Saturday, October 25, 2014

Health Insurance Changes Behavior: Moral Hazard

This semester, I am a Graduate Student Instructor for the undergraduate course Public Health 150D, Introduction to Health Policy and Management. I am really enjoying working with the students and am having fun helping them learn about the U.S. health care system! Here is something they learn about in our class:

UC Berkeley requires students to have health insurance to enroll in the school. When many of my classmates started graduate school, they had previously been working in settings that did not provide benefits and had therefore gone without some health services for a period. Once they started school and had insurance through the university plan, they got very excited to use those services to the fullest!

New glasses? Check!
Teeth cleaning? Check!
Pap smear? Check!
Flu shot? Check!
Sore throat? Why not get it checked out? Can't hurt! Check!
Ski trip? I'll have to save up to go, but at least if I get hurt on the trip, I know I'm covered!

Did you know? This phenomenon actually has a technical name!


Moral Hazard in health care is the tendency to behave differently when you have health insurance than when you don't. It can include both engaging in riskier behaviors (because you know you have insurance if you get hurt) or using more services (because they are covered fully or in part by your insurance).

Furthermore, it turns out that the better our insurance coverage (lower deductibles, lower copays, lower coinsurance, etc.), the more services (and more expensive services) we are likely to use! (See publications on the RAND Health Experiment and other similar findings.)

The name "moral hazard" makes it sound like this is a series of bad or wrong choices. But that is misleading, in my opinion. Sure, insurance companies dislike it, and in some cases, moral hazard can involve over-use of unnecessary services. But for most of us who just want to take care of our health, it is actually quite logical to weigh the risks and count the costs when we make everyday decisions. If we can afford it, of course we want to get the services that might improve our health!

If you have never heard the term "moral hazard" before, you have just been introduced to one concept from PH150D: Introduction to Health Policy and Management. And now you know!

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