"Moral Hazard:" The Myth of the Need for Rationing


One of the most pervasive myths in debates over health care reform is that of moral hazard the idea that when access to health care is unrestricted, patients “overutilize” health services in wasteful and inefficient ways. Opponents of single-payer say this overuse contributes to long wait times for care*. The moral hazard idea also underpins the arguments of supporters of consumer-directed health care and health savings accounts.

As these authors point out, this dogma has no clothes. Beyond the common sense argument that going to the doctor is not a leisure activity for most people, there is compelling evidence both that moral hazard is both vastly overblown and a poor basis on which to formulate health policy. Empirical research shows that erecting financial barriers to care reduces as much necessary as unnecessary care, and the expectation that patients (especially the sickest 20 percent of the population that account for 80 percent of health spending) should be able to distinguish between what care is “necessary” and what is not is fantastical.

Cost Sharing in Health Insurance — A Reexamination (pdf)
Physician and health economist Edith Rasell reviews the literature on cost sharing in a 1995 New England Journal of Medicine article and reports that increased cost sharing reduces necessary care, discourages use of preventative services and has a negative effect on health outcomes, especially among the sick and poor. She concludes that overutilization is insignificant as a cost driver: far more important are huge levels of administrative waste, inefficient delivery of services and the United States’ comparatively high level of costly, high tech procedures.

Does Comprehensive Insurance Encourage Unnecessary Use? (pdf)
Across the border, Noralou P. Roos and her colleagues from the University of Manitoba studied health spending levels by health and socioeconomic status to determine whether the province’s universal comprehensive insurance resulted in resources being inefficiently allocated to the healthy. The answer was a resounding “no.” They found that, despite being provided universal access, most people still used little health care (low-income people use fewer than might be needed / expected), and the care that was used was allocated efficiently: the healthiest 70 percent of the population used 10 percent of the care, while the sickest 10 percent received 74 percent.

The Moral Hazard Myth
Finally, in an article for the New Yorker, journalist Malcolm Gladwell provides a concise review of the case against moral hazard, an idea some of its old adherents have since abandoned.

Related information is available at the PNHP webpage on health savings accounts.

*The existence of long wait times is itself an almost entirely false assertion. Canadians have no waits for emergency care, and queues for elective tests and procedures (contrary to spurious figures reported by ideologically-oriented institutions) are quite short when measured scientifically.