It came as news to me that there was a moral hazard associated with health insurance. I thought it was a way of paying for medical care. But what the economists mean by it–economists seem to feel that they own the words and can use them to mean whatever they like–what the economists mean is the Halliburton Effect. When someone else is paying, you don’t care how much it costs.

Well, yes, people are always willing to waste other people’s money. A moment’s thought, however, says that this is not a big factor for patients. As Uwe Reinhardt, an economist at Princeton, points out, “Moral hazard is overblown.. … People who are very well insured, … do you see them check into the hospital because it’s free? Do people really like to go to the doctor? Do they check into the hospital instead of playing golf?” (from Gladwell, New Yorker, Aug. 29, 2005. Link below.)

It has to be said that some people do go to the doctor for nothing. They may be hypochondriacs, slackers, or just plain weird. The question is whether this is a big enough factor to affect the costs we all pay. The answer is yes, but not because there are so many slackers. It’s because we spend so much money trying to make sure there aren’t any.

Malcolm Gladwell in his excellent New Yorker article on this topic summarized the depressing statistics:

“Americans spend $5,267 per capita on health care every year, almost two and half times the industrialized world’s median of $2,193; the extra spending comes to hundreds of billions of dollars a year. What does that extra spending buy us? Americans have fewer doctors per capita than most Western countries. We go to the doctor less than people in other Western countries. We get admitted to the hospital less frequently than people in other Western countries. We are less satisfied with our health care than our counterparts in other countries. American life expectancy is lower than the Western average. Childhood-immunization rates in the United States are lower than average. Infant-mortality rates are in the nineteenth percentile of industrialized nations. Doctors here perform more high-end medical procedures, such as coronary angioplasties, than in other countries, but most of the wealthier Western countries have more CT scanners than the United States does, and Switzerland, Japan, Austria, and Finland all have more MRI machines per capita. Nor is our system more efficient. The United States spends more than a thousand dollars per capita per year–or close to four hundred billion dollars–on health-care-related paperwork and administration, whereas Canada, for example, spends only about three hundred dollars per capita. And, of course, every other country in the industrialized world insures all its citizens; despite those extra hundreds of billions of dollars we spend each year, we leave forty-five million people without any insurance. A country that displays an almost ruthless commitment to efficiency and performance in every aspect of its economy–a country that switched to Japanese cars the moment they were more reliable, and to Chinese T-shirts the moment they were five cents cheaper–has loyally stuck with a health-care system that leaves its [uninsured] citizenry pulling out their teeth with pliers.

We can take it as proven that moral hazard does not apply to patients’ spending, and that preventing it increases costs instead of reducing them. (Hardly surprising, since we’re pouring money into something that doesn’t exist.) It also increases costs in a direct and bad way by discouraging people from getting preventive care.

And yet, having said all that, there really is a moral hazard associated with medical insurance. Not in the economists’ sense, but in the real one. To see why, consider biology.

The point to being a social animal is that we band together to survive. Individuals sometimes do things for the group that don’t benefit them directly because when others do the same thing, it does benefit them. There’s a give and take. Even capuchin monkeys, which have brains the size of an orange (a small one), have recently been shown to have a sense of fairness and to get huffy when it’s violated. (See, e.g. Science News for a popular summary. Original article available on paid subscription, Sarah Brosnan and Frans deWaal, Animal behavior: Fair refusal by capuchin monkeys. Nature, Sept. 18, 2003, 428: p. 140)

Something rooted so deeply in who we are is not optional. It’s right up there with the desire for sex, children, or friends. Pain, for instance, is processed differently when it is in a good cause, such as childbirth or surgery, than when it is in a bad cause, such as torture. If people could switch off that aspect of abusive pain, they would, but I’ve never heard of anyone who could do it. We have a huge need to feel that things are fair.

The need for fairness, perversely, makes us justify our own bad acts as fair (known officially as the “theory of cognitive dissonance”). Most people aren’t totally stupid, so on some level we know that’s what we’re doing. Then we have to justify them more loudly. Better yet, we do them again to prove that doing them the first time was a good idea. Then we have to raise the volume another notch and keep doing whatever it takes to avoid admitting we were wrong.

Letting other people die on the street violates the essence of what any social creature is about. If we let it happen when our own lives are not in danger, we go into a spiral of self-justification from which the only exit is admitting we did something wrong. Many people would rather die than admit any such thing. If other people are doing the dying, so much the more reason to go on doing it.

And that is the real moral hazard of the US system of health insurance. It turns us into people even monkeys would blackball.

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