The moral hazard of preventive services

An Economic Framework For Preventive Care Advice

By Mark V. Pauly, Frank A. Sloan and Sean D. Sullivan
Health Affairs, November 2014


Under the Affordable Care Act, preventive care measures, including vaccinations and screenings, recommended by the Advisory Committee on Immunization Practices and the US Preventive Services Task Force must be covered in full by insurance. These recommendations affect the cost of medical care. Yet neither organization explicitly incorporates measures of efficiency or cost-effectiveness in making its recommendations. To redress this shortcoming, we propose a decision-making framework for these two organizations based on the principles of economic efficiency. Our analysis suggests that routine use of a preventive service should be recommended for full insurance coverage if the service’s cost-effectiveness exceeds a socially determined threshold. For less cost-effective services, we suggest that information about effectiveness and cost should be provided to consumers by physicians or government, but the choice of care and insurance coverage for care should be made by individuals. For the least cost-effective services, the two organizations should discourage public and private insurers from covering such services and report their unfavorable cost-effectiveness.

Health And Cost Trade-Offs

It is crucial to note that the policies of ACIP and the US Preventive Services Task Force are affected by legislative and political constraints. Even with expertise and intent, and with reliance on staff to summarize information on cost-effectiveness, the two organizations are heavily restricted in their ability to incorporate costs in their decisions. Nonetheless, they are given the authority to make recommendations with potentially serious cost consequences. They are being asked to do a task that is impossible to do well. The current structure is thus unworkable as a vehicle for deciding on costly coverage. We therefore propose an alternative that could, in principle, then be implemented either by ACIP and the US Preventive Services Task Force or by some other entity.

An Economic Framework

Preventive care should be made free of user cost for several reasons. The classic reason for requiring immunizations for contagious diseases is concern about the failure of consumers to consider the benefits of prevention to others who might otherwise contract the disease from them. Such use is encouraged by insurance coverage. Another reason is that considerable evidence exists suggesting that some patients do not fully appreciate the benefits from some high-value preventive services, such as the measles vaccine. Finally, future cost reduction for other services that sometimes accompany effective prevention will be overlooked by consumers insured for those services (and by insurers and employers) if there is turnover of insured people from one insurance company to another.

Shorn of technical language and complex mathematics, the fundamental goal of economic efficiency is to provide all services worth more than their cost to users and others who value receipt of these services. In contrast, services should not be provided if they improve health but not by enough to justify their costs.

Categories Of Evaluation And Advice

Here is a way to consider possible policies. A highly desirable service may be “strongly” recommended, with the expectation that physicians will routinely offer and encourage the use of such services and insurance or public subsidies will reduce the user price to zero. Most recommended pediatric immunizations fall into this category.

There are effective preventive services that might be of limited benefit to most people’s health but are sufficiently beneficial for some people to prefer them. We suggest that recommendations in this case be “permissive.” They would emphasize to consumers the positive health benefits of the care and the need to alert them about its availability and cost. Those who attach personal value to the benefit in excess of the societal threshold would be permitted to use them or insure them, but neither subsidies nor insurance would be required.

Finally, there could be a “discouraging” recommendation. In such cases, the service may be effective but insufficiently effective to justify its cost for the great majority of people.

From the Conclusion

Given that higher premiums can be a consequence of a recommendation, it seems illogical not to explicitly consider the higher costs compared to the benefit but to be explicit about both benefits and the need to consider the options, as we have recommended. This is a comparison, we admit, that clinical decision makers are reluctant or unable to make because it requires something beyond clinical considerations, and there is no alternative under current law and policies other than inconsistent or undesirable behavior. We have instead recommended a three-tier approach based on cost-effectiveness ratios. The precise dollar values that divide tiers is a political and ultimately a societal judgment.



By Don McCanne, MD

During the crafting of the Affordable Care Act it was decided that prevention should have the highest priority in the delivery of health care services on the basis that it would reduce health care costs by preventing more expensive care, and, more importantly, that preventing disease is better than managing it. Although there is little evidence that preventive care saves money, preventing disease is certainly beneficial.

For that reason it was decided to require that preventive services - including immunizations recommended by the Advisory Committee on Immunization Practices (ACIP) and screening procedures recommended by the US Preventive Services Task Force (USPSTF) - be fully covered by insurance, with no cost sharing, even if the deductible had not been reached.

The concept that all health care should be a prepaid service with no cost sharing was never considered as an option - much as single payer was excluded from consideration.

Mark Pauly, one of the co-authors of this Health Affairs article, popularized the concept of moral hazard in health insurance - that it was important to require patients to directly bear at least a portion of the costs of health care in order to prevent them from obtaining care for free that they would have forgone if they would have had to pay for it in part or in full. This concept has become an absolute given amongst the health policy wonks in this nation. This “skin in the game” consumer-driven notion has so dominated the policy community that it is being expanded by ever-higher deductibles which likely are contributing to the slowdown in health care spending - an undesirable form of cost containment, as will be explained.

The greatest problem with cost sharing (deductibles, co-payments and coinsurance) is that it has been confirmed that people frequently do forgo beneficial health care when they have to pay a portion or all of the costs of that care. Several other nations with universal systems recognize that problem and thus provide first dollar coverage for health care. This problem was also recognized by Congress when it was decided that preventive services should not be discouraged by making them subject to cost sharing (although it has been shown that plans with high deductibles also cause patients to forgo free preventive services).

It appears that Professor Pauly and his colleagues cringe at the thought of dismissing the moral hazard of accepting free preventive services (free at the time of service). Thus they now propose applying the consumer-directed concept of establishing tiers of preventive services - one for full coverage, a second for full payment out-of-pocket, and a third for discouraging the use of those preventive services as not having enough value (due to inordinately high prices) for anyone to pay for them.

It seems to matter little that the ACIP immunization lists and USPSTF screening tests have undergone decades of rigorous scientific investigation and represent the state of the art in preventive services. This begs the question: How do you overuse preventive services? Rather than disrupting these services because they supposedly constitute a moral hazard it would seem much more logical to use public (government) measures to reduce excess prices, just as they do in other nations.

Of course, a single payer national health program is designed to get pricing right - providing optimal health care value for all of us.