Saturday, September 17, 2005

More on Moral Hazard

A few weeks ago, before Katrina hit, Malcolm Gladwell had a great article in the New Yorker about the concept of moral hazard in health care. He shows how the Bush administration's health care policy is built around the idea that we can reduce costs by creating economic incentives for people to limit their consumption of health care. Thus, the Bush administration opposes the goal of universal insurance, and instead promotes tax-free Health Savings Accounts, out of which people can pay for routine health care costs. When people have to pay for their own health care, they'll consume more wisely, and get only the health care they need.

Gladwell shows how wrong-headed this approach is when it comes to health care. Health care costs are driven not by over-consumption of routine care, but rather by underconsumption of preventative care, leading to the transformation of minor medical conditions into expensive, major health problems. Nonetheless, the Bush administration's policies are designed not to promote essential preventative care, but to make sure that generous insurance doesn't encourage people to frivolously overconsume health care.

Somehow, though, an administration that is acutely sensitive to the minimal dangers of moral hazard in health care, completely forgets about the concept when it comes to rebuilding after Katrina. Strange, given that the moral hazard created by insuring against the risks of living in a hurricane zone is undoubtedly much greater than the risk of insuring people's health.