Explaining Research – The Moral Hazard Problem

A reader points me to a study out in the New England Journal of Medicine this week.  The abstract:

Background When copayments for ambulatory care are increased, elderly patients may forgo important outpatient care, leading to increased use of hospital care.

Methods We compared longitudinal changes in the use of outpatient and inpatient care between enrollees in Medicare plans that increased copayments for ambulatory care and enrollees in matched control plans — similar plans that made no changes in these copayments. The study population included 899,060 beneficiaries enrolled in 36 Medicare plans during the period from 2001 through 2006.

Results In plans that increased copayments for ambulatory care, mean copayments nearly doubled for both primary care ($7.38 to $14.38) and specialty care ($12.66 to $22.05). In control plans, mean copayments for primary care and specialty care remained unchanged at $8.33 and $11.38, respectively. In the year after the rise in copayments, plans that increased cost sharing had 19.8 fewer annual outpatient visits per 100 enrollees (95% confidence interval [CI], 16.6 to 23.1), 2.2 additional annual hospital admissions per 100 enrollees (95% CI, 1.8 to 2.6), 13.4 more annual inpatient days per 100 enrollees (95% CI, 10.2 to 16.6), and an increase of 0.7 percentage points in the proportion of enrollees who were hospitalized (95% CI, 0.51 to 0.95), as compared with concurrent trends in control plans. These estimates were consistent among a cohort of continuously enrolled beneficiaries. The effects of increases in copayments for ambulatory care were magnified among enrollees living in areas of lower income and education and among enrollees who had hypertension, diabetes, or a history of myocardial infarction.

Conclusions Raising cost sharing for ambulatory care among elderly patients may have adverse health consequences and may increase total spending on health care.

Here’s the recap.  Some researchers wanted to see what happened to seniors if you increased their Medicare co-pays a bit for primary care and ambulatory care visits.  This is all based on the moral hazard argument.  It goes something like this: People use too much care if it’s free.  So the more you make them pay for it out of pocket the less they will use.  People who need the care the most will pay for it, but people who don’t need it will avoid it.  We become more efficient shoppers, spend less on needless care, and everyone wins.



What happened here is that just by increasing the co-pay from $7 to $14 and $13 to $22, about 20 fewer outpatient visits occurred per 100 people.  That’s a huge reduction for just a few dollars increase.  Imagine the reduction you would have seen for a significant increase.  And that reduction wasn’t harmless.  There were an additional 2 hospitalizations per 100 people and an average of more than 13 additional days in the hospital.

This minor additional cost-sharing not only resulted in worse health outcomes, but it might also cost more.

Here’s where it gets worse: The most effects were seen in those who were poor or sick.  That’s exactly what we’re trying to avoid.

You will hear some people say this contradicts the findings of the RAND Health Insurance Experiment, which basically “justifies” the whole co-pay thing.  They will say that the RAND HIE showed you can increase co-pays without negative health consequences.  But that’s because many have always misinterpreted the results.  As I’ve argued before about the HIE:

[H]ere’s the gist of that they found: People in the high deductible plans – those most exposed to health care costs – did spend significantly less and consumed less health care.  And, yes, much of that care was unnecessary, as healthy people did not suffer negative consequences  from forgoing care.  BUT, and this is important, poorer participants with hypertension avoided necessary care, and saw their mortality rates rise significantly.

Removing the moral hazard did no harm in the majority of patients (which is touted often as the result of the study) because they were healthy.  And, of course, getting less care when you’re healthy leads to few short term negative results.  But for those who were unhealthy, who comprised a minority of patients in the study, removing the moral hazard led to significant and dangerous consequences.

This study in the NEJM was of elderly people, who were all excluded from the RAND HIE.  They were inherently sicker.  And the results of the RAND HIE for sicker people held.  They fare poorly.  And it might not even save money.

I know it feels like higher co-pays are a good thing.  It seems right to ask people to have more skin in the game.  It looks like it’s fairer and more likely to reduce waste.  But that’s only true for healthy people.  And they’re not who we need to protect.

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