Health Care Individual Mandate Required By "Moral Hazard"
SEARCH BLOG: ECONOMICS
Economists are skilled artists. They take a jumble of data, often incomplete or contrary, and create a picture of our nation's financial health. They can explain why we are in a recovery when everyone else perceives economic uncertainty and hardship. They can explain why the government should compel the purchase of a product on the basis of a "moral hazard."
From CBS Money Watch:
...even healthy people have some chance of catastrophic, even deadly, illness, so why wouldn't they purchase insurance in case this happens?
People know we are a compassionate society, and if they were to come down with a life threatening disease we will take care of them even if they don't have insurance -- that is even if moral hazard causes them to shirk the personal responsibility. Thus, relatively healthy people can take a chance and go without insurance secure in the knowledge that they will be treated if something awful happens. Broken bones, catastrophic illness and so on will be covered. But covered by whom? In many cases, the individual will not have sufficient resources to pay for the medical care, it would bankrupt them, so there is no choice but for all of the rest of us to pick up the bill.
A mandate stops this from happening. It forces those who would take a chance and go without care, those who are relying on all of the rest of us to insure them against large, unavoidable medical costs, to insure themselves. That is, it stops this moral hazard behavior. (In economic terms, adverse selection is about the average or mean cost, moral hazard is about the variance -- loss of life, for example, can be viewed as a very bad draw that occurs with some probability and imposes very large, perhaps infinite costs.)
Adverse selection and moral hazard are not mutually exclusive. As you can see, they work together -- people with expected costs lower than premiums drop out knowing they are covered by the rest of us against a bad draw. A mandate, or its equivalent, helps to overcome both of these problems. [full article]My response:
An interesting argument. Especially the part about "people with expected costs lower than premiums drop out knowing they are covered by the rest of us against a bad draw."
If the average cost of health insurance is $5,000 per year [but realistically at least twice that], and the penalty [tax]for not buying insurance is 1/5 that... and you are guaranteed the right to get coverage if you do need it... what is the economic incentive to purchase the insurance? And for employers, that question is even more relevant. And for health care personnel who lose money on every government-paid patient visit, what is the incentive to continue seeing those patients?
If this is an economic argument, then "moral hazards" are a red herring.RELATED:
What If You Buy A Bus Pass And There Are No Buses?
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