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Can Greater Skin in the Game Reduce United States Health Care Costs?

Sat, August 22, 2:30 to 4:10pm, TBA

Abstract

Proponents of moral hazard in health care claim that when individuals are insulated from healthcare costs (HCC), they will demand more, often unnecessary, services, or engage in unhealthier behaviors than they otherwise would, collectively driving up demand, and concomitantly, healthcare costs. They propose increasing out-of-pocket costs (OOP) to prevent unnecessary consumption and control HCC. Moral hazard informs the movement supporting “consumer-directed care”, exemplified by policies combining health savings accounts, deductibles, and co-pays/coinsurance that should allow individuals to comparison shop for policies that best fit their needs and preferences. These policies are touted as the most affordable in the exchanges, one key element of the Affordable Care Act.

In this study, we use data from 34 OECD countries over a ten-year period and examine the relationship between HCC and OOP, controlling for established predictors of costs – country’s wealth, population age structure, and selected measures of health behaviors and of healthcare utilization. We find generally higher OOP in countries with higher HCC. In a multivariate model including OOP and other accepted predictors of costs, OOP and HCC show no significant association. Both findings are at odds with what moral hazard predicts. We also find that percentage of public financing and doctors’ visits predict lower costs. We discuss explanations for our findings that challenge moral hazard as an adequate economic theory in healthcare matters, as well as the social justice implications of the ideological dominance of moral hazard in the healthcare reform debate in the United States.

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