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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?
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