Moral Hazards and Moral Obligations: Mutually Incompatible Goals in Healthcare?


We face daily threats to our physical, emotional and psychological well-being.  Crossing a street involves life-threatening consequences. Interactions with families, friends and colleagues can bolster or tear down our emotional well-being and sense of self. We accept these hazards without thinking, and a mark of psychological health is the ability to anticipate and negotiate such hazards successfully. Much of our work in the consulting room consists of helping patients better negotiate interpersonal and emotional hazards. Hazards abound.

But another hazard that we are likely to hear more about as the “Repeal and Replace” debate heats up in Washington may not exist: the moral hazard in healthcare. Briefly put, the moral hazard in healthcare is derived from an economic concept that holds that individuals will take more risks if others pay the consequences of such risks. Translated to healthcare, the argument posits that people will consume more healthcare if they don’t have to pay for the costs of such care. For example, a patient with a “Cadillac” plan will visit their healthcare provider more often than one whose insuror places caps on the number of visits.

For the moral hazard argument to work, two assumptions have to hold. The first assumption is that access to healthcare is equitably distributed—otherwise, high users might simply be those who didn’t have sufficient access before, not those who are “immorally” overusing services. The second is that the demand for healthcare is completely elastic: That is, the more available it is, the more people will use it. And we know that neither of these assumptions is true.

In a fee-for-service system, those who cannot pay or who are chronically underinsured go without needed medical, dental and mental healthcare—we have provided an inequitable distribution of healthcare. Society often ends up paying for the consequences of neglecting healthcare, either in the form of lost productivity or the higher cost of treating preventable chronic or end-stage illness. An excellent example of this occurs when individuals have restrictive health plans that only cover emergency services. Such individuals become high utilizers of extremely expensive emergency medical services. Providing these patients with non-emergency prevention and health maintenance via a new service offered by local EMS responders, as the Washington DC suburb Prince George’s County has recently done, results in dramatic reduction in ER utilization and attendant costs.

This example also touches on the issue of elasticity of demand for healthcare. We know that demand for healthcare is not elastic. While people expect to enjoy the consequences of seeking healthcare (presumably they feel better) the act of seeking healthcare is usually avoided. Unless they are ill, most people would rather engage in almost any other activity than visit a healthcare provider. This is one reason why preventive healthcare can often be a challenge, but as the scenario used above illustrates, individuals will not use healthcare services if appropriate maintenance and preventive services exist.

Thomas McGuire, in an insightful article in the June 2016 journal Health Affairs, observed that over 40% of current Medicaid spending is for mental health and substance abuse treatment, even though the total number of dollars spent on mental healthcare as a portion of overall healthcare spending has continued to drop. He also noted that while the moral hazard argument was frequently used as an argument against expanded parity legislation, this fear was not borne out in reality. Expanded parity did not drive up mental health costs. At the same time, expanded parity did little to increase access to needed services, because in spite of parity legislation, access remained limited—either by plans that did not provide true parity, or a lack of access to providers and services, or both. So the take home messages here are relatively obvious. First, parity legislation does not invoke a moral hazard. The increase in those seeking mental health services is not a reflection of self-indulgent behavior, but simply that such services were out of reach to them before. Second, expanded parity legislation does not by itself increase access to care—this is dependent on healthcare plans, as they are the controllers in the marketplace.

So, while I concede the point may still be debated, I think we should lay the moral hazard to rest. At issue is our moral responsibility to address the needs of those with mental illness. Few in modern societies would argue that this responsibility can be ignored. There are plenty of modern examples of what happens to the overall health of a society when we ignore the basic health needs of a population, and we don’t have to look too far back in American history to see what happened when we did so. While in the past we rightfully focused on chronic physical ailments, advances in preventive care and infectious disease have reduced the burden of these conditions—and is one reason why we see more emphasis on mental disorders and substance abuse. This point is nicely illustrated by a military example: advances in personal protective gear and battlefield medicine have tremendously reduced mortality associated with combat injuries, one of a number of factors that has led to the current military focus on disorders associated with stress and trauma.

As a nation, however, we have embraced the moral obligation of healthcare only conditionally. We acknowledge the obligation to treat the invisible wounds of war in our veteran’s populations. We are slower to embrace the obligation to treat those whose wounds were incurred as a result of deprivation or abuse. For most of us, it is easier to contemplate providing no-cost treatment to a combat veteran with PTSD than to a substance-abusing runaway with the same condition. But in my experience, most veterans would not ask us to make such a choice—and would likely step aside in favor of those with the greater need, regardless of the origin of the injury.

The 21st Century Cures Act, enacted in the waning days of the Obama administration, was not a mental health bill, but it did lay the groundwork for better service provision in certain areas. It contains a framework, albeit skeletal, for better coordination of care, and this may reduce the inefficiencies and fiscal wastage associated with current disjointed mental health care delivery. It contained provisions to expand Medicaid-covered services for children in some institutional settings, although a wider expansion that would allow inpatient treatment for substance disorders was missing from the bill. In any event, this was a bipartisan piece of legislation that may serve as a model for future initiatives.

All decisions made at this level require some calculus on how we as a nation choose to expend our treasure. It is not idle verbiage to say that in some respects these decisions chart our future as a county. At less elevated levels, it would be prudent for policymakers to heed Thomas McGuire’s cautions in the article cited above—namely, that it is better for consumers to have choices among a few good health plans than among many bad ones.

As clinicians, we may employ sliding fee scales. In such strategies, all, save the most indigent, must pay at least a token amount for services. This, we believe, results in patients valuing a service that is paid for more than one that is gratis. But it is also a reflection of the moral hazard argument, in that we believe that those who pay are less likely to use services frivolously, even though such policies may have the unintended consequence of deterring the truly needy from seeking care. And this illustrates the choice point between moral hazard and moral obligation quite well. To use the moral hazard argument as a philosophical underpinning of national healthcare policies is fallacious, since as we have seen assumptions of elasticity and equitable distribution do not exist. Its use may also lead to denial of needed healthcare which is in the long run economically unwise. If we accept the supposition that one of government’s roles is to provide for those who cannot provide for themselves, use of the moral hazard argument quickly adopts a moral dimension. Faced with a decision between a moral hazard and a moral obligation, I believe our choice is clear.

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