October 23, 2007

moral hazard

There's this idea, beloved of conservatives, called moral hazard. It's the idea that if you don't bear the full pain of a problem, you're more likely to take risks with it: not locking your car if you're insured against theft, not worrying about getting pregnant if someone else is going to pay to raise the child (or for an abortion). The concept crops up in many, many conservative social policies. One of the most notable is the opposition to birth control, abortion, and sex ed - there's a strain in the anti arguments that people (specifically women) need to experience the immediate negative consequences of sex so they won't have it.

Moral hazard is also the key to understanding most conservative health care schemes. Paul O'Neill, former secretary of the treasury, wrote an op-ed arguing for a health care system that insured everyone against catastrophic health expenses, but required people to pay out of pocket or for private insurance until then. In his words: "since most Americans would have a significant personal cost until the catastrophic coverage took over, they would, at least in theory, shop for the best product." Otherwise, he argues, we lack incentive to care for our health or choose a good insurance plan, which drives up over-all health care costs.

Problem is, moral hazard isn't an especially useful theory for either of these situations. People have sex regardless of the consequences, because the incentives to have sex are so powerful: making people bear the most negative consequences just results in more people in bad situations. Health care is even worse from a moral hazard perspective. People mostly don't avoid seeking care for emergencies because of the cost - as Bush so insightfully pointed out, you can just go to the emergency room if it's bad enough. Instead, our health care system already accounts moral hazard, and it's a disaster: preventive care is expensive, so people avoid it or treat it as optional, so their conditions get worse, so their care becomes more expensive. O'Neill has it absolutely and totally backwards. Making basic care expensive and insuring against catastrophe just leads to people skimping on basic care, and getting to catastrophe: it's more of what we have now, which has given the US the world's most expensive health care mess. Instead, we need universal access to preventive and maintenance care - the kind of thing that prevents kids from dying of their dental problems, because they won't have dental problems.

I think I find this interesting mostly because it's such a great example of a flawed theory of human nature leading to flawed policy ideas. O'Neill has this idea about how people act (so do the abstinence-only sex ed people), but it's not accurate - and not only that, he's not willing to modify his theory based on the evidence (and neither are the abstinence-only people). Instead, he continues to argue that "at least in theory" people will act a certain way.

I see this as a major failure in the relationship between political theory and reality, as much as a sign of O'Neill's personal intransigence. There are tons of political theories out there that just don't work, because their theories of human nature are all wrong; yet no one's gone back and figured out how to communicate between political theory and how people actually act. Similarly, this policy idea of basing health care on moral hazard isn't just ineffective, it's based on an wrong-headed idea of what it's like to be human; until we have some clear talk about what it's like to be human going on with policy-makers, we're going to keep getting bad policy.

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