The cheapest form of health care is to let sick people die

If you learn nothing else today, I would ask you to learn that moral hazard is the cause of medical price hyperinflation.

Moral hazard is not just two words that don’t seem to go together. Moral hazard is when the person who bears the economic burden of a decision is not the decision maker. In the health care setting, moral hazard is when the third party payer (insurance/government) bears the economic consequences of a patient’s decision.

When there is moral hazard, the patient cares less about what drugs or procedures cost, and cares less about what doctors charge.  If the “buyer” does not sufficiently care what things cost, of course the prices rise. Why wouldn’t they? If I could sell my 20-cent candy bar for $40 to the first person who comes in the door, why would I not charge $40? If everyone in America let their teenage daughters go shopping for clothes with ad lib unlimited access to the parent’s credit card, think of the effects on the prices at stores such as the Gap and Abercrombie & Fitch. The prices would skyrocket.

High technology is not the cause of medical inflation: high tech in all private sectors of the economy, such as information technology, brings prices rapidly down, and it would do so in medicine but for moral hazard. Medical liability is a contributor to high costs, but again, if the patients bore the financial costs of the defensive medicine tests ordered by physicians, the patients would balk, and unnecessary defensive medicine would decline.

To address the price inflation caused by moral hazard, government mandates price controls, which always and absolutely lead to shortages and misallocation of resources and are uniformly and always proven to fail. We are in this stage currently in our country, with price controls dominating the medical landscape. And it is of course failing.

To reverse medical hyperinflation requires elimination of moral hazard. Either the patient has to pay for the care they choose, or insurance companies or the government that is paying will have to make the medical decisions for the patient. Both of these options eliminate moral hazard and both will bring down the prices of health care. Nothing else will work. The important question therefore is not who should pay for health care, but rather who should be making your medical decisions?  Do you want Obama or Bush making your personal medical decisions for you? Or should you make them yourself?  If you think you should make your own medical decisions, then the only way to solve the economic failure of our medical system is for you to also pay your own medical bills.

Now, with health care prices so enormously overinflated, the concept of paying your own expenses is inconceivable. But again, if everyone pays for his own medical expenses, moral hazard goes away, and prices will fall every bit as fast and as far as the prices of computers has fallen. And think how accessible excellent computers are today. Low prices from the free market will make health care accessible and excellent and far more affordable. In contrast, health insurance makes health care impossibly expensive and it will decay into a situation in which the government will control personal medical decisions.

The cheapest form of health care is to let sick people die. And the government will always need to save money on health care so they can afford to send soldiers to foreign lands that have oil, subsidize big agribusiness to grow corn to make ethanol to destroy our engines, give huge grants to bankrupt companies whose executives support Obama, double the size of the NSA’s Utah data center, or bail out a few more Wall Street looters.

Remember that health insurance  – because of its inherent moral hazard — is the problem, not the solution.

Instead of letting the politicians tell us what to do, we should let the people figure it out in the marketplace of free ideas and free exchange. And as a critical part of this, those who care about the poor should be generous to the poor, directly and personally, as opposed to having their generosity channeled through the corruption of the crony-government coffers. Americans are as a whole the most generous people on the planet. And doctors are the most generous of Americans, or at least we used to be before we as a profession got so consumed and beaten down by the bureaucracy of health insurance and government. Don’t let the government continue to abolish our culture of individual generosity.

We can solve our health care woes. The government can’t. But we can.

John F. Hunt is a physician and author of ASSUME THE PHYSICIAN: Modern Medicine’s “Catch-22″.


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  • Margalit Gur-Arie

    I think you’re about to experience how “high tech in all private sectors of the economy, such as information technology, brings prices rapidly down”.
    Now that we are well on the road to empowering consumers to assume “personal responsibility” for their medical needs with fake health insurance (a.k.a. high deductible, narrow networks), the road is clear for Mr. Vinod Khosla’s vision of technology delivered cheap medicine for the masses.

    Something tells me that you are not going to like it any more than the, previously employed, workers in private industries where the prices went rapidly down.

    For the record, I think that health care should be expensive, and education should be expensive, and doctors and teachers should be paid small fortunes and left alone to do their job, and government should see that everybody has access to the best of the best of the best, with honors.

    • John Hunt

      Obamacare’s accidental success may come from its unintended encouragement of high deductible catastrophic insurance mimics, which decrease moral hazard.

      True competition, true free market competition, will certainly change the face of medicine, and we don’t know exactly how. But it will do so honorably, on an even playing field, as opposed to this dishonorable crony-corporatist fascist baloney that causes us all so much torture, doctors and patients alike, while increasing the wealth and power of the politicians and their friends.

  • saurabh jha

    I agree with the sentiments of the author. It’s hard not to agree as moral hazard was conjectured and demonstrated by Mark Pauly, one of the most astute health economists of our times.
    But is fanciful to believe that majority wish to be free of moral hazard. It is an example of the problem of the commons, and these problems cannot, by definition, be solved democratically.

    • John Hunt

      Because the commons is so challenging to manage, it should be a goal to minimize commons whenever it can be done. Certainly individual health is only part of the commons if people are slaves to the state or to some component of society.

      In this regard, as an aside, I view public health as contagious diseases that spread through air, contact, fomites, as well as toxins in air an water. By this definition, I would not consider obesity to be a public health problem, but a private health problem, at least until such a time as we learn it is actually an infectious disease (which there is growing evidence to support, actually).

      • saurabh jha

        Agree with the distinction between infectious diseases and obesity. The former is a commons problem because of the externalities, both positive and negative.
        However, with regards to moral hazard, I think the genie is out of the bottle: employer-based insurance and Medicare. It will be very difficult getting people to give up these privileges. I cannot see how this can happen unless both parties plan a reform that is politically suicidal for all.

        • John Hunt

          Wouldn’t that be a wonderful thing if both political parties committed suicide? Especially in the process of bringing rationality back into our health care…
          Good riddance to the two parties..

  • guest

    Great article. I agree with you 100%

    • John Hunt

      Thank you. There is another posting this week on KevinMD by Luis Collar that has presented this similarly and very rationally.. In the end rationality might win. Someday..

  • Duncan Cross

    So you’re arguing that we should give up insurance — which is a product of the free market — because government will let us die? Yes, the free market was so kind to the elderly that government had to step in and murder them with Medicare to save money.

    • John Hunt

      Duncan, I would suggest to you that health Insurance as we have it is certainly not a product of a free market. It is the product of a market tax-subsidized since WW2 in a way that foolishly and hatefully tied health insurance to employment, then regulated poorly with price controls and supply controls for decades in an attempt to overcome the initial single mistake which started this whole debacle. That single mistake was when politicians gave corporations tax deductibility for employee health insurance. Get rid of that one stupid law, and none of this would have happened. None of the egregious degree of moral hazard, none of the insanely counterproductive price controls by CMS.

      Medicare was essentially forced on the elderly by the way. Johnson threatened the CEO’s of Blue Cross/Blue Shield to stop providing policies to the elderly.. Politicians suck

      • Duncan Cross

        I agree that our present insurance market is dysfunctional, but the fact that there are insurance markets for a wide range of other types of risks makes it pretty likely that some form of insurance market would exist for health care in a free market. Even if it weren’t tax subsidized, many people would still want to buy health insurance.

        And whatever Johnson’s crimes, letting the elderly die is not among them — as your post implies.

        • John Hunt

          Absolutely in a free market health insurance would exist in some form. However the long term consequences of the subsidized artificially elevated demand for health insurance is that the free market is not allowed to efficiently operate. and that is the trouble.

          Johnson was not a doctor. He didn’t save any lives of the elderly. What he actively did was enslave us all for a percentage of our working lives through Medicare taxes. He took the money away from people. Given that Medicare is the biggest financial hole in the ground that the US government has, the related taxes (enslavement) will keep increasing. Johnson is no hero. The politicians who force others to save lives or force others to provide health care at price controlled fees are not good generous people. They are really just jerks.

          • Duncan Cross

            You sound like you’re ready for the Underground Ambulance:

          • John Hunt

            I read your blog post on the Underground Ambulance. It has a prominent Steven Colbert sort of flare to it, of the more recent Colbert leaning, though– just a bit too much straw-man dominance as Colbert has been doing lately. I approve of satirical treatment of evil things, but satirically treating something inherently good like freedom was a bit of a turnoff. Interesting tidbit on Liberia in there, a country where I have spent a great deal of time.

            Perhaps it might help you to understand people like me, freedom-lovers if you will, if you consider this view: Freedom does not mean that doctors will behave well. Freedom means that they are ALLOWED to behave well.

            Obamacare and the previous horrible system have not allowed doctors to behave well. Some of us just seek to regain our right to do so.

  • JPedersenB

    There is a problem with the argument that if people have to pay more, they will not use so many medical services. Very often, there is an emergency and they don’t have a choice. Even with elective services, it is almost impossible to find out the cost before the service has been rendered!

    At some point, we are all going to have to ask, “Why are the costs so high?” (And demand a better answer than, “Because.”)

    • John Hunt

      “Very often” is not the same as “all the time.” ER’s will gain reputations for being cost effective or not, in a free market, where prices MUST be transparent, not because of bandaid laws but because customers demand it. Sure, there will be emergencies, and whenever you are in a rush to buy something, like right now before Christmas, you are willing to pay more for the item (or service). Part of the prioritization you as an individual make. Such prioritization cannot be predicted by a centralized or crony-corporatist price-controlled system as we have now.

      Freedom has so much to offer. And the opposite of freedom is servitude or slavery. It is hard to understand how people in America can knock freedom so often, and justify their complaints against freedom by ends-justifies-immoral-means mentalities.

      There are other ways, honorable, honest, moral ways to help people get access to care. What is happening now is in the long (and short) run counterproductive even to the foolish goal of getting everyone INSURED (which is a truly insane goal compared to the real goal which is to get care, constantly improving care, for generations to come).

      • JPedersenB

        Many words without much substance. Do you think that so many of us are so lacking in education?

        The real problem is the ridiculous costs of everything!

        • John Hunt

          I am sorry that you think my response was low in substance. And in regard to thinking that so many or us are lacking in education, well, maybe not on this site, but I am quite sure that many in the country have a great deal of schooling, but perhaps not a great education, for that is the only explanation as to why so many people have allowed rationality, freedom and and truth to be replaced by control by Washington, and acceptance of obvious lies. In my posting at the top, I was trying to define exactly your question: why are costs so high? I am convinced that the correct diagnosis is that moral hazard is the problem, and that we need to treat the moral hazard in order to bring costs down.

          I have no doubt that there are other contributors to the costs going up, but I think that they contribute only because moral hazard allows the prices to rise. So again, moral hazard is the problem.

          Happy to hear what your answers as to why the prices are ridiculously high, and I certainly agree that they are!

  • John Hunt

    Administrators are such fun…Note that in England, when the Meaning of Life was filmed, they already made it out that the doctors feared the administrators. That didn’t happen with us until perhaps this last decade or so.. I remember when the administrators worked for us!

  • John Hunt

    We don’t have a perfect world; and although we can have a never ending supply of happiness and love, we don’t have an unending supply of resources. I don’t think the willingness to pay for your life is infinite for many people. Many have already posted here that they would rather be on the beach or leave money to their children rather than extend their life for those extra few weeks in the ICU. Of course, spending someone else’s money to save your own life, while still leaving your own money to your children, is a more clear choice–a choice in favor of spending the money..

    The expensive medications for treatment of catastrophic illnesses will be available for the rich and for those who have paid for catastrophic health insurance (which can be available to everyone cheaply), and those who value the intervention the most. This catastrophic insured sector of the medical economy would involve some substantial degree of moral hazard, and there would therefore be all the problems associated with moral hazard, including all the responses government and insurance companies have imposed on us. But so many of the prices would be pushed down by the free market forces of the non-castastrophic medical sector that the general price levels surrounding the expensive catastrophic activity would be lower. Not perfectly so, I know. But it would be in the right direction. And the prices would be set by the market between insurance and providers (companies, docs, etc), not by narcissistic clueless know-it-alls in Washington on a power kick.

    Also, freedom yields more freedom. It is even more infectious than the disease of socialism. As freedom rings, people will wonder why the FDA is in the way so much, why patients have to get prescriptions for cholesterol-lowering drugs, why they cannot import medications legally, and they may complain… And if enough complain…..

    well, actually, if enough complain, nothing will happen, because complaining to the national government does nothing at all. There is no way to fight injustice caused by Washington. They are too far away and the bureaucracy is too thick.

    So, we are hosed as long as more than half the people keep empowering a remote and distant political bureaucracy to control ALL our lives.


  • John Hunt

    Mengles, if your question was serious, well, I don’t have a clue where funding GME is anywhere Constitutional. GME was funded long before Medicare existed. IF Medicare were gone, well, the market will figure GME out. The market figures things out much better than the fool politicians. The Obamacare website is only the most recent example of the fool politicians’ output.

    But as the market figures out GME, we need to get the administrators at our own hospitals to stop serving as little SS officers enforcing foolish ACGME rules. In fact, we need to boot the ACGME out on their butts until they develop some humility and stop mandating and compelling their every little whim on us, backed by threats of loss of accreditation (and loss of Medicare funding–ah yes, that is the heart and soul of fascism–groups taking power, backed by government threats)

  • Martha55

    This would be great as long as pharmaceutical market was open without the need for prescription.

    • John Hunt

      YAY!! I think we doctors have to realize that the prescription system in this country does not advance liberty, and my supporting the requirement for prescriptions, we are participating in the nanny state, and increasing the cost of health care too.

  • John Hunt

    I totally agree. The Association of American Physicians and Surgeons, as well as Docs4PatientCare are both irrational, non-fascist organizations. Much more my speed. The AMA controls CPT, makes lots of money off CPT, and CPT are the center of the price control handcuffs that imprison us

  • buzzkillerjsmith

    Old people cost too much and so we should let them die. Uh, check that. I just remembered my own age.

  • John Hunt

    Thanks for reading my book. I am very glad you laughed–I think that laughter is the one of the best weapons as well as the best medicine.

    HSA’s are great, as is saving for ones health care without any tax incentives. But the key thing is to get rid of all the rigmarole way that causes the prices to be so high. Moral hazard is the most important part of that.

    I personally would be willing to pay a doctor lower prices for less complete service, if by that was meant that the service did not include 1) billing insurance, 2) paying coders, 3) getting HIPAA paperwork signed, 4) performing unnecessary measurements and collecting unnecessary data, 5) documenting all sorts of things to assure the doctor passes an insurance company audit; and I wouldn’t be bothered that I was not getting the benefit of the overhead expenses for liability insurance that is too expensive, for the EMR that interferes with the doctor-patient relationship, for the subscription and training costs for ICD-10, for the exorbitant salaries of the CEO’s and administrators, etc.

    There are a ton of services such as the above that I would greatly enjoy having the benefit of neither receiving nor paying for!

  • Walter Topman

    In capitalist societies, money is an all important measure of how policies and decisions are made. When money becomes the one and only criterion that controls healthcare, we start having to judge the worth of a person against how much should be spent on him/her. Age is already a factor in whether a specific high price/resource intervention will be carried out on a patient. Intense dissatisfaction with health care exists in the population of such a society. Solutions to a country’s difficult health system will only be found if a radical perspective can be taken. It is certainly worth looking at other countries if their health care has more satisfaction rating from its residents. For example, I believe Germany is such a place where there is more satisfaction of the populace with their health system. “Disruptive innovation” is a term used in the context of a new generation of highly successful enterprises. I believe this is certainly needed here.

    • John Hunt

      Disruption is indeed needed in our medical system, very big disruption. I agree with you. The question then becomes, who do you want making decisions for your health? You or “Them”.

      My personal view is that health care choices should be the purview of the individual, but that is based on a strong bias that I hold that the political profession is highly concentrated with dirtbags. Socialism unfortunately empowers the political dirtbags.

      There is no perfect ends immediately. But there are perfect and moral means that if we follow will help us stay on the straight and narrow. In contrast, as soon as force is invoked in trying to accomplish some goal, I question the goal, the means, and the people invoking the force. Socialism is force, so I am biased against it, even if it can work in certain settings for a while.

  • Walter Topman

    A clear view on healthcare costs in US is presented in a YouTube video by John Green. He also compares the situation with Europe. Well worth watching as pinpoints the real problem areas. I probably can’t put in a link so just type in “watch?v=qSjGouBmo0M” after the Youtube URL.

    • John Hunt

      I have seen that video, and John Green is very charismatic and pegs Moral Hazard as the problem, which is a rare thing and I was very glad to see it. Sadly, his ideology pushes him, perhaps unwittingly, more toward the collectivist solution (fascist control of prices, state decisionmaking on behalf of you, and state payment for your health care decisions), as opposed to the individualist pathway (individual control of health care decisions and payments too). So his solution is not my prefered, but I am very glad he recognized the problem so that the debate might have that much more of a chance of focusing on the real issue: moral hazard, and the two choices we have to pick between to resolve it..

      Thanks for posting!

  • John Hunt

    AMA holds the copyright to CPT and they charge real money and lots of real money (if dollars are at all real!) to get access to the coding programs and manuals, and they control tightly whether codes get issued for new procedures and devices. Then CMS uses those codes for price controlling, and the insurance companies adopt those price controls as the basis for their payments…

  • Adr Born

    So many vital points here and brilliantly summarized with the key issue. Politicians, admins and beancounters are devastating the medical culture and traditional morality by forcing doctors to think like they do.

    The reason not to charge $40 for a 20c product just because you can is that sooner or later, customer works out they have been screwed. This is Win/Lose sales and the consequences for the long term relationship. In modern sales, only the profiteering companies that sell useless trinkets use this strategy. Any company with a life enhancing product to sell uses Win/Win.
    Except in US Healthcare where there appears to be an effective monopoly through a cartel. There is also a highly effective sales and marketing campaign to get the population to demand the most expensive healthcare regardless of its safety or usefulness. Then it insists on ‘patient satisfaction’ based on manufactured consent.

    The Win/Win scenario for both patients and the medical profession in the long term is to offer a great service focused on patient health not manufactured patient satisfaction. Firstly that would require individual and societal reeducation. Secondly, the problem of 400, 000 plus preventable hospital per year,, needs to be resolved. Admin would prefer to cover this up for the sake of patient satisfaction. Doctors need to do something about it to restore their traditional moral culture both personally and as a profession.

    • John Hunt

      One reason (understood or not at the time) that doctors chose their profession over the profession of law is that medicine is usually a win-win. When the doctor wins, the patient wins. In contrast, the legal profession is a win-lose. That is a huge psychological difference, and it reflects the character of those who make these choices.

      Doctors want win-win. I agree with you very much in that. Doctors often voluntarily will accept less monetary return in exchange for other measures of wealth (happiness, satisfaction). However, that exchange should be voluntary, and will be different for each doctor (or company, I suppose). The notion of the government dictating the type and quantity of measurable and immeasurable wealth to provide to doctors in exchange for their services is incompatible with efficiency in the system, success or the pursuit of happiness.

      Free markets (and all the wonderful and unpredictable economic inventions of the free market) and generous individual charity are the answers compatible with liberty and morality and integrity. We really should see where liberty, morality and integrity will carry us before we give more power to the political class, who have proven repeatedly to be so incredibly lousy.

  • John Hunt

    It is a great question that you ask, and a toughy in our current situation. How would I feel if I were to get sick without “good insurance” and in the current setting when the government has been stealing my money for decades to “protect” me in the future, with social security and Medicare, but won’t let me have my money when I need it to keep me from dying young? I will be angry and want my money now, dammnit, and i bet most people will probably expect the government to help them in our current setting. (It is a bad precedent, but understandable from teh individual point of view).

    If however, the government had stayed out of my wallet, I could have saved 15.3% more of my income every year, have a huge medical savings account by now to fall back on and catastrophic insurance on top of that if needed. Additionally, with the reduction of moral hazard, prices for health care would be much lower. And then, if I had failed to save the money to provide for my health care, I would not be able to blame the government as I would blame them now, but only be able to blame myself for not being wise, educated and prepared.

    Moral hazard remains the problem that affects us all. Again the question is how to deal with it. Do we want the government making our decisions (the politicians who really are jerks, liars and often sociopaths) or do we want to make our own decisions?

  • matt19799

    Great article, John. I wrote on similar issues on KevinMD “Dear lawmakers: Why aren’t doctors involved in health care reform”. I talked about more transparency in medicine which would allow patients to have options, more “real” costs”, and more control over their care. By increasing price competition (rather than price controls), prices would plummet and patients could afford the actual (i.e. lower) costs for medical care.

    • John Hunt

      Matt, it seems so common sense, but there are forces at work in the system that don’t want we the people to think anymore, but rather just do as we are told. Those who support the sort of system that we had before Obamacare or now with Obamacare (which essentially just mandates and fouls up further the previously messed up system) are either intentionally destructive (some) or in denial about their own inherently contradictory mentality (many) or totally don’t care because they have other things to worry about (most). Denial is a very big part of people’s personalities, I find more and more. Ego-protection is powerful. And to protect the ego and the notion that one believes oneself to be bright, one has to deny obvious truths if they conflict with ones belief. That is the nature of Obamacare. It entirely conflicts with truth. But then more and more, the United States Government and much of what it does conflicts with truth. It is not sustainable to defy truths for long. Truth wins in the end. But those who deny it, destroy lots in the process.

      Let’s all keep writing about it, but more importantly, lets all act on it. We are all going to take hits to our liberty and our wallet or both anyhow, so we might as well take on some risks now, and take the financial hit of saying no to insurance

  • John Hunt

    I am not sure that Pharma is a monopoly, but FDA sure helps them gain a lot of monopoly-like powers. And Congress is certainly in partnership with the ruling class.

    Groups (such as corporations, unions, associations) are not legally allowed to use force and fraud. It is through their control of government (which has a monopoly on the legal use of force and fraud) that groups gain power. The pharma industry would be subject to the same controls of true law in a free market, but we have no free market in health care. Instead we have a fascist market in health care. Pharma is very good at using the power of government in their favor. GSK was the major driver behind banning CFC’s in inhalers. They lobbies heavily for it. Why? Because they had invested in this big HFA factory, and with the CFC ban (which accomplished nothing for the environment) they were able to rebrand lots of generic inhalers and gouge the price way up. That was FDA and EPA working as stooges of GSK. Fascism in action.

    Free enterprise is no myth. It is the ideal of the enlightened man, it is the driver of progress, however, it is constantly being quashed by the so many looters and purveyors of political pull that it is hard to see it at all sometimes. Perhaps that is why you think it is a myth. The rest of society feeds off the production of free enterprise, and as free enterprise disappears, society will starve–that has been proven in the largest experiments of human history.

    I consider the ruling class you speak of to be what I call the “political class”, whom I describe as those people who, instead of creating new value and wealth in the world, ispend their efforts to control government, so they can force their way on others, steal or manipulate the money to themselves, and exclude others by force from competing with them. The military-government complex, the medical-government complex, the banking-government complex, it is all economic fascism, or if that word offends, crony-corporatism. The government is the common denominator of force and fraud.

  • alekdavis

    If “health insurance makes health care impossibly expensive” why are prices health care providers charge insurance companies are lower than they charge individuals without health insurance (e.g. compare the price of a colonoscopy or any other procedure a hospital would charge a Medicare patient to the price of the same procedure charged to an individual without a health insurance)? Why is that cost of health care in every other industrial country a lot less than here, yet every single one of them either uses private insurance companies or government regulation (or a combination of both)? Are you suggesting that in countries where health care is managed by the government (i.e. single-payer systems in Canada, Australia, UK, Taiwan) the government literally lets people die so it can save money on health care? What is life expectancy in these countries? And what is your proposed solution anyway? If both, insurance companies and governments are bad, how do you suggest people should deal with medical emergencies? How much, do you think, in your imaginary ideal system, a typical cancer treatment would cost? Or a heart bypass? How would people with average incomes pay for their medical emergencies? What would you do about people who cannot afford to pay? How would you determine if someone can or cannot afford to pay at the time when medical treatment is needed (say, a person gets a stroke at a shopping mall or gets into a serious car accident)? So many questions… so many…

  • alekdavis

    On a different note, in which way buying a computer (or any other non-essential device, like TV, or whatever) is similar to buying vital (and most expensive) health services. Let’s assume there is no government regulation or health insurance to interfere with the market, so how would a person with cancer shop for care? Will he be able to postpone the service until Black Friday? Or get chemo from Amazon? Will he be able to order one from China? Or get it from Craigslist? Will the “free market” solution allow foreign-trained doctors to practice in the U.S. for the significantly lower compensations?