Moral hazard and consumer-driven health care: a fundamentally flawed concept

For more than 30 years, most health care economists in the United States have accepted a conventional theory of health insurance based on the concept of moral hazard: an assumption is made that insured people overuse health care services because they have insurance. The recent trend toward "consumer-driven health care" (CDHC) is advocated by its supporters based on this same premise, assuming that imprudent choices by patients can be avoided if they are held more financially responsible for their health care choices through larger co-payments and deductibles and other restrictions. This article examines how moral hazard-based CDHC plays out in both private plans and public programs. The author identifies seven ways in which this concept fails the public interest, while also failing to control health care costs. Uninsured and underinsured people, now including many in the middle class, underuse essential health care services, resulting in increased morbidity and more preventable hospitalizations and deaths among these groups than their more affluent counterparts. A case is made to reject moral hazard as an organizing rationale for health care, and the author offers some alternative approaches.