps you could cap the deductible at about $200,000 to discourage people from buying insurance for to cover the deductible. Thus encouraging price sensitivity among the most capable and responsible people.

It get very complicated.

Start tongue in cheek:

Ban the motorcycle. You would save many person years of life!

End tongue in cheek:

Posted by: Floccina | Sep 19, 2007 10:47:44 AM

I don't want to disagree with you, but I think you oversimplify the moral hazard argument as applied to health care.

You're right that people would not demand unnecessary colonoscopies (and lots of other health services) with discount pricing but there is a booming array of health services and products that are more discretionary, from therapy to prescription drugs. And those health care products are not just recommended by doctors as you suggest, they are heavily advertised directly to consumers, who then go to their doctors seeking such products.

I still think the benefits of universal access to affordable health care far outweigh the problems posed by this "moral hazard" argument (and there are other ways of addressing the problems than pricing people out of health care), but I think you unfairly gloss over some real issues.

Posted by: Joseph Hovsep | Sep 19, 2007 10:49:23 AM

Generally and overall, this post is right on.

It may not work as well for prescription drugs with pleasant side-effects, for non-doctor-directed treatment like chiropractic, and for lifestyle medical treatment like cosmetic surgery or fertility treatments.

Posted by: SamChevre | Sep 19, 2007 10:57:19 AM

Ezra, there is going to be a segment of the population who would, hypothetically, opt for lots of colonoscopies and MRIs. Hypochondriacs, etc. We do need to come up with policies in place to deal with the 80/20 issue-- 20% of the people wil no doubt be responsible for 80% of the costs and will doubtlessly serve to drive costs up.

Just because hardly any of us are in that group doesn't mean that they shouldn't be taken into account when formulating health care policy.

Posted by: Tyro | Sep 19, 2007 11:00:24 AM

To know if I should get colonoscopies or take the money I need to know how much the colonoscopy cost and what is the average benefit in life extension and improvement. Now a person could rationally rather take the money. What if he government said we will pay for a colonoscopy for you and on average colonoscopies have this benefit in life improvement and in life extension and btw it is a pain in the [you know what] or we will give you the money that it would have cost?

Posted by: Floccina | Sep 19, 2007 11:01:54 AM

"I have never in my life sat up in bed and thought, "huh, I should really get some laparoscopic surgery.""

But people do ask themselves should I get back surgery and sometimes get it against doctors recommendations.

"Create new research institutions that test the cost effectiveness of care so they have a better idea of which treatments are worth recommending. "

Thus the move to evidence based medicine but Doctors tell me that the patients will not stand for it (nor the courts) because it does nothing for them.

Posted by: Floccina | Sep 19, 2007 11:07:17 AM

I've also heard that some of the unnecessary medicine is "cover your ass" medicine - doctors do something that they know has a 99% chance of being unnecessary, because they don't want to be sued by 1% of their patients for not doing it.

I'm not suggesting shielding genuine malpractice, but maybe we really do need some malpractice reform so that judgment calls aren't open to second-guessing in court. Unless commonly accepted medical practice clearly dictates that a doctor must do X, maybe it should be difficult or impossible to sue them for not doing it. Then we'd see less ass-covering medicine and more judgment by doctors (the ones trained to determine which care is really necessary).

Posted by: Chris | Sep 19, 2007 11:11:50 AM

It is an individual preference to choose longer life with less money/fun or shorter life with more money. It is like the choice to ride a motorcycle or to drive a Volvo never above 60 MPH. The individual should decide some things. We let people motorcycles why not let benefit from skipping the colonoscopy or even declining cancer treatment? I am guessing that it is much safer for the average person to decline colonoscopies and cancer treatment than to drive a motorcycle regularly (or drink, or smoke etc.).

Posted by: Floccina | Sep 19, 2007 11:14:24 AM

Moral Hazard is a very meaningless term anyway, as it implies some sort of morality involved, when all we're talking about is people acting very rationally.

Getting out of the health care field, often times (usually) moral hazard is brought up in cases of welfare or other similar entitlements. The idea is that we're "rewarding" people for not working. And for some reason, the solutions for these problems are always punative, and never actually positive..

Wonder why.

But in that case, the reality is that for some people, after taking things such as transit costs, child care costs, clothing costs, etc, working a job for minimum wage doesn't make much sense. That's the "moral hazard". Actually, it should just be called "fucked-up system". Sounds better and is more accurate.

No, REAL moral hazard is...profit. When companies are rewarded for bad behavior, then they have no reason to stop. If a health care company makes more money, and their workers get bonuses (or keep their jobs) for denying valid claims...guess what happens?

That's REAL moral hazard. Anybody who wants to start talking about morality, should start and stop there.

Posted by: Karmakin | Sep 19, 2007 11:15:39 AM

BTW Talk to some old people many would like to decline life extending healthcare even though someone else is paying. IMO if they where paying they might want to declien even more healthcare.

Posted by: Floccina | Sep 19, 2007 11:17:54 AM

For some reason we never talk about the moral hazard involved in selling insurance (including health insurance), which among other things includes the temptation to collect the premiums and investment income but never pay out on legitimate claims.


Posted by: Cranky Observer | Sep 19, 2007 11:34:17 AM

KC, when you can name someone in this mythical "conservative healthcare pundit class", let me know. So far what I see are mostly unicorns... and the usual suspects, who are hardly experts. Conservatives really need a knowledgeable healthcare person to work their side... funny how everyone who studies the issues seems to wind up coming down on the notion that something - not the same thing, but certainly some thing - needs to be done to change our healthcare system. As for the post, I agree, this is about changing how doctors practice, which is not simple. But educating patients to ask questions isn't such a bad thing, either - doctors will have more encouragement to change their practicing ways when we give them less reverence as all knowing, godlike experts.

And, I'm not sure everyone would be opposed to the whole weekly colonoscopy thing... they give impressive painkillers for that thing. ;)

Posted by: weboy | Sep 19, 2007 11:35:01 AM

Karmakin and Cranky Observer I think that those who study the real problems in this country’s healthcare would agree with that the insurance companies not paying is rarely a problem the bigger problem is that they often pay for care that does not yield a net benefit and they pass the costs on in premiums. France pays about a ¼ what the USA pays for healthcare and yet their outcomes are almost as good. As the post alluded to, the biggest potential benefit of Universal coverage is to reduce costs by cutting out un-net-beneficial care.

Posted by: Floccina | Sep 19, 2007 11:51:57 AM


There's a lot of truth in what you wrote, but its oversimplified a bit too much.

You can do that in a few ways: Put them on salary rather than on fee-for-service deals, so they don't make more money when they recommend treatment.

A big misperception about physician incentives. Fee-for-service does have some effect, but its very overrated. The staff-model HMOs of the 80's (where docs are employees on a flat salary) aimed at exactly this thinking and were not successful. Why? Because the real driver of this unnecessary care is classic human behavior-- doing something must be better than not doing something. Those in the medical profession joke that surgeons just look for excuses to "cut." It isn't meant literally, of course, but it does point to their mentality-- that's why they DO, so that's their solution. Its true for all specialties, they're all human.

Create new research institutions that test the cost effectiveness of care so they have a better idea of which treatments are worth recommending.

I've said this before-- we are a good 15 to 20 years before this can be effectively used broadly as a policy tool and that's assuming that a Clinton-style comparative effectiveness institute was put in place today.

We still don't have good data on the clinical effectiveness of treatments, without even bringing in the complexity of costs. Then when you factor in the relatively undeveloped methods of evaluating costs against benefits (e.g. how do you value the benefit of hip replacement versus walking around in pain? what is that worth?). NICE does a great job in the UK with the data and methodologies that exists today, I'm not sure most people would actually feel comfortable with it if they really understood the level of incompleteness that exists.

But this idea that the way to better run medical care is to rejigger the financial incentives so patients have to ignore their doctor's advice is really quite bizarre.

Put the financial piece aside for a moment. Patients do need to be more involved in their care. You get worse care when you don't.

The doctor as the all-knowing "expert" sounds good, but the reality is that medicine is an evolving field, and once you get that diploma, what you've learned starts immediately becoming obsolete. Once that diploma is 10, 15, 20, 30 years old, 30-70% of what docs have learned is no longer correct. If you don't keep up with best practice (few community physicians do, HRC is actually addressing this in her plan to some degree) and instead you practice what you know, you end up with the divergence that's been demonstrated between actual practice and best practice. We all can't go to a 40 year old doctor that's probably the sweet spot between recent training and experience. (And this all can't be addressed by P4P bonuses.)

Yes doctors have the training and most people don't. But physicians need to keep current on hundreds of diagnoses and thousands of treatment options. Most people have 1 or 2 or 3 diseases. If we had better information out there, patients could better understand their options and receive better care.

In the cacophony of partisan bickering on this issue-- an important point has been lost. A good health policy would encourage and facilitate people becoming more informed consumers-- its good for quality of care received and it will have benefits on cost control. Of the three plans put out by the big Dems, Obama is really the only one who has embraced this issue with a focus on data transparency- price and quality. Its something that's less emphasized in the others and it should be more emphasized as part of a comprehensive policy plan.

Posted by: wisewon | Sep 19, 2007 12:03:46 PM

I meant to cover Chris' point above-- its a good one and also needs serious consideration as part of a comprehensive policy proposal.

Posted by: wisewon | Sep 19, 2007 12:23:14 PM

Malcolm Gladwell Nailed this one:

The Moral Hazard Myth


mp3 interview:


Posted by: chris | Sep 19, 2007 12:33:58 PM

I am a 37 year old male, and I had been confined to my house from December to May. I had diarrhea, and blood. So much blood was in my stool that the toilet water was red.

I went to a GI in May. He was pretty mad at me, and said that anytime you see blood in your stool, you should goto a doctor. He scheduled a colonoscopy for me, and ended up putting me on some drugs for ulcerative colitis.

So, is this what I should have done? Should I have gone earlier? Later?

I'm willing to hear what you so-called experts here think.

Actually I'm not. I think your heads are full of marshmellows. Maybe you ought to see a doctor about that.

Posted by: stm177 | Sep 19, 2007 12:49:53 PM

My problem with the moral hazard argument applied to health care is that it always seemsin the end to boil down to "If they are to die, let them do so quickly so as to reduce the surplus population." (props to C. Dickens)

Posted by: justawriter | Sep 19, 2007 12:50:24 PM

Doctors would pay more attention to costs if they were being borne by their patients rather than by insurance.

Posted by: James B. Shearer | Sep 19, 2007 12:52:39 PM

I was so taken by this:

'Moral hazard is a pretty simple idea: The less you bear the consequences of your actions,
the more reckless you'll be.', that I wrote myself a reminder squib on accountability.

Then, skipping about on the internets in almost the same moment this:

-U.K. regulator urged action ahead of bank crisis
Financial Services Authority wanted central bank to relax lending standards-
"But the Bank of England reportedly argued that relaxing its standards
would create a so-called "moral hazard" because bailing out banks
without them paying any penalty would encourage the banks to take similar risks in the future."'

Funny how that works.

Posted by: has_te | Sep 19, 2007 1:01:49 PM

People who talk about making health care more expensive to keep costs down don't believe what they're saying anymore than they do when they tell you that supply side economics exists or that we will stand down when they stand up. These are sophist arguments aimed at the dumbest part of our lizard brains and only serve to derail the discussion and further the class war.

There I go again, bringing class into it.

Posted by: eRobin | Sep 19, 2007 1:13:32 PM

The potential physical consequences ordinarily suffice to minimize moral hazard. If the prospect of dying horribly doesn't deter you from smoking, why should the prospect of dying horribly and expensively?

Posted by: rea | Sep 19, 2007 1:17:52 PM

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