FREE MEDICAL SERVICES- COST & CONSEQUENCES:

Posted on in General

Having FREE medical services and prescriptions may seem like the ideal solution for many. However, a doctor might order extra tests, procedures or medications just because they are FREE.  

According to Dr. Sendhill Mullainathan, professor of economics at Harvard, this is inefficiency at its worst, when the tests, procedures and medications ordered provide little medical benefit.

In traditional economics, such a policy can lead to massive waste.The basic principle is called moral hazard. Consumers overuse free or subsidized services. Just check with the members of Canada’s Senate to see if this principle is applicable.

Some health insurers use a co-payment (co-pay) by patients to limit moral hazard. Seems logical but patients do not always follow the economic logic intended by the co-pay.

In fact, up to 50% of patients who  would benefit from a medication preventing a 2nd heart attack in up to 80% of cases will not take the medication if there is a co-payment by the patient of $5.

According to Dr Mullainathan, this is the opposite of moral hazard. Patients feel fine. Their problem is invisible.  They just skip the medications which are necessary to reduce risk.

Dr Katherine Baicker at Harvard and Dr Josh Schwartzstein at Dartmouth call his “behavioural hazard”.

Co-payments by patients do not resolve behavioural hazard. They make it worse. Behavioural hazard affects all medications. All the medications can be highly effective but adherence is a problem.

On the contrary, patients might get too much care for back pain which is very limiting. Many patients resort to ineffective and costly treatments for back pain.

Dr Mullainathan’s solution is to make those treatments and medications with high proven value FREE.  Researchers such as Dr Mark Fendrick at University of Michigan call this “value based” design of health benefits.

In Canada, many health benefit plans include a $500 allowance for massage or orthotics. Unfortunately, these benefits may not deliver medical evidence of benefit for many benefit holders. Should this $500 allowance be directed towards health benefits that are “value based” ?

To achieve best practices, the design of the benefits plan should be customized for the individual to address his/her problem set in order to deliver health benefits with proven value.

Reference:  Economic View, Sendhill Mullainathan PhD, New York Times, Aug 11, 2013).