More on moral hazard

Distinguishing moral hazard from access for high-cost healthcare under insurance

CONTEXT

Health policy has long been preoccupied with the problem that health insurance stimulates spending ("moral hazard"). However, much health spending is costly healthcare that uninsured individuals could not otherwise access. Field studies comparing those with more or less insurance cannot disaggregate moral hazard versus access. Moreover, studies of patients consuming routine low-dollar healthcare are not informative for the high-dollar healthcare that drives most of aggregate healthcare spending in the United States.

METHODS

We test indemnities as an alternative theory-driven counterfactual. Such conditional cash transfers would maintain an opportunity cost for patients, unlike standard insurance, but also guarantee access to the care. Since indemnities do not exist in U.S. healthcare, we fielded two blinded vignette-based survey experiments with 3,000 respondents, randomized to eight clinical vignettes and three insurance types. Our replication uses a population that is weighted to national demographics on three dimensions.

FINDINGS

Most or all of the spending due to insurance would occur even under an indemnity. The waste attributable to moral hazard is undetectable.

CONCLUSIONS

For high-cost care, policymakers should be more concerned about the foregone efficient spending for those lacking full insurance, rather than the wasteful spending that occurs with full insurance.

The Rise and Fall in Out-of-Pocket Costs in Australia: An Analysis of the Strengthening Medicare Reforms

After a period of steady decline, out-of-pocket (OOP) costs for general practitioner (GP) consultations in Australia began increasing in the mid-1990s. Following the rising community concerns about the increasing costs, the Australian Government introduced the Strengthening Medicare reforms in 2004 and 2005, which included a targeted incentive for GPs to charge zero OOP costs for consultations provided to children and concession cardholders (older adults and the poor), as well as an increase in the reimbursement for all GP visits. This paper examines the impact of those reforms using longitudinal survey and administrative data from a large national sample of women. The findings suggest that the reforms were effective in reducing OOP costs by an average of $A0.40 per visit. Decreases in OOP costs, however, were not evenly distributed. Those with higher pre-reform OOP costs had the biggest reductions in OOP costs, as did those with concession cards. However, results also reveal increases in OOP costs for most people without a concession card. The analysis suggests that there has been considerable heterogeneity in GP responses to the reforms, which has led to substantial changes in the fees charged by doctors and, as a result, the OOP costs incurred by different population groups. Copyright © 2016 John Wiley & Sons, Ltd.

Porque não instituir copagamento no Sistema Único de Saúde: efeitos nocivos para o acesso a serviços e a saúde dos cidadãos

RESUMO Em tempos de recessão econômica, copagamento é medida aventada para controlar a demanda e reduzir gastos em saúde. O artigo sintetiza pesquisas sobre os efeitos do copagamento. Os resultados evidenciam efeitos deletérios importantes: redução do acesso a medidas de promoção e prevenção, piora na adesão ao tratamento, renúncia ou postergação do uso de serviços, em especial por idosos, doentes crônicos e pessoas de baixa renda, gastos administrativos adicionais, e aumento das desigualdades sociais. Os supostos resultados de eficiência não são comprovados, pelo contrário, os pacientes abdicam de serviços necessários e renunciam à atenção em tempo oportuno, elevando custos assistenciais.

Which moral hazard? Health care reform under the Affordable Care Act of 2010

Purpose - Moral hazard is a concept that is central to risk and insurance management. It refers to change in economic behavior when individuals are protected or insured against certain risks and losses whose costs are borne by another party. It asserts that the presence of an insurance contract increases the probability of a claim and the size of a claim. Through the US Affordable Care Act (ACA) of 2010, this study seeks to examine the validity and relevance of moral hazard in health care reform and determine how welfare losses or inefficiencies could be mitigated. Design/methodology/approach - This study is divided into three sections. The first contrasts conventional moral hazard from an emerging or alternative theory. The second analyzes moral hazard in terms of the evolution, organization, management, and marketing of health insurance in the USA. The third explains why and how salient reform measures under the ACA might induce health care consumption and production in ways that could either promote or restrict personal health and safety as well as social welfare maximization. Findings - Insurance generally induces health care (over) consumption. However, not every additional consumption, with or without adverse selection, can be considered wasteful or risky, even if it might cost insurers more in the short run. Moral hazard can generate welfare and equity gains. These gains might vary depending on which ACA provisions, insured population, covered illnesses, treatments, and services, as well as health outcomes are taken into account, and because of the relative ambiguities surrounding definitions of "health." Actuarial risk models can nonetheless benefit from incorporating welfare and equity gains into their basic assumptions and estimations. Originality/value - This is the first study which examines the ACA in the context of the new or alternative theory of moral hazard. It suggests that containing inefficient moral hazard, and encouraging its desirable counterpart, are prime challenges in any health care reform initiative, especially as it adapts to the changing demographic and socio-economic characteristics of the insured population and regulatory landscape of health insurance in the USA.

John Nyman and the Economics of Health Care Moral Hazard

In 2003, John Nyman published The Theory of Demand for Health Insurance. His principal contributions are (1) to replace the previously unexamined axiom of risk avoidance with the axiom of welfare maximization; (2) to uncover a misinterpretation in the literature on moral hazard, namely, the insurance payoff as a price reduction, rather than as an income transfer. The immediate consequence of these reformulations is to recognize insurance-induced health care utilization as resulting in an increase in social welfare. Despite its evident validity and enormous implications, Nyman’s work has received very little attention or recognition in the health economics literature.

Cost-sharing under consumer-driven health care will not reform U.S. health care

Various kinds of consumer-driven reforms have been attempted over the last 20 years in an effort to rein in soaring costs of health care in the United States. Most are based on a theory of moral hazard, which holds that patients will over-utilize health care services unless they pay enough for them. Although this theory is a basic premise of conventional health insurance, it has been discredited by actual experience over the years. While ineffective in containing costs, increased cost-sharing as a key element of consumer-driven health care (CDHC) leads to restricted access to care, underuse of necessary care, and lower quality and worse outcomes of care. This paper summarizes the three major problems of U.S. health care urgently requiring reform and shows how cost-sharing fails to meet that goal.

Health insurance theory: the case of the missing welfare gain

An important source of value is missing from the conventional welfare analysis of moral hazard, namely, the effect of income transfers (from those who purchase insurance and remain healthy to those who become ill) on purchases of medical care. Income transfers are contained within the price reduction that is associated with standard health insurance. However, in contrast to the income effects contained within an exogenous price decrease, these income transfers act to shift out the demand for medical care. As a result, the consumer's willingness to pay for medical care increases and the resulting additional consumption is welfare increasing.

American health policy: cracks in the foundation

Much American health policy over the past thirty-five years has focused on reducing the additional health care that is consumed when a person becomes insured, that is, reducing moral hazard. According to conventional theory, all of moral hazard represents a welfare loss to society because its cost exceeds its value. Empirical support for this theory has been provided by the RAND Health Insurance Experiment, which found that moral hazard--even moral hazard in the form of effective and appropriate hospital procedures--could be reduced substantially using cost-sharing policies with little or no measurable effect on health. This article critically analyzes these two cornerstones of American health policy. It holds that a large portion of moral hazard actually represents health care that ill consumers would not otherwise have access to without the income that is transferred to them through insurance. This portion of moral hazard is efficient and generates a welfare gain. Further, it holds that the RAND experiment's finding (that health care could be reduced substantially with little or no effect on health) may actually be caused by the large number of participants who voluntarily dropped out of the cost-sharing arms of the experiment. Indeed, almost all of the reduction in hospital use in the cost-sharing plans could be attributed to this voluntary attrition. If so, the RAND finding that cost sharing could reduce health care utilization, especially utilization in the form of effective and appropriate hospital procedures, with no appreciable effect on health is spurious. The article concludes by observing that the preoccupation with moral hazard is misplaced and has worked to obscure policies that would better reduce health care expenditures. It has also led us away from policies that would extend insurance coverage to the uninsured.

Moral hazard and consumer-driven health care: a fundamentally flawed concept

For more than 30 years, most health care economists in the United States have accepted a conventional theory of health insurance based on the concept of moral hazard: an assumption is made that insured people overuse health care services because they have insurance. The recent trend toward "consumer-driven health care" (CDHC) is advocated by its supporters based on this same premise, assuming that imprudent choices by patients can be avoided if they are held more financially responsible for their health care choices through larger co-payments and deductibles and other restrictions. This article examines how moral hazard-based CDHC plays out in both private plans and public programs. The author identifies seven ways in which this concept fails the public interest, while also failing to control health care costs. Uninsured and underinsured people, now including many in the middle class, underuse essential health care services, resulting in increased morbidity and more preventable hospitalizations and deaths among these groups than their more affluent counterparts. A case is made to reject moral hazard as an organizing rationale for health care, and the author offers some alternative approaches.

Severity of illness and the welfare effects of moral hazard

The extent to which the moral hazard caused by health insurance represents economic inefficiency has been the subject of much debate. This paper incorporates health status in a model of moral hazard, and finds that seriously ill patients are likely to exhibit greater moral hazard than healthier patients but the proportion of moral hazard that is inefficient declines with the severity of illness. Because of these competing tendencies, the cost of resource misallocation is parabolic in the severity of illness. The effect of the consumer's initial wealth endowment is also considered.

Is 'moral hazard' inefficient? The policy implications of a new theory

"Moral hazard" refers to the additional health care that is purchased when persons become insured. Under conventional theory, health economists regard these additional health care purchases as inefficient because they represent care that is worth less to consumers than it costs to produce. A new theory, however, suggests that much of moral hazard is actually efficient. When the care that was deemed to be welfare-decreasing is reclassified as welfare-increasing, health insurance becomes much more valuable to consumers than health economists have hitherto thought it was. As a result, there is a new argument for national health insurance: efficiency.

Managing the behavior of the medically insured in Germany: the acceptance of cost-sharing and risk premiums by members of the statutory health insurance

In the course of the conflicts over the reform of statutory health insurance in Germany complaints about moral hazard-behavior on the part of the insured were repeatedly raised and linked to the demand for expanding managerial incentives aimed at reducing the consumption of health care benefits (copayments). However, critics and supporters of managerial incentives mostly neglect the perceptions and dispositions of the insured. In contrast, the article examines how members of the statutory health insurance scheme assess managerial intervention, namely cost-sharing and risk premiums.

Countering moral hazard in public and private health care systems: a review of recent evidence

Within both publicly and privately financed health care systems different funding mechanisms have evolved, or have been proposed, to deal with the problem of 'moral hazard'. Moral hazard arises when financial incentives within the health care system lead to either inefficient demands for care by consumers or inefficient supply of care by providers. In this paper the problem of moral hazard is outlined in more detail, and different ways of countering moral hazard are reviewed in terms of three criteria: effect on patient utilisation of health services in general: effect on utilisation by different groups of patients; and effect on health status. It is concluded that evidence on different methods of funding health services can only be judged in the context of objectives. If the objectives of health care delivery are 'maintenance or improvement of health' and 'equal access for equal need' then charges of finance of care through health maintenance organisations both appear to be less favourable than 'free' care at the point of delivery whilst the latter is not necessarily more costly as a result. Research on other suggested alternatives is required, otherwise radical changes to health care financing in the UK will simply result in movement from one unproven system to another.