The moral hazard – ctd.

Austin writes me at the crack of dawn about my post:

I agree with the conclusion of this post, but the set-up bothers me in one way. When care is free or cheap people get more not because they want it per se (colonoscopies is a good example), but because their doctors prescribe it. If my doc says, “An XYZ might help a bit,” and it is free to me, I’ll do it. If my doc says, “An XYZ might help a bit,” and it cost me $1,000 I’m going to ask WAY more questions and am much more likely not to get XYZ.

This is when I wish I had an html tag for kidding on the square.  I agree my example was hyperbolic.  But the point remains the same.  When people talk about how the moral hazard results in more care consumption, it’s always in hypotheticals.  You can make an argument (and a compelling one at that) with straw men that seem to make sense.  I see very few concrete examples that happen in the real world.

In practice, I can remember almost no instances where I told a patient what to do and then had a discussion of what it will cost.  And you will have to trust me that almost everyone I see is very, very poor.  You can blame me for that, but that’s how clinicians are trained.  Fix it if you want, but it has nothing to do with consumers.  I look at a set of clinical symptoms and history, and the patient, and decide based on that what the best therapy is.  The only thing I ever really bring up in terms of cost has to do with pharmaceuticals.  I will tell patients that the generic is often just as good and much cheaper, but you’d be surprised how few docs do even that.

These arguments for the moral hazard as a major problem in health care also ignore the fact that something like 80% of health care spending is consumed by 20% of people.  Those people are not like the rest of us.  How much of that is spending is likely moral hazard related?  I’d guess little.

I’m not denying that the moral hazard exists.  It does.  I’m denying that trying to limit it through brute force is a good idea.  That’s what the research shows, and I will always take research over theory and arguments.

Austin continues:

I believe there is provider induced demand, as the example illustrates (this goes way back; one can cite Arrow; invoke information asymmetry). There are two ways to combat it being discussed today: (1) on the public side, ACOs and related bundling/capitation and (2) on the private side CDHPs. I think we’re going to see more of both. The writing is on the wall. They can both work to limit care (ration!!!). Which is better and for whom?

CDHPs make some sense for younger, healthier, non-poor, and not cognitively impaired folks (most of the working-age population). I’d support a CDHP model if it had income-related cost sharing and, moreover, included value-based design (a la Chernew).

However, for the elderly, chronically ill, very poor, cognitively impaired (e.g., most of the public program population), CDHPs make no sense. For them, ACOs are sensible. Put the risk on the provider and manage quality.

Moral hazard is real. Providers and patients play a role. It is all about money. But how the risk should be allocated depends on which population you’re dealing with.

Well, sure, as I said in the original post, brute force reducing the moral hazard for healthy people is great.  But how do you differentiate?  And, as John Nyman argues, some people who are previously healthy get really sick and the fact that a moral hazard exists may make them more likely to get care – which is a good thing.

I think that one of the biggest differences between liberals (with a little l) and conservatives (with a little c) is where they want the push to come from.  Many conservatives believe that the lever should be the consumer, that by increasing cost-sharing, you use the individual to drive the cost of the system.  Thus medical savings accounts and high deductible health care plans.  Many liberals believe that the lever should be the system.  You should limit money into the whole thing and force the many moving parts providing care to do so more efficiently.  Thus single payer systems.

I come down somewhere in the middle.  I’d say that for the stuff we agree everyone should get, that comprises the base set of quality health care, you ignore the moral hazard.  We want people to get that, and we should make it as easy as possible.  But for stuff that is unnecessary – and there is a lot of it – we let people get additional insurance to cover that.  Or we cost-share that.  Or we make them pay for it themselves.

I can already hear the howling.  Yes, that is “rationing”.  But we have to get over the idea that rationing is a four letter word.  We should want to ration stuff that is not really necessary.  And we should start to get used to the idea that a lot of what we do falls into that category.

UPDATE: I’m not saying this last thing would be easy. It would be very complicated and politically unpopular.  But it has to be done.

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