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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

Authors for macroblog are Dave Altig and other Atlanta Fed economists.


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February 01, 2007


One Health Care Problem I'm Not So Worried About

A week ago Brad DeLong posted a very interesting -- and despairing -- contemplation on the rising cost of health care, offering up this possibility:

... now Marit Rehavi comes by with an additional reason to despair. For according to her reading, as America ages and as American society changes an increasing share of the increase in health care costs is going to be driven not by increases in adverse selection by insurers or by moral hazard driven by doctors ordering inappropriate and barely effective care, but by expensive chronic diseases and risk factors driven by long-term lifestyle choices.

I've been mulling that one over, and my first reaction is that this additional reason to despair sounds a lot like moral hazard to me.  This definition, from The Economist, is pretty serviceable:

Moral hazard means that people with insurance may take greater risks than they would do without it because they know they are protected, so the insurer may get more claims than it bargained for.

So if the problem -- or a big part of it -- is "expensive chronic diseases and risk factors driven by long-term lifestyle choices," then there would seem to be a logical solution: Make people pay for making those bad lifestyle choices.  In other words, higher premiums for smokers and for people who are overweight, lower premiums for those who enroll in certified exercise plans, that sort of thing.  This is after all, just the market answer to Brad's "nanny state" solution.  It wouldn't be perfect, but surely it would go a long way to ameliorating some of the most obvious risks. 

That would still leave "adverse selection by insurers or by moral hazard driven by doctors ordering inappropriate and barely effective care" to fret about, but why pile on other problems if we don't have to?

Other (sort of) recent (sort of) related thoughts: From Andrew Samwick (here and here), from Mark Thoma, from winterspeak.

February 1, 2007 in Health Care | Permalink

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Comments

Addressing "moral hazard" in the health insurance context using a free market approach may be beneficial. But please keep in mind that it is not a "near root cause."

Posted by: Richard A. Osborn | February 02, 2007 at 05:05 AM

The causes of death have to sum to 100%. So if by changing lifestyles, not smoking for example, we cause one type of death to decline in importance something else must increase in importance to maintain the 100% rule. But since we have no idea what cause of death would increase we have no idea what would happen to health care cost -- they could just as well increase as fall.

Posted by: spencer | February 02, 2007 at 09:43 AM

Chronic will get bigger just from the fact of the size of the cohort. I can's see moral hazard here. Will I adopt a wild and wooly life style just because I expect to live longer or because I won the genetic lottery? Life style is not very controllable unless you ration care via life style, ie deny smokers/overwight people care for heart disease, organ failure, cancer and similar. Not likely.
Even if you did this, make em pay or rationing, I think it would have very little impact on choice of life style. Young people think they will live forever or think they will never get old.

Posted by: DILBERT DOGBERT | February 03, 2007 at 11:58 PM

Interesting that you bring "moral hazard" into this arena, Dave, when the Fed continues to turn a blind eye to the moral hazard it has been contributing to in the liquidity-induced "asset inflation" arena worldwide.

As a sidelight, but related, I'd be interested to your 'take' on Charles Kindleberger' and Robert Aliber's "Manias, Panics, and Crashes: A history of financial crises", AND Peter Bernstein's "Against the Gods: The remarkable Story of Risk".

Posted by: Dave Iverson | February 04, 2007 at 02:19 PM

spencer - "So if by changing lifestyles, not smoking for example, we cause one type of death to decline in importance something else must increase in importance to maintain the 100% rule. But since we have no idea what cause of death would increase we have no idea what would happen to health care cost -- they could just as well increase as fall."

Now, wait a minute. If everyone quit smoking, all hell would break loose and some would be killed. Yeah, think about that.

Posted by: Movie Guy | February 09, 2007 at 09:42 AM

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