Moral hazard is a term used in economics in relation to an individual who is willing to take risks because he or she will not have to bear the cost of his or her action. It is the reason purchasing health insurance was mandated under the Affordable Care Act, but it comes into play in other areas of health care as well.
It is clear that in the past and currently, many healthy young men and women who could afford health insurance have been gaming the system by making decisions not to buy it. They believed the odds were in their favor of avoiding serious illnesses or injuries and that the money required for insurance could be better utilized elsewhere. If they did suffer a significant illness or injury, care would always be available for them at an emergency room or hospital. And if the cost of their care was beyond their means, society would pay the price- health insurance costs for everyone else would be raised to pay for their care. Whether or not one agrees or disagrees with the individual mandate of the ACA, one would have to say that decisions not to buy insurance were unfair to their fellow citizens.
We also see a disregard of risk in various other behaviors by individuals in regard to their health where the costs are borne by society at large. Smoking is a major causative factor in many illnesses, including lung cancer, cardiovascular disease, peripheral vascular disease, strokes and COPD. The cost of caring for individuals who smoke and develop these conditions is astronomical. Yet in Medicare and many group insurance plans, smokers pay the same premiums as non-smokers. It’s the same with other risky conduct such as riding motorcycles, choosing to be sedentary and obese, and abusing alcohol or drugs. In addition, there are patients with chronic illnesses who are cognitively intact but non-compliant with their medical regimens which often results in more costly care down the line. And should society provide liver transplants to alcoholics and drug abusers whose conduct destroyed their livers in the first place?
How should society deal with people who are irresponsible in terms of their health and raise the cost of care for everyone else? Some might argue that smokers are paying high taxes for their cigarettes and that their money which goes into the general coffers balances out the cost of their care. But this does not pay directly for their health care and does nothing to reduce overall health care spending.
Should we charge individuals higher insurance premiums if they engage in behavior that damages their health, to defray the eventual costs and possibly mitigate some of their behavior? Unfortunately, these are often people with emotional problems or who live on the border of poverty and might drop their insurance if the price of coverage rose.
There are no easy answers. Lack of responsibility shifts the costs of health care to other people’s shoulders, but moral hazard requires that individuals should be accountable for their actions and that society should not be forced to pay for people’s disregard for good health practices.
A VietNam vet and a Columbia history major who became a medical doctor, Bob Levine has watched the evolution of American politics over the past 40 years with increasing alarm. He knows he’s not alone. Partisan grid-lock, massive cash contributions and even more massive expenditures on lobbyists have undermined real democracy, and there is more than just a whiff of corruption emanating from Washington. If the nation is to overcome lockstep partisanship, restore growth to the economy and bring its debt under control, Levine argues that it will require a strong centrist third party to bring about the necessary reforms. Levine’s previous book, Shock Therapy For the American Health Care System took a realist approach to health care from a physician’s informed point of view; Resurrecting Democracy takes a similar pragmatic approach, putting aside ideology and taking a hard look at facts on the ground. In his latest book, Levine shines a light that cuts through the miasma of party propaganda and reactionary thinking, and reveals a new path for American politics. This post is cross posted from his blog.