The latest shot fired across the bow of consumer-directed
healthcare is Malcolm Gladwell’s recent article in the New Yorker. Gladwell
argues that the health insurance system in this country is a mess
because it is based on the flawed idea of “moral hazard.”
Consumer-directed healthcare — specifically Health Savings
Accounts — is little more than an extension of moral hazard.
Some of Gladwell’s article seems to substitute ideology for
common sense. For example, he writes:
Medicare, too, is based on the social-insurance model,
and when Americans with Medicare report themselves to be happier
with virtually every aspect of their insurance coverage than people
with private insurance (as they do, repeatedly and overwhelmingly),
they are referring to the social aspect of their insurance. They
aren’t getting better care. But they are getting something just as
valuable: the security of being insulated against the financial
shock of serious illness.
Is it the social insurance aspect that makes Medicare popular?
Or is it something more mundane, like the fact that recipients are
getting it for free? When people perceive that they are getting
something for nothing, chances are good that “something” will do
very well in opinion polls.
Like all good missives in favor of universal healthcare,
Gladwell begins with a woeful tale of those without insurance.
Referring to work by Harvard researchers Susan Starr Sered and
Rushika Fernandopulle, he lays out in excruciating detail the
travails of people who do not have dental insurance:
Gina, a hairdresser in Idaho, whose husband worked as a
freight manager at a chain store, had “a peculiar mannerism of
keeping her mouth closed even when speaking.” It turned out that
she hadn’t been able to afford dental care for three years, and one
of her front teeth was rotting. Daniel, a construction worker,
pulled out his bad teeth with pliers….”Almost every time we asked
interviewees what their first priority would be if the president
established universal health coverage tomorrow,” Sered and
Fernandopulle write, “the immediate answer was ‘my
teeth.’”
Would universal care really result in adequate dental care? One
can look at Britain, where the National Health Service (NHS) covers
dental care. Running the phrase “NHS dentist” through the search
engine at the BBC’s website reveals many articles about how bad the
NHS dental program is (see here and here for instance). Putting in the term “pulled
his own teeth” even reveals an article about a Scarborough man who did his own dental
work with pliers after being unable to find an NHS dentist.
It’s also worth asking how hard it would be for folks like Gina
and Daniel to afford dental care. Calling around to some dentists
in Idaho revealed that costs ranged from $117 to $232 for a checkup
and $96 to $180 for a tooth extraction. Some offices had payment
plans over 3 to 12 months, while others offered credit services
through various banks. It’s hard to tell exactly what problems the
likes of Gina and Daniel face, but lack of universal health
insurance isn’t one of them.
GLADWELL’S BIGGEST FLAW lies in his argument about moral hazard.
Moral hazard is the idea that “insurance can change the behavior of
the person being insured.” It “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.” Those concerned with moral hazard,
according to Gladwell, argue that universal health insurance in the
U.S. would produce “wasteful consumption of medical expenditures.”
Gladwell dismisses this idea because healthcare is not like other
consumer goods: “We go to the doctor only grudgingly, only because
we’re sick.” He also pans HSAs because they “are exactly what you
would come up with if you were concerned, above all else, with
minimizing moral hazard.”
This view of HSAs is limited because Gladwell misdiagnoses the
problem. In fact, what more and more think tanks and policymakers
are concerned with these days is the “third-party payer” system.
Under this system, patients do not pay the health-care provider
(doctor, hospital, etc.) directly. Rather, a third party, an
insurance company or the government, picks up the tab.
This system is due largely to our ass backwards tax system,
which gives employers a tax break if they pay for their employees’
health insurance. While this arrangement insulates employees from
most of the cost, it also strips them of control and choice. In
many cases, especially health maintenance organizations, the
employee has to use the doctor or other health-care provider that
is part of insurance company’s network. He often has to get
approval for certain tests or to see a specialist. Not only does
the third-party payer system limit an employee’s options, it also
insulates health-care providers from competition. Instead of
competing for customers (patients), doctors and other providers
just send their bills to the insurance company.
HSAs are what you would come up with if you wanted to circumvent
the third-party payer system. HSAs are designed not only to shift
some of the cost to the consumer, but also give him more control
and choice with his healthcare dollars. He can use his HSA to
purchase whatever healthcare products he deems necessary. With the
healthcare consumer having more control and choice, healthcare
providers will have to compete for his business. That competition
will result in innovation — that is, healthcare providers will
have to find ways to lower costs and improve quality.
This is how healthcare works in areas that are not usually
covered by health insurance, like LASIK eye surgery and plastic
surgery. Since patients pay for the cost of these out of their own
pockets, the providers have to compete and innovate. As a result,
prices have declined, while quality has improved. For example, the
average price of LASIK per eye was $2,200 in 1998; it had fallen to
$1,350 by 2004.
By focusing on the red herring of moral hazard, Gladwell
overlooks a major cost-saving device of consumer-directed care: the
introduction of more competition into the healthcare market. In the
long run, the lower prices brought about by competition may offset
whatever cost shifting occurs, thanks to HSAs.
