Kelvin Teo
Moral hazard is a theory describing a phenomenon in economics and is based on the idea that a person can alter his behaviour and actions when protected against the consequences as compared to the situation when he has no protection. Thus, what it means is that for example, if one has a fire insurance for his home, he is likely to behave in a risky manner that could result in fire like smoking on his bed or burning dried leaves in his backyard. Contrast that with another person who does not have fire insurance for his home. The latter is likely to take vigilant steps to reduce the likelihood of a fire that could devastate his home. Likewise, the moral hazard argument is invoked by economists to argue against bailing out troubled financial institutions. A bank for instance makes reckless lending decisions to borrowers in funding their purchase of homes; the borrowers are unlikely to pay back on their loans and will default on them. Large scale defaulting on the loans will result in banks going belly under. The issue is that government bail-out of these troubled belly-under financial institutions only serve to “insure” them against poor lending decisions, and encourage them to continue with making such decisions.
Malcolm Gladwell wrote an essay entitled “The Moral-Hazard Myth” published in the Department of Public Policy section of New Yorker in which he argued against the moral hazard approach to health insurance. Moral hazard in health assumptions is based on the assumption that people consume healthcare like the way they consume other consumer goods. A little explanation is in order here. Basically, moral hazard in the context of health insurance as explained by Gladwell will lead to ‘wasteful behaviour’, i.e. unnecessary consumption of healthcare services. However, Gladwell points out that such a notion of healthcare consumption and in the same vein, moral hazard, does not make sense, citing economists like John Nyman and Uwe Reinhardt who pointed out that it is absurd to assume that patients will adopt the wasteful behaviour and no patient would want to visit the doctor unnecessarily. In spite of this, insurance companies adopt the co-payment approach as a means to prevent unncessary consumption of healthcare, i.e. for every consultation, a patient co-pays or foots part of his medical bills.
Gladwell launched into a further discussion of health insurance schemes, comparing social insurance to actuarial insurance. Social insurance is a public insurance programme that protects against economic risks as a result of old age, unemployment or even sickness. Essentially, the less healthy members of the population pay as much premium as the healthy members. The financial risk carried by the sick is thus borne by the entire population of insurees. Whiles the healthy pay the same premium as the less healthy, the social insurance is at least a cushion for the former to fall back on should he suffer a debilitating illness. On the other hand, the amount of premium one pays in the case of actuarial insurance is dependent on the amount of inherent risks borne by him. As Gladwell puts it, if one drives a sports car and has been receiving speeding tickets aplenty for the past two years, he will have to pay high premiums if he were to insure his car. Similarly for someone who has an underlying medical condition and wishes to purchase health insurance, he may have to pay higher premium. Hence, insurance companies fixated on the notion of moral hazard will insist that insurees fork out more from their pocket for their healthcare. As a result, 45 million Americans are without healthcare insurance coverage.
Gladwell approached the topic of moral hazard in healthcare from the conventional angle of health insurance, and showed the untenability of moral hazard in insurance policies that resulted in millions of Americans without coverage. However, the issue of moral hazard in healthcare is not is simple as it seems and Gladwell’s perspective is only but one angle. Consider this fictitious scenario. Mel C is a gentleman who was diagnosed with diabetes. His physician prescribed drugs to control his diabetes, and scheduled an appointment for him. The physician being the responsible doctor as he always was warned Mel that failure to control his diabetes will lead to medical complications such as coronary heart disease. Mel, however, does not believe he is sick, and thinks there is no need for him to take his medications. As a result of his uncontrolled diabetes, he gradually developed coronary heart disease. One day, he reported to the emergency department of a hospital with chest pain, suffering a condition known as angina when the heart is not receiving receiving enough blood supply due to blocked arteries. Specialists determined that the extensive blockage of blood supply of Mel’s heart meant that the only viable treatment is a heart transplant to ensure his survival. A heart transplant procedure is very expensive…
Revisiting John Nyman and Uwe Reinhardt earlier said point that patients do not unnecessarily visit the doctor as an argument against moral hazard, correct to a certain extent, patients don’t unnecessarily visit the doctor. The problem at the other extreme end is that patients don’t visit their doctors when they are supposed to. Therefore, one pertinent issue that the medical field has to grapple with is patient compliance. A compliant patient is one who adheres to his treatment regimen dutifully, and is up to date with his medical appointments. Thus, we have a non-compliant patient in Mel who neither takes medications nor turn up for scheduled appointments. The issue of non-compliance amongst patients is a persistent problem medical practitioners have to deal with. A wealth of medical literature have emerged that examine the issue of patient compliance, and suggestive approaches to improving patient compliance include improving physician-patient relationship, improved communication with patients and others. Besides that, other works in this area examine the patient-centric notion of health, i.e. health as defined from the patient’s world view. The implications of this is that the notions of sickness and health could differ from patient from patient. In the case of Mel, despite his diagnosis of diabetes, he still perceives himself as a healthy person.
Imagine now, in place of health insurance, we have the state or/and national government health budget that subsidises medical treatment of the citizens. In an ideal world, we hope that our health budget is infinite so that we can subsidise every single citizen who comes down with a debilitating illness requiring an expensive treatment. However, in our real world, the taxes we pay towards funding healthcare budgets are finite. And now, the same question as what Gladwell addressed for health insurance applies – do health subsidy invite moral hazard?
Addressing this question requires us to dwell into two different aspects healthcare – preventive healthcare and curative treatment, especially for end stage organ disease (heart failure, lung failure, liver failure, kidney failure). Preventive healthcare as its name suggests refers to the branch of healthcare that prevents disease. Curative treatment, especially for end stage organ disease, refers to the curative treatment of end stage organ failure, like for example transplantation with a donor’s heart when the host’s heart is diseased to the extent that it can no longer perform its function properly.
Preventive healthcare involves approaches like screening and picking up vulnerable segments of the population and also immunisation strategies to protect the population against infectious diseases. It also aims to treat common diseases that can lead to end organ failure such as diabetes. Besides coronary heart disease, diabetes can also result in cancers and kidney diseases. Thus, preventive healthcare involves an exhuastive list of strategies to prevent serious diseases. The main argument in favour of promoting the preventive healthcare approach is that an investment in it will save future costs in treatment of serious diseases (including end organ damage) that could have been prevented.
Researchers from Harvard Medical School did a study of mobile health clinics aimed towards preventive care. The results they found was significant -every USD$1 invested in such mobile preventive programmes yielded a return of investment of $36, which includes savings in hospital emergency department expenditures.
Thus, herein lies the questions – Is there moral hazard if preventive healthcare is generously subsidised? In the same vein, is there moral hazard if expensive curative healthcare is generously subsidised? Let’s consider for argument’s sake the scenario in the event of wholesale subsidy of preventive healthcare e.g. women go for mammography to pick up breast cancer or pap smear to detect cervical cancer, all these done at no cost to the citizens and all expenses paid for by the government. A moral hazard scenario will predict widespread consumption of preventive healthcare services. This could be a possibility as there are those who are health consciousness and are up to date with their interval health checks. If they come free with all tabs picked by the government, maybe the interval between health checks will be shorter, for example from once a year to one in 6 months.
Next, what can we say of moral hazard in the case of generous or full subsidy curative treatment of end organ disease? The moral hazard in this case is similar to the fire insurance example – since curative treatment is subsidised, there is no need for the patient to pay attention to his health, regardless of prevailing risks of suffering end organ disease. The question is whether such a view is tenable?
It is very tempting to bark up the moral hazard tree based on practices of other healthcare systems, particularly the German one. Article 62 of the German Social Security code states that patients who comply with cancer screening and treatment will enjoy lower co-payment (higher subsidy) for their cancer treatments than those who do not comply (for simplicity sake, we consider cancer another form of end organ disease). In other words, what the Germans are doing is equivalent to a stick approach designed to address moral hazard – to get people to be more responsible with their health in terms of complying with treatment and screening. Thus, if Mel is in a healthcare system that bases curative treatment subsidies on ability to comply to his preventive healthcare treatment for his diabetes, he will not get as much subsidy due to his non-compliance, and will have to foot part of his heart transplant and future cardiac care bills from his own pocket. Similarly, in the fire insurance example, moral hazard is addressed by getting the insuree to co-pay some of the damages to his property caused by the fire.
However, the question is whether the implementation of a stick approach that makes the patient more wary of end organ diseases they may suffer from necessarily indicates the moral hazard of wholly subsidised curative treatment? To rephrase, would one not take his health seriously in the full knowledge that treatment of any catastrophic disease he may suffer as a consequence will be fully subsidised? There is no straightforward answer to that question. Moral hazard theorists who approach from the perspective of the insurance school of thought will see fully subsidised curative treatment as similar to insurance where clients will behave in an irresponsible way despite insurance, and hence the need for co-payments. Yet others will disagree that just because curative treatment for end organ diseases are fully subsidised does it mean that they will not take care of their health. During the late stage of end organ damage, the decline of quality of life is not something they would contemplate.
The German healthcare system is an interesting one, and its policies are worth considering. Besides the stick approach, it also has a carrot approach. Article 65a of the German Security Code provides incentives for health conscious behaviour which includes health promotion, screening and check-up programmes. Incentives come in the form of gifts, cash and even reduction in insurance contribution. To a large extent it is a good model to follow, incentivise preventive healthcare, and enforcing the stick approach in pegging co-payments for curative treatments according to the patient’s compliance and in the larger picture, responsibility for his health.
Dual healthcare policies based on the German experience worth considering is giving generous subsidies, whole subsidies or even incentivising preventive healthcare, as part of the carrot approach. Studies have shown the huge return of investment for preventive healthcare. The stick approach is pegging subsidies of curative treatment of serious diseases (which can be otherwise prevented) on the patient’s history of caring for his health such as attending health screenings or complying with treatments. One main disadvantage of the stick approach is that it is a political liability that will not go down well among the citizens. However, what the double policies is able to achieve is to promote a higher level of health consciousness among the citizenry; since subsidy for curative treatment is based on degree of responsibility for one’s health, it will make more sense to utilise preventive healthcare services, which is totally subsidised and has incentives to go with it. At the end of the day, the long term benefit is in terms of savings for the healthcare system with a lower incidence of end organ damage diseases and their treatment requiring subsidy. As for the final verdict over the existence of moral hazard in wholly subsidised preventive healthcare, although Nyman and Reinhardt are right in that no one in his right frame of mind would want to unnecessarily consume healthcare services, we also cannot rule out the fact that the total subsidy will attract health conscious citizens to consume preventive health services at higher frequencies. For moral hazard in heavily or totally subsidised curative treatment, arguments for and against it is a matter of patient perspective; those who take their health for granted due to subsidies versus those who care about quality of life not to let their health degenerate to the level of organ failure. Thus, it will be premature to consider moral hazard in healthcare subsidy a myth.
A few points:
1. I can tell you based on my personal experience and from talking to my colleagues that patients who do not pay out of their own pockets do consume more healthcare.
2. With subsidised curative healthcare, it doesn’t matter if patients do or do not consciously neglect their health – the burden of curative treatment still falls on the government/tax payers.
3. It is wrong to assume that higher screening uptake always results in early treatment and lower complication rates – many people go for screening not to diagnose diseases early, but in hope that they receive “a clean bill of health”. Once diagnosed of hypertension, diabetes, or high cholesterol etc., they will nevertheless be in denail and refuse treatment, or would rather try unproven treatment – needless to say when complications set in they turn to the subsidised healthcare system again, and the cost is borne by the gavernment/tax payers again.
To me, the bottomline question is not whether we can or should hold people responsible for their behaviour which affect their health (because in reality we don’t), but why a person’s healthcare cost should be anyone’s but his own responsibility.
Hi AngryDoc:
First and foremost, this article is aimed at an international audience. I have friends from Europe and US who are reading, and especially Europe, where they have socialist healthcare system or healthcare system with public subsidy.
I am not too sure about the level of Singaporean interest in this article, but I imagine those looking at health subsidy policies may be interested.
The Singapore’s case, I am not too sure, how much subsidy can one get for preventive and curative care for that matter where healthcare is 1.5% of the GDP.
I am well-aware of the wrong assumption that you described. The truth is that preventive care encompasses screening and even treatment of conditions such as diabetes and hypertension.
http://www.pcrm.org/health/prevmed/diabetes.html
In the clinical vignette, I already mentioned of the treatment of diabetes as part of preventive healthcare, and this is what I have also written in the passage:”Preventive healthcare involves approaches like screening and picking up vulnerable segments of the population and also immunisation strategies to protect the population against infectious diseases. It also aims to treat common diseases that can lead to end organ failure such as diabetes.”
So in our clinical vignette, our patient could probably be given metformin, sulfonylureas, etc, or if he had hypertension, ACE inhitors, beta blockers as part of his preventive healthcare treatment.
If you say anyone’s healthcare cost is anyone’s but his own responsibility, what say you of trauma patients in unfortunate accidents. Or those with conditions that predispose them to certain diseases? Does the state have responsbility to subsidise? Note that in those cases, it is not the lack of patient’s responsibility.
Actually the German experience is a good one and even the British administrators are considering it. If you referred to the link that I have attached.
Well, I wrote to give a local perspective. 1.5% of the GDP is quite a lot of money per capita, given our high GDP.
“If you say anyone’s healthcare cost is anyone’s but his own responsibility, what say you of trauma patients in unfortunate accidents. Or those with conditions that predispose them to certain diseases? Does the state have responsbility to subsidise?”
Indeed – why does the state have a responsibility to subsidise?
Well, what will be your arguments for and against subsidy?
Some people will ask, especially in places where they pay high taxes, they are entitled to some welfare right? I am referring to places with high taxes like Australia, UK. So why in this case the state shouldn’t subsidise?
Then this philosophical argument goes back to what role does the state play?
Well, other than moral hazard, there are also the issues of unequal tax burden, the unfairness of “progressive” taxation, and welfare and the government’s mandate to “redistribute wealth”, which I disagree with.
Yes, it does come down to the role of the state. I would rather a small government that imposes low taxes and does not seek to engineer society by “redistributing wealth”.
Anyway, that is digressing from your original topic of moral hazard in healthcare subsidy. My input are as in my original comment: moral hazard does exist locally, and there is no effective policing in terms of abuse/accountability in the subsidised healthcare system locally. I hope that gives some perspective to the discussion.
I am just wondering if you translate that to 1.5% GDP per head, that will be around 900 USD per head per year. I used 3 million Singaporeans as a denominator.
Is that enough to cover medical treatments? Let’s say if you consider the standardised cost of treatment for a common condition, say a consultation for flu. How much would that cost? I am referring to prices in Singapore.
Not everyone gets flu all the time of course. But is the health kitty enough to cover treatment for other conditions that the sicker ones usually suffer from?
Yes thanks for your input.
I was actually addressing Malcolm Gladwell’s views on moral hazard, which I thought is one dimensional and was also advocating a look at the German system of incentivising preventive care and a stick approach for curative care.
The concept of social insurance also has unequal “premium” (not right to say tax) burdens.
Well, I respect your point about a low tax society that does not distribute wealth, though I am not sure how far you can argue that high taxes into health programmes constitutes wealth distributions, but let’s say if you are right.
Much will also depends like economic factors too. If you can inflation..and of healthcare services and medications, well we could get a sicker population. And that is not good for national productivity. Yes, the Australian PBS actualy uses economic productivity to decide which drug to subsidise.
“I m just wondering if you translate that to 1.5% GDP per head, that will be around 900 USD per head per year. I used 3 million Singaporeans as a denominator.”
1.5% is the government’s share – the patient’s share is around double that, just to provide some info.
Of course in reality it doesn’t mean that every person spends US$2700 on healthcare per year – some people spend 10 times that, and some a tenth of that or even less. People give unequally to the kitty and take unequally from it – that is one issue I have with subsidy.It is difficult to say how much is enough as on the one hand there are always newer, more expensive treatment being made available, and on the other hand we are not dealing with abuses and unnecessary consumption of healthcare. Until we are prepared to say “we will provide subsidy/treatment for these conditions/treatment and no more”, you cannot define what “enough” is.
Yeap, I agree with your point abiout inequality with taxation which I have mentioned earlier
I do think also the issue with subsidy is sometimes out of the patient’s hand. Gotta to with the pharma drugs…depends on how much they are charging Some new line drugs are very expensive.
I will be writing something about this later on.
And believe it or not, it is the preventive medicines that are the most taxing on other healthcare systems – e.g. statins, to prevent future CVD diseases. There are other forces adding to healthcare costs as well.
“And believe it or not, it is the preventive medicines that are the most taxing on other healthcare systems – e.g. statins, to prevent future CVD diseases.”
My understanding is that the majority of a person’s healthcare expenditure is incurred during the final year of the person’s life, more specifically to the final months or even weeks. But I suppose this discounts the general governmental expenditure which is not person-specific.
AngryDoc said: “Indeed – why does the state have a responsibility to subsidise?”
Do you believe costs of medical treatment will impact on patient’s ability to comply with even preventive healthcare?
I think if patients are well able to afford healthcare, that will lead to better compliance to treatment, less anger and angst to us doctors, and make us HappyDocs? Don’t you agree?
It can be frustrating that severity of certain diseases could have been easily prevented if some patients are compliant with their consults. I do think costs are a factor. To put things in perspective, I have seen patients voluntary discharging themselves even when it is not in the best medical interests because they don’t want to foot hospital bills.
Juz curious, what is the source of your anger, AngryDoc?
I have nothing to contribute to the healthcare debate, though my own tendencies would want the state to go to the source of the problem and break the medical cartel. Then again, in Singapore, the government is actually attempting an equivalent action with the mass importation of foreign doctors.
As for why AngryDoc is angry, it is a combination of cognitive dissonance and conservative bias I believe. In a society where most of us were raised to believe in the idea of self-reliance, many of us – even the destitute – would reject the concept of social welfare, with the nightmarish specter of an overweight welfare state leading to eventual national collapse. And many indulge in the just world fallacy – i.e. believing a person’s circumstances in life is completely due to his own fault, ignoring the inherent inequalities in life such as effective utilization of resources which would improve one’s social ability – i.e. education and opportunities.
The former – i.e. that of an overweight welfare state – is an old bias, since for many of us who have consciously studied the systems of other countries – most notably that of Northern European nation-states – social security and welfare of the modern age has evolved massively from the monolithic welfare state of the 50′s and 60′s with better understanding brought to us by social psychologists and behavourial economists.
The latter – well, I have nothing to say. The majority of the political conservatives I have met take up this position and stubbornly cling to it even if you bring evidence in to show how poverty functions as a trap even with the usual mechanisms of state functions like public education, et al.
HappyDoc,
The cost of preventive healthcare is either close to zero (it costs next to nothing to exercise and not smoke/drink alcohol/have an unhealthy diet), or in the treatment of chronic diseases low – certainly lower than the cost of smoking a pack of cigarettes per day, or your data-plan for your iPhone, yet compliance is still a barrier here.
When it comes to tertiary treatment, cost does become an issue, but my question once again is why does making the tax payers bear the cost become fair? Don’t you think “every man pays for what he uses, and not for what another man uses” is a fairer system?
And to answer your question, the source of my anger is my amygdala.
Detached Observer,
My point is not that “a person’s circumstances in life is completely due to his own fault”, but that one person’s circumstance in life should not be an excuse to make another person pay for his needs.
Welfarism erodes personal responsibility and dulls the edge of industry. I know that because I see it in my practice. Certainly Singapore is not at the nightmare scenario now, but from the recent election you can see that people are pushing for a more socialist system.
Certainly there are inequalities in life, but I don’t think “redistribution of wealth” via taxation is the just way of addressing the problem. I am not opposed to people helping or getting help – there are charities and volunteer organisations that do help and I have no problems with that; what I oppose is people being forced to “help” via taxation.
So yes, people may not be poor due to their own fault entirely, and yes, people may need help to break out of poverty, but I maintain that people should not be forced to help.
Actually, a previous poster brought up a valid comment about costs of medication.
However, maybe we can get things clear. Would you include cost of drugs as part of treatment? Cos consults and scripts are different in certain places.
From where I come from, docs only write scripts. Patient go and get their own drugs.
And I can say for certain that statins within the healthcare system I am in like what one commeter mentioned, it has been costly to subsidise, in fact the costliest to the system.
So should the state subsidise preventive treatment and MEDICATIONS? Well you could prevent heart failure like in the example above right?
What are your thoughts?
HappyDoc,
I write specifically on the local context, as I clarified earlier. Drug costs here are a function of patents and whether a drug is on the government’s subsidy list.
“So should the state subsidise preventive treatment and MEDICATIONS?”
Well, if you want to discuss “should”, then I think the government “should” not subsidise healthcare at all, since I believe a person’s healthcare should be his individual responsibility, and (more importantly) another person should not be forced to pay for his needs.
I see the role of government as that of a regulator, ensuring that the medical profession practices with standards and protecting the rights of the patient/consumer from fraud/breach of contract. (Yes, I recognise that the government will still need to tax so it can fulfill that function, but my argument is not with taxation per se but how the tax burden falls.)
Apart from that I don’t think the government should put barriers in the way of people who want to provide and access healthcare – it is partly due to our government’s need to have centralised control over medical manpower and costs that we have a lack (or rather maldistribution) of healthcare workers today.
This scenario (no doubt a “nightmare” scenario to DetachedObserver) may not come to be in the near future, but I do think we are headed in that direction, with the government share of the total healthcare expenditure decreasing over the years. I can only hope that this trend does not reverse in the flurry of knee-jerk populist changes being promised by the government in the wake of the last election.
Hi HappyDoc and Angry Doc, thanks for your contributions.
I was just wanting to ask Angry Doc, since you say government should not subsidise healthcare, then may I ask if there is such thing as “public healthcare” to you. If there is such thing as “public healthcare”, what is “public healthcare” to you then?
Or do you believe in a totally private healthcare?
Then may I ask, if you believe government should not subsidise healthcare, then am I right to assume in your picture that access to healthcare is contingent on patient’s affordability?
Then may I ask, if say a newborn (neonate) is left on the doorsteps somewhere (probably an illegitimate child left to his own devices by an irresponsible mother), he is jaundiced, suffering from neonatal jaundice, should the state intervene? If no one saves the infant, he will just die. Note that in this case, no parent could be found. It is something to chew on with regards to the notion of “public healthcare” and private healthcare.
“If there is such thing as “public healthcare”, what is “public healthcare” to you then?”
Well, there is “public health”, and there is “public healthcare”, which I use to mean our subsidised healthcare system.
“Or do you believe in a totally private healthcare?”
Yes. I believe we should move towards that, and like I said we are moving towards that.
“… am I right to assume in your picture that access to healthcare is contingent on patient’s affordability?”
It is contingent on the patient’s willingness to access healthcare, his willingness to set aside time and money to utilise the expertise and infrastructure of the healthcare industry to take care of his own health. A person’s health-seeking behaviour is not solely dictated by his ability to pay for healthcare.
“… should the state intervene? If no one saves the infant, he will just die.”
Nonsense, Kelvin. You are painting a false dichotomy here: either we have subsidised healthcare, or people will die in the streets. That is obviously untrue.
The government does not directly fund renal dialysis, but do renal patients die in the streets for lack of dialysis? No. Charities like NKF step in, funded chiefly by public donations, and provide subsidised (or should I use the word ‘discounted’ here to avoid confusion?) dialysis to 2/3 of all patients on dialysis here, and still have enough for a S$600K salary for it’s CEO plus a gold tap.
Need I mention Renci too?
As for the abandoned baby you mentioned – well, guess what? There are VWO that take in abandoned babies too!
Yes, there are people who need help, but our response to this should not always be “let the government take care of it, using public money”. There are alternatives to using tax money to help those in our society who need help; if we want to become a civil society, we need to stop looking to the government to do everything for us.
And that’s something for *you* to chew on.
Actually I was going to say if in your picture whether charity pick up the tabs. I was not surprised that you brought up the charity part.
Charity if you view from another angle is another way of re-distributing wealth and resources. Only difference is government or not. End of the day is who picks up the tabs, charity or government. And is the same problem of disproportionate amount of contribution, about who contributes more or less to charity. Can charity cover the cost of sulfonylureas, metformins, ACE inhibitors, statins, or other preventive medications? I don’t know. Charities can definitely run clinics aimed at preventive healthcare for sure.
Can charity-run clinics reach the same level of efficency, and standards of care as public run hospitals? I don’t know.
There is reason behind my dichotomy here. The implications of patients unable to foot their healthcare costs opens a whole can of worms – one of which is euthanasia.
The thing is from an international perspective about, there is an issue of euthanasia. It is not about dying in the streets, but people are talking about euthanasia as a healthcare cost containment. I am not too sure about the progress on debates about euthanasia in Singapore, so I am not fit to comment on what the consensus is on the topic.
Unfortunately, the government holds more strings than you think that could impact on healthcare, something as simple as adjusting for inflation. The bottomline is idealistically many and I would consider myself one of them wish for a decentralised mode of governance, but the reality is that healthcare issue is not only one of healthcare, it also is in the realms of economics, in particular economics planning.
My colleagues at NAR are actually in favour of a more laissez faire approach in terms of governance, if you ever heard of the Austrian School of Economics. But we have been getting left, right and centre for writing such essays.
“Charity if you view from another angle is another way of re-distributing wealth and resources. Only difference is government or not.”
And that difference translates to choice for the person giving the money!
When the government “pays”, a person is taxed and has no choice where his money goes to. With charities, he has the choice of whether or not he wants to donate, as well as which charity he wishes to donate to.
I sort of agree with the libertarian slant on NAR, which is why I was a little surprised at how much you and I disagree on the topic of healthcare subsidy.
Granted it is not something as simple as the government saying “right, let’s cut all subsidy to healthcare tomorrow” – there are many strings here, but should “too big to fail” be a reason to keep subsidised healthcare in its current form? (Heh, there’s my libertarian slant again.)
Well, I have hijacked your post long enough – let’s hope other posters focus on the issue of moral hazard and health-seeking behaviour instead!
Dear Angry Doc:
I can guarantee you, using economic arguements (i am not referring to Singapore) but if there ever was a place where healthcare costs are hugely inflated, and Gini coefficient is large, you will find people dying on the streets.
Yes charities can come in, but the kind of service they provide is dependent on the whim and fancies of those running it. If one want to start a charity for renal disease, only those with renal disease will benefit. How about the rest? Can charity provide the kind of comprehensive healthcare, even if we are talking about comprehensive preventive healthcare? I dont know.
For my position, I am open to the libertarian perspective.
I meant this essay to other audiences from a civil service background interested in health subsidy policies. This will give you a hint about our audiences.
Our publication is plural. We can write both sides of the story.
Though I am open to the libertarian perspective, I am also resigned to the fact that the powers-that-be to a large extent has a big invisible hand to play in the healthcare costs. Economic policies is one. The other of which is its policies in dealing with the phamaceutical industry. I will address this topic in a later essay, and I must say again it is aimed against at an international audience.
You see you mentioned about charity giving choice to people whether they donate or not. Well do you think such risks a “tragedy of commons” scenario of freeloaders that make charities unviable in the long term?
“… do you think such risks a “tragedy of commons” scenario of freeloaders that make charities unviable in the long term?”
The potential for abuse is always there – both by those who use the charity, and those who staff it, as we have seen.
However, just as there are criteria for aid in “public” healthcare, there can be and are similar checks in “private” charities – as I recall NKF can be quite sticky about giving subsidy. In my experience, the problem with policing in public healthcare is that the political will to stop abuse isn’t there, because public healthcare is a political (read vote-winning) tool; as a result, the tax payer becomes an unwilling victim of the system. In a charity situation, the donor is free to stop donating if he is unhappy with the way the money is used, which once again we saw happen after the NKF and Renci incidents. At the same time, charities are not held ransom by those whom they help, in the way governments are held ransom by those who vote, and can be stricter with their disbursement criteria.
Like I said, the change will not be overnight, but already you see charities getting into the less lucrative aspects of healthcare: dialysis, hospice care, drug addiction, diabetes… It will take a change in the mindset of our people. If we do not want to government to control every aspect of our lives and our economy and impose heavier taxes on us, then we will have to stop asking them to do everything, and start doing more ourselves.
Ironically, the affairs at NKF required state intervention? The government stepped in right? Kind of ironical that supposedly civil societies end up tethered at the end of government strings.
To tell you honestly, I ever did visualise a decentralised society. Charities is one thing. Medical non-government organisations is also another route. I even written one – http://newasiarepublic.com/?p=22806
I gave up visualising and dare not pen one. There are more forces than one concerning healthcare. To drop a hint. Your proposal of NGOs and charities ain’t new. They have been doing good work in third world countries. A lot of them are citizen-based initiatives. Without dropping too much of a hint, it involves WTO and FDA.
I am resigned to the fact that the costs as such is always balanced against another force…
Hi Kelvin and all,
I tend to lean on “healthcare is mainly personal (and parental) responsibility, not government responsibility.” Thus, I get the point of angrydoc. The level of moral hazards in healthcare is dependent on how much individuals will pay in relation to publicly-funded insurance. My friend in Japan told me a few years ago, that in Japan, a hospitalized patient pays only 5% (personal or company or private health insurance) and government pays the 95%. So some patients do abuse, staying in the hospital for 1 week or more when their condition would already allow them to go home after 2 or 3 days confinement.
One important consideration in bringing back to the individuals the personal responsibility aspect of healthcare, is that in both rich and poorer countries today, “lifestyle-related diseases” and non-communicable diseases (NCD) are now the main killer diseases, not those old sickness like malaria, polio, dengue, flu, etc. So if people get sick because they tend to over-smoke, over-drink, over-eat, over-sit, etc., why would the rest of taxpayers pay for their treatment later on?
On accidents and predisposed diseases (say prostate and breast cancer), I think all people understand that somehow, sometime, they will get sick or get injured someday. Thus, the need to get a personal or corporate health insurance. Or even a village and small community health insurance.
So to answer your article title, “Is there a moral hazard in healthcare (government) subsidy?” My answer is Yes. To reduce if not totally remove that moral hazard problem, remind people that healthcare is first and foremost a personal and parental responsibility, not government responsibility. Then healthy lifestyle, preventive and wellness programs, private health insurance will naturally come out as solutions, not more taxes and more government involvement in healthcare. Thank you.
“Ironically, the affairs at NKF required state intervention? The government stepped in right? Kind of ironical that supposedly civil societies end up tethered at the end of government strings.”
What happened at NKF was not something unique to a “healthcare charity”, but more of an accounting and governance issue, which can happen in any organisation that deals with money, e.g. a church.
Like I said, I accept that we need government to protect us against fraud and breach of contract. What happened at NKF, Renci and the churches is an example of why we need government in the regulatory role, and is not an argument for subsidised healthcare.
I know that is not an argument for subsidised healthcare. I am just commenting on charities. I still feel charities are not able to fill in the gap in terms of coverage. Even if they reach world class transparency and squeaky clean accounting standards, the kind of service is still limited.
I was commenting on the irony of how government regulate charities, in the context of what went on for NGOs. You heard of the term “QUAngo” or QUAsi NGOs…
Churches I don’t know. Government regulate churches? Whatever for? I think from the libertarian standpoint people should be free to workship..open religious organisations for that matter..and operate these orgs without intervention.
Even the case of Rony Tan’s remarks, my gut feel is that our society is mature enough to grapple with that. I have seen how one religion undermine another, within a service. It has been going on for years.
Ironically, I don’t consider government regulation of religious organisations that libertarian. ANyway I have digressed. If people want to give to a religious organisation (without bias to any religion, this is just an example) that abuses finances, why should the government even intervene? The saying goes that if people want to be suckers, it is their perogatives right?
“If people want to give to a religious organisation (without bias to any religion, this is just an example) that abuses finances, why should the government even intervene?”
Actually, I feel the same way too, but apparently the CAD has jurisdiction over how churches handle their money. As far as I am concerned, it is a victimless crime (aka one born every minute…).
I am not sure why angrydoc is quite so angry either. The premise for public healthcare is simple, it is a public good. There are positive externalities in keeping a nation of people healthy both in the traditional sense and the financial sense. The issue is how to prevent abuses which the writer of this article discussed.
Now angrydoc, you seem to couch the issue of public healthcare as a zero sum game. But public healthcare like insurance is not a zero sum game. The reasoning can be borrowed from why car insurance is compulsory in Singapore and many other nations. Most may not be able to afford the damages from a disastrous car crash. But collectively through compulsory insurance, a country can easily foot the tab.
Now as for abuse, if you do drive, do you drive recklessly because you know you have car insurance? Not to say that is the end all of the question of abuse. But my point is the debate here is over whether abuse would occur and how it might be solved, not whether public healthcare is of benefit to society.
To surmise, shit happens. And when shit happens to you, I believe you would be happier too if you know that others have committed to bailing you out.
Anyway, if you are advocating a healthcare system that is non-subsidised, another important thing to take note is the training of new specialist or medical graduates. And you have to observe the American healthcare system on how they train their graduates, since the latter is mostly privately owned. Though not everything American can be tranplanted over though they follow the residency programme.
Not a very close analogy between auto insurance and subsidised healthcare, Daniel Ho.
I would say it is more akin to Medishield, but then there is no equivalent of Medifund when it comes to auto insurance, nor does the government subsidise car repairs… nor is there no-claim bonus for healthcare… nor does the hospital investigate if you are responsibile for your illness… you get the idea.
Sure, make public healthcare more like car insurance then. The German method seems to be going down this path.
However, just as there are criteria for aid in “public” healthcare, there can be and are similar checks in “private” charities – as I recall NKF can be quite sticky about giving subsidy. In my experience, the problem with policing in public healthcare is that the political will to stop abuse isn’t there, because public healthcare is a political (read vote-winning) tool; as a result, the tax payer becomes an unwilling victim of the system. In a charity situation, the donor is free to stop donating if he is unhappy with the way the money is used, which once again we saw happen after the NKF and Renci incidents. At the same time, charities are not held ransom by those whom they help, in the way governments are held ransom by those who vote, and can be stricter with their disbursement criteria.
+1
Speaking of lifestyle choices and being personally responsible for your own illnesses, can I ask a question about how much “fault” can be attributed to personal lifestyle choices of the patient.
Say my parents have diabetes. Knowing the hereditary risks, I keep my weight within the recommended range, I exercise weekly, I have a balanced diet (according to FDA recommendations). I do yearly medicals.
But maybe from time to time, I indulge in fattening food like burgers and fries. Let’s say, once a week.
Then one day I find out I am Type 2 diabetes positive.
Would anyone be able to say I am 10% at fault, 20% at fault, 50% at fault or 100% at fault? Does it depend on whether I eat burgers and fries once a week? Once a month? Burgers with cheese? Burgers with bacon?
Or maybe it does not matter because I shouldn’t have been eating burgers in the first place?
Or maybe I was following the wrong recommendations for exercise?
Would my extent of fault determine how much subsidy I deserve?
If I am not able to receive subsidised treatment (assuming I cannot afford it), do I leave it to Providence to hope that there are charities out there that can provide me with medication I can afford?
I am asking from a non-professional point of view to understand how moral hazard can be factored into the subsidy or assistance patients “deserve”.