Morally hazardous

Malcome Gladwell has an important article at the New Yorker this week, on the sheer insanity of our healthcare system. A system that is getting ever more insane.

He wonders why a system in which the U.S. is at the bottom ranking among Western industrialized nations in most categories of health and health -- while spending billions more -- is so resistant, politically, to change.

Gladwell argues that this is not simply because the big insurance companies spend billions to keep politicians in their back pocket and Americans blissfully ignorant as to how bad the system is. It's also because of an idea. "Moral hazard."

Policy is driven by more than politics, however. It is equally driven by ideas, and in the past few decades a particular idea has taken hold among prominent American economists which has also been a powerful impediment to the expansion of health insurance. The idea is known as “moral hazard.” Health economists in other Western nations do not share this obsession. Nor do most Americans. But moral hazard has profoundly shaped the way think tanks formulate policy and the way experts argue and the way health insurers structure their plans and the way legislation and regulations have been written. The health-care mess isn’t merely the unintentional result of political dysfunction, in other words. It is also the deliberate consequence of the way in which American policymakers have come to think about insurance.

"Moral hazard" is a term economists use to describe the idea that when people have to pay for something, they'll use it more efficiently. That's true for a lot of consumer goods, but people with health insurance aren't more eager to go to the doctor than people without insurance. They're just more likely to go when they fall ill.

Trouble is, that misplaced idea is the foundation of our healthcare system, and of the Bush administration's recent plans.

At the center of the Bush Administration’s plan to address the health-insurance mess are Health Savings Accounts, and Health Savings Accounts are exactly what you would come up with if you were concerned, above all else, with minimizing moral hazard. The logic behind them was laid out in the 2004 Economic Report of the President. Americans, the report argues, have too much health insurance: typical plans cover things that they shouldn’t, creating the problem of overconsumption. Several paragraphs are then devoted to explaining the theory of moral hazard. The report turns to the subject of the uninsured, concluding that they fall into several groups. Some are foreigners who may be covered by their countries of origin. Some are people who could be covered by Medicaid but aren’t or aren’t admitting that they are. Finally, a large number “remain uninsured as a matter of choice.” The report continues, “Researchers believe that as many as one-quarter of those without health insurance had coverage available through an employer but declined the coverage. . . . Still others may remain uninsured because they are young and healthy and do not see the need for insurance.” In other words, those with health insurance are overinsured and their behavior is distorted by moral hazard. Those without health insurance use their own money to make decisions about insurance based on an assessment of their needs. The insured are wasteful. The uninsured are prudent. So what’s the solution? Make the insured a little bit more like the uninsured.

Quothe Brad DeLong, "Why, oh why, are we ruled by these idiots."

Oh, yeah. Like Willie Stark says in All the King's Men, it's because we are all hicks and morons, easily taken in by our rulers.

Anyway, makes for fascinating reading. And Malcolm Gladwell is, as usual, engaging. But don't try to read it while eating a roast beef and carmelized onion sandwich on focaccia bread. I can say that from bad experience.

There, I've done it. I've done a blog post on what I had for lunch. I now feel like one of the initiated.