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Moral Hazard and Hummus

Moral Hazard and Hummus

What if you could have hummus insurance?  You paid a monthly premium and whenever you felt like having hummus you could go to your local supermarket and get it at no charge.  Sounds like a good deal to me (I’d probably opt for the more expensive plan that allows for pita bread).  If I had hummus insurance I would be eating hummus by the bucketfull.  I’d dip every food I have in hummus: Crackers, bread, celery, pasta, salad, pizza.  I’d be eating hummus cereal for breakfast.  Peanut-butter and hummus sandwiches for lunch.  Hummus a la carte for dinner!  Economists have a name for this phenomenon: They call it “moral hazard.”  When applied to insurance moral hazard suggests that, like my hummus-hyped self, people will take advantage of what is insured by indulging in it excessively.  

 

Now moral hazard puts the insurance companies in a difficult position: How could they afford the troughs full of hummus I am consuming?  The answer is they probably couldn’t.  What would most likely happen, then, is that the agencies would slap on enormous co-pays to discourage subscribers from eating a gut-busting amount of hummus.  As it turns out the concept of “moral hazard,” and its implications, are a part of the rationale for health insurance co-pays  (just like it was for hummus co-pays), as well as the rationale for limiting socialized care.  Moral hazardists say that without any monetary charge people will abuse insurance policies and will go to see providers when it is not necessary.  While moral hazard is a great theory for why hummus insurance wouldn’t work, it is not that great a theory when it comes to things like health insurance.  There are two reasons why moral hazardists have it wrong:

 

(1)   Unlike hummus, going to the doctor doesn’t taste great on pita.  This is to say that going to the doctor isn’t a fun thing to do.  People don’t go to the doctor for just for kicks–they go when they need to.  It is a hassle. You get poked with weird instruments and it’s always really cold in the exam room and you have to sit there in just your underwear and socks.   Moral hazard, then, fails to apply in this respect–there is no incentive to go to the doctor when it is not necessary. 

 

(2)   Second, and more important, is a basic misunderstanding about the role of a patient and the role of a provider.  To accuse a patient of going to the doctor “unnecessarily” is to hold the patient responsible for diagnosing the significance of her own symptoms.  And this is why moral hazardists have it backwardone of the main purposes of having a health provider is to tell the patient whether something is significant.  By discouraging patients from seeing a doctor by hiking co-pays, insurance companies are asking the patients to do the doctor’s job for her.  And it is this kind of burden that prevents people from detecting diseases early when the symptoms might mistakenlybut understandablybe judged as insignificant by a patient. 

 

While hummus insurance might be a long way off, health care reforms seem to be something we can expect in the near future.   Don’t let theoretical misunderstandings get in the way of progress.      

 

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12 comments

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7:22AM PST on Feb 9, 2009

We are programmed to be unhealthy to support the "wealthsnare" industry. Food companies, medical establishments and the FDA (and you thought they were on OUR side) are profit driven, not service driven. If we use common sense, our health(care) issues would be solved. Eating healthily (things like hummus) would promote less incidence of illness. Regulate our food better. Demand healthier, more whole foods. The US is a profit driven nation. Food companies thrive on our gluttony, making JUNK for our insatiable unfulfilled bodies. We eat junk, yet remain unfulfilled. I am hoping to escape the need for healthcare in its current state. When it actually becomes "care for my health", I may reconsider my position. If we demand change, it shall come.

9:06AM PST on Feb 5, 2009

The irony of this post is that because of its health benefits, hummus insurance would probably lower health insurance co-pays!

7:58AM PST on Jan 30, 2009

I'm canadian, we have universal health care, and our doctor's offices aren't overcrowded with people going in "just for kicks" or to "have something to do" or "to talk about their interesting ailments". It works great. We pay a monthly premium (depends on income - under the poverty line it's free) and we go when we need to. It's not a form of entertainment or anything.

1:36AM PST on Jan 29, 2009

I see the humor in hummus, but not in my HMO.
They dropped me like a hot potato
when I requested a colonoscopy.
Blue Cross can shove olives. They are the pits.
Let's try something completely different.

9:55AM PST on Jan 28, 2009

No one in his right mind is going to go to a doctor today as most doctors have too many patients and too little time. The moral hazard is that of insurance companies the try their best to find excuses for not paying for medically necessary medicines, office visits, tests and all the necessaries for a healthy life. Stop the nonsense and spend money on making the populace as healthy as possible as long as possible and treating the ill with the best medical treatments and medicines available to make them healthy.

9:28AM PST on Jan 28, 2009

I think you are wrong...people (some) DO like going to the doctor. They either have nothing better to do, like getting the attention, feel they should take advantage of their insurance (that they pay for), or...actually like when they hear they have an interesting aliment to talk about.

9:11AM PST on Jan 25, 2009

I think you make some very interesting points. However, my understanding of economics and moral hazard is not so much that people will go to the doctor for the fun of it, but rather they may act recklessly while healthy knowing that, "Hey, if i get hurt, at least i have insurance." Someone who doesnt' have insurance might not, say, ski over a bunch of cliffs, whereas someone with insurance might do it for the rush, knowing in the back of his mind that if something does go wrong at least he has insurance.

That being said, health care reform is clearly necessary, and those are just the basic principles of economics that have proven time and again to be wrong (hopefully not with this stimulus bill though).

10:27AM PST on Jan 24, 2009

Interesting post. Does this mean that insurance companies implemented co-pays, not for their own interest, but to keep hospitals and doctors' offices from becoming too overcrowded. That seems a strange decision for a self-interested business to make.

If we wanted to change it who do we then try to convince? Insurance companies? Government Agencies? Hospitals?

10:04AM PST on Jan 24, 2009

What if a system was implemented similar to how challenges are done in the NFL. If you go to the doctor and there is something wrong, you get treated with no penalty (co-pay). But if you go and there's nothing wrong you pay the co-pay. Now that's an idea!

5:14PM PST on Jan 23, 2009

Not to defend insurance companies, but how do you square this idea of moral hazard with the notion that it is more cost effective to insurance companies if you see your doctor for preventative care rather than put off trips to the doctor, come down with some serious illness, and then need a costly operation?

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