Economic theory states that having insurance – of any kind – can change the behavior of the person being insured. This is known as “moral hazard,” a theory that has driven American health policy for most of our lifetimes. Moral hazard comes in many forms; spending someone else’s money is just not the same as spending your own. How many fewer $200 hotel rooms would there be without business expense accounts? With budgets in the billions, this is how the Pentagon ends up with the infamous $640 toilet seat.
When it comes to healthcare, proponents of moral hazard fear that, absent a financial stake, patients will demand more expensive and unnecessary tests and treatments. They argue that a “brake” on this demand is needed to assure efficient consumption of healthcare. It’s one of the reasons co-payments, deductibles, and the notion of “skin in the game” are solidly entrenched in our health care system and the reason why we’re likely to see more cost sharing in the name of consumer-driven healthcare.
But how does economic self-interest affect health care consumption? It definitely makes a difference in utilization. For a practicing clinician, switching patients from a brand-name drug to a less costly generic is challenging when both choices are fully covered and much easier when there is a substantial difference in co-pay. Primary care physicians are sometimes faced with patients who want a costly, but unnecessary test – say an MRI for a sprained ankle or a headache – when no test is indicated. Since it makes no economic difference to them, some patients bristle when the physician advises against the high-cost test, convinced that HMO cost controls, not evidence-based medicine, are the reason. Physicians may feel pressured to appease the patient and protect against that infinitesimal chance that something more serious is indeed involved or simply find it easier to order the test than to spend the time dissuading the patient when time is already so limited.
Co-pays can limit this tendency, and there is a school of thought that this will reverse the trend in healthcare spending. There is, of course, a downside. Back in the late 1970’s, the Rand Corporation did a famous study of the decisions consumers made as their co-payments rose. Sure enough, the higher the co-pay, the less health care was consumed. The problem was that people were as likely to forgo necessary treatment – like care for diabetes or hypertension – as they were to cut out unnecessary care.
An article in this week’s Journal of the American Medical Association makes the same point using prescription drug cost sharing as the example. A review of 132 different studies confirmed that increased cost sharing is associated with lower pharmaceutical use. However, for chronically ill patients, the downside is troubling: Patients with congestive heart failure, lipid disorders, diabetes and schizophrenia who also had more “skin in the game” used fewer drugs but as a result needed more inpatient and emergency medical services, a sign that co-pays or cost sharing can lead to higher health care costs in some cases.
Ultimately, co-payments are a blunt instrument – the cost sharing reduces the employers’ contribution and reduces utilization but there isn’t a reliable way to calibrate them to maximize “good” health – and consumers are not always able to distinguish the difference. There are ways to limit the downside. First dollar coverage for preventative services, for example, will promote better health. Making certain that critical drugs – like anti-hypertensives and diabetes medications – do not require co-pays also can help. The problem is where to draw the line and what the long-term impact will turn out to be.
Ultimately, the big costs in healthcare result from serious illness, not moral hazard. A higher co-pay may change one’s thinking around taking a generic rather than a brand-name drug, but major cost items like cancer care or hospitalization for heart attacks are harder to manage because they are neither elective nor discretionary and patients are unlikely to shop around for the best deal.
As we work to expand coverage and better control health care costs, it would be hazardous to our collective health to forget that preventing and managing serious illnesses are the real challenges in health care today and have the greatest impact on rising health care costs.
David F. Torchiana, MD
Chairman and CEO
Massachusetts General Physicians Organization (MGPO)
Great comments David. Also, the key to “moral hazards” producing productive results is those facing the hazard (i.e. patients and physicians) having the information they need to make knowledgeable choices based upon the economic incentives presented to them. As I have repeatedly said, “Uninformed choice is no choice at all.” Expecting patients (and their physicians) to make good choices about medical decisions when they don’t have the information about the consequences of those choices borders on being immoral.
And what kind of “moral hazard” is there when the money for health insurance is being taken from us against our will in an unfair and inequitable way?
http://groups.google.com/group/fair-health
David –
I agree, in part, with your closing observation that “preventing and managing serious illnesses are the real challenges in health care today and have the greatest impact on rising health care costs.” I would also like to see some of the ideas you put forward actually implemented more broadly (e.g., first dollar coverage for preventive care).
For better or worse, the biggest game in health insurance reform these days seems to be consumer-directed health care, and it’s not working all that well. HSAs haven’t taken off as expected, most people with HSAs don’t seem to use them to their highest potential (i.e., they delay care since it’s an out-of-pocket expense) and most physicians don’t take cost/source of payment/type of coverage into account when referring patients for diagnostic or other services, even though lower-cost alternatives are often equally effective (see other HealthBlawg posts re: CDH here).
Again, I agree that some changes may be necessary in order to get a handle on cost, but the law of unintended consequences is in full force when tinkering with health insurance mechanisms, and we must tread carefully . . . .
“Primary care physicians are sometimes faced with patients who want a costly, but unnecessary test – say an MRI for a sprained ankle or a headache – when no test is indicated. Since it makes no economic difference to them, some patients bristle when the physician advises against the high-cost test, convinced that HMO cost controls, not evidence-based medicine, are the reason. Physicians may feel pressured to appease the patient and protect against that infinitesimal chance that something more serious is indeed involved or simply find it easier to order the test than to spend the time dissuading the patient when time is already so limited.”
I like the “sometimes”. In fact, that type of story is antecodatal evidence and the least reliable kind as an indicator of the behavior of a group.
It is undoubtedly true that some patient smay do that BUT the probability of it being more than 1-5% of patients would not be consistent with rationale behavior.
The general rule of human behavior is to prefer the least threatening or potentially ominous explaination for an event. To put it more simply,a patient will have an innate bias for preferring to hear that the headache is caused by a mild sinus infection rather than it is could be caused by a brain tumor.
From the personal perspective, I have both requested an MRI and argued that it wasn’t necessary.
In the latter instance, an ER physician insisted upon an MRI because of facial spasms that mimicked Bell’s Palsy in order to rule out a stroke. I aruged it wasn’t necessary as (1) my blood pressure was 100/58 and thus a stroke was highly improbable and (2) the supra spinatis tendon in my right shoulder had massive scar tissue from an injury which impinged two nerves and set off headaches and therefore the probability of facial spasms being triggered by the nerve damage was well over 90%. (And the MRI proved me right and I was extremely annoyed at having had to waste the time with the MRI when all I needed was some muscle relaxants and short-term pain medication.)
In the former instance, when Xrays did not show what was wrong in the right shoulder, my GP ask what I wanted to do. I said “Schedule an MRI if it will give a better view of soft tissue damage.” He did and I was correct as the MRI clearly showed tendonopathy of the supra spinatis. When then a course of treatment had to be determined, the GP ask what I wanted to do. I responded that I would just go home to the Cleveland Clinic so I didn’thave to fiddle about trying this or that wasting my time; and the Clinic could easily pin down the complete diagnosis, prognosis and course of care (which turned out to be a highly sophisticated chronic pain procedure that isn’t even performed by anyone in my state.) I should note that an HMO’s nonsense of referrals and approvals would have incurred more costs for them with ineffective and repetitive appointments with the GP and specialists “in network” who were not qualfied to treat, and wasted a LOT of my time as compared to my expeditious solution of the matter.
Only a hypochondriac ENJOYS and NEEDS the consant medical attention. The rest of the world prefers to spend as little time as possible in waiting rooms and being ordered about like mentally defective children by medical staff who presume the patient is incompetent to make a decision and has to have someone else decide for them and filter information. Most people have far better things to do with their time than sit and wait and keep coming back for appointments.
This idea that patients want more and more medical services simply because such services are available is nuts. Having to go through tests and procedures does not yield pleasure as does, for example, indulging in Creme Brulee or a trip to the Bahamas (and the consumption of these 2 items would vastly increase if the consumer bore no or little cost.)
PS: Any typs are the result of the marginal right shoulder/hand.
By the way, I should add that I have 100% 1st dollar coverage except for a $131 deductible.