The Moral Hazard Myth

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This classic article is getting old now, but still offers a good perspective on the moral hazard myth in respect to healthcare coverage.

“Moral hazard” is the term economists use to describe the fact that insurance can change the behavior of the person being insured.  If your office gives you and your co-workers all the free Pepsi you want—if your employer, in effect, offers universal Pepsi insurance—you’ll drink more Pepsi than you would have otherwise.  

This article is actually required reading for all students beginning my school’s MPH program. The authors, taking information from John Nyman’s book, The Theory of the Demand for Health Insurance, have this to say about applying moral hazard theory to healthcare coverage:

The moral-hazard argument makes sense, however, only if we consume health care in the same way that we consume other consumer goods, and to economists like Nyman this assumption is plainly absurd.  We go to the doctor grudgingly, only because we’re sick.  “Moral hazard is overblown,” the Princeton economist Uwe Reinhardt says.  “You always hear that the demand for health care is unlimited.  This is just not true.  People who are very well insured, who are very rich, do you see them check into the hospital because it’s free? Do people really like to go to the doctor? Do they check into the hospital instead of playing golf?”

I really recommend reading the whole article, it’s food for thought at the very least.

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