The Psychology of Health Insurance

Some economists argue that universal healthcare coverage could actually make people less healthy by creating a devil-may-care mentality.

This type of perverse incentive is called an “ex ante moral hazard.” The theory stems from the early days of property insurance when people would buy fire insurance for their homes but wouldn’t manage fire hazards because they knew they were covered in the event of a disaster.

In essence, the argument is that healthcare coverage drives up medical costs because people become reckless, gaining weight or taking up smoking, for example.

A 2006 study from the National Bureau of Economic Research claims that obtaining health insurance reduces prevention and creates a rise in unhealthy behavior in men who obtain Medicare at age 65.

But a new study in the Journal of the American Board of Family Medicine involving data from more than 96,000 people throws a wrench in the theory's gears.

Dr. Peter Franks, a professor of family and community medicine at the University of California, Davis and senior author of the study, told Healthline that the economist’s “stupid ideas”—and their influence on healthcare policy—is what’s truly “unhealthy.”

“Nonetheless, we found this idea pervasive in the healthcare debate, and economists introduced it,” he said.

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The Habits of the Well Insured

Researchers at UC Davis and the University of Rochester used data from the Medical Expenditure Panel Survey, sponsored by the U.S. federal government. They compared data on 96,021 adults who took the survey, specifically looking at the years when individuals had healthcare coverage versus the years those same people were uninsured.

The team focused on behaviors detrimental to health, including smoking, seatbelt use, weight gain, and the use of preventative services, including vaccinations, cancer screenings, and other tests. 

The results showed that health insurance coverage had no significant affect on a person’s behavior, except for a close link to use of preventative care, which increased when individuals had insurance coverage. One of the purposes of health insurance coverage, Franks said, is to make preventative care more affordable and accessible.

“Health insurance isn’t something you hope to never to use. The whole point of health insurance is to increase utilization,” Franks said. “We know people don’t use healthcare because they can’t afford it, and insurance is there to make it more affordable.”

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To the researchers, their findings debunk the notion that insurance coverage increases risk taking. And theirs is the first study to investigate the theory using a national sample of adults of all ages.

Why Health Insurance Isn’t Like Car Insurance

Though economic theories from other insurance industries are sometimes applied to healthcare, Franks says the two just aren’t the same. 

He compared a ding in a car door to a bout of chest pain. While you can immediately see the dent and know how serious it is, you don’t know the cause of chest pain right away, so you go visit the doctor.

Some economists argue that this behavior could also increase the cost of healthcare if the insured use the system too often or opt for pricy procedures. But Franks says this argument is also problematic. 

Franks pointed to the RAND Institute’s study of the appropriate use of healthcare, involving dozens of specialists and experts in the field who debated the effectiveness of certain procedures. Even then, the best in the field couldn’t create clear-cut, universal rules about which treatments are the best and most cost-effective.

“The idea that people can tell if they’re using healthcare appropriately or not is just a stupid, unhelpful idea,” Franks said. “Not all healthcare is useful, and some healthcare is detrimental to health, but there’s some benefit to having access.”

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