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Can you explain “moral hazard” in how it increases the cost of health care?

Question/Comment: Your report on “moral hazard” was really outstanding. Now, try explaining how it increases the cost of health care.

Paul Solman: As with any insurance, if you’re covered for your health, you might take more risks than otherwise. “I don’t have to use sunscreen because a yearly visit to the dermatologist, mostly paid for by insurance, will catch any skin cancers before they get too far.” Or: “Since I take Lipitor, I can eat all the trans fats I want.”

In both cases, a more conservative assessment of risk would lead to more conservative behavior, which would lower the likelihood of the dangerous and costly conditions.

However (and this is a crucial and grim “however”), we’re all going to die. The longer we live – by avoiding dangerous and costly conditions – the more costs we’re likely to incur overall by the end. Stop a melanoma in its tracks, that is, and you increase the likelihood of knee replacement surgery, cataract removal, stroke rehab and on and on.

As health economist Dahlia Remler once said in a piece of ours, about the seeming inevitability of rising medical costs:

“If people live a long time and you go on to have some more expensive treatment or need long-term care, then on net, it’s cost increasing….In many ways, smokers save us all medical care expenses. If you die relatively young of lung cancer, it’s a relatively inexpensive thing to die from. People like that don’t live longer. They don’t break their hip. They don’t get Alzheimer’s; they don’t go into the nursing home. They don’t collect their Social Security. They don’t collect their pensions as much. They’re actually saving us all a lot of money.”

And as cardiologist Lori Mosca echoed: “the most cost effective thing is for you to die. Right? It—it’s cheap to be dead.”

The bottom line, however counterintuitive it may seem, is that if you succumb to the moral hazard and take more risks because you have health insurance, that might ultimately lower the nation’s medical bills, all else equal.