"Moral hazard is when someone takes your money, and is not responsible with it."
--Gordon Gekko (Wall Street: Money Never Sleeps)
In the early 1990s I was involved in a corporate quality improvement project tasked with reducing annual increases in company health care costs. We were self-insured and paid 100% (!) of employee health expenses. We had few preventive programs or group deals. Employees submitted claims and the company simply paid them with few questions asked. Not surprisingly, company health care costs were increasing 15%+ annually.
This was also the era of Hillarycare, when the Clinton administration was making noise about more government intervention in healthcare markets. Laughable, of course, because Medicare, Medicaid, and other government-centric health care programs were already busting federal budgets to the tune of double digit annual percentage increases.
An early focus of our quality improvement team was getting more control over drug costs. In one initiative, we worked out a deal with a local grocery chain to get discounts on drugs mixed in their in-store pharmacies. Employees would show their ID card and drug costs would be billed directly to the company at the discounted rate. I do not recall a co-pay requirement. Incentive to participate was that employees would be required to pay the difference for drugs purchased outside the special network.
The team issued a report that explained the pharma proposal, and it circulated among senior management. After reading the report, a disappointed senior VP sat me down in his office and told me that the plan wouldn't work. Although there was a penalty for employees who went outside the network, there was little direct incentive for them to shop for value. As long as there was someone else picking up the majority of the tab, said the VP, then cost will not be substantially curbed.
Today, the arrangement where someone else picks up the healthcare tab is called the third party payer system. Although it has been exacerbated by Obamacare, third party payment has been around much longer. One could argue that it had roots in 1930s health insurance plans that garnered government favor, and then escalated with the advent of Medicare in the 1960s.
Stated differently, hampered healthcare markets that shift costs to others have been with us for a long time.
Until costs are shifted back to those who consume the goods and services, then health care markets are destined to remain inefficient. Third party payment systems enable conditions of moral hazard. Moral hazard is the separation of risk from consequence. People will do less due diligence as consumers because they know someone else will pay.
Higher cost, lower quality, overuse, shortages are certain.