CONSUMER-DRIVEN HEALTH CARE: MORAL HAZARD, THE EFFICIENCY OF INCOME TRANSFERS, AND MARKET POWER

Consumer-driven health care (CDHC) and health savings accounts (HSAs) have promoted as ways to reduce national health expenditures. This essay attempts to place these policies in a theoretical perspective. CDHC is intended to reduce expenditures by reduce the additional quantity of health care that consumers purchase when insured, that is, by reducing moral hazard. This essay that while some moral hazard id inefficient and should be discouraged, a large portion of moral hazard-the health care that ill consumers can only afford to purchase if they are insured-is actually efficient and should be encouraged. CDHC does not distinguish between these two types of moral hazard, and therefore discouraged the purchase of both efficient and in efficient moral hazard. It further suggests that savings accounts are less efficient than standard insurance coverage as vehicles for increasing the resources that quality-reduce policies like CDHC are likely to be less effective in reduce health care expenditures than policies directed at bargaining down provider prices. Indeed, it is possible that CDHC would diffuse buying power and keep prices high. Because CDHC is unlikely to reduce the quality of health care demanded substantially, national health care expenditures would likely remain high with CDHC.