Is moral hazard bigger under Medicaid or private insurance?

UPDATE: I posted an updated version of this article at my Medianism blog.
Some health professionals perceive greater moral hazard among Medicaid recipients than among the rest of us.  All the research I have been able to find about the matter indicates that Medicaid does increase health expenditures, but by less than private insurance does.  One study in the Journal of Health Economics found no moral hazard in nursing home care when Medicaid is more generous than when it is stingy. Another study in Inquiry, found that health care spending is significantly lower under Medicaid than under private insurance due to lower provider payment rates and found little difference in services used. A paper in the American Journal of Public Health found that children on Medicaid have more physician visits than uninsured children, but less than privately insured children. 
Evidence in a recent HSC Research Brief suggests that there is greater moral hazard among Medicaid recipients in their use of Emergency Room (ER) vists.  The only category of care in the figure below that is likely to indicate moral hazard is non-urgent care because this does not require care within 2 hours and so is not worthy of being called an emergency.  But even non-urgent care is not always wasteful.  I have been forced to go to an ER when my child needed antibiotics on a Friday night (my kids always seem to get sick and have accidents on weekends and evenings) and there was no alternative until Monday morning, 60 long hours later.  Medicaid recipients are more concentrated in places with less access to convenient doctor office hours and that could explain some of these results. The US healthcare system does rely excessively on ER care, but that is not due to the moral hazard of insurance.  It is because our system has a shortage of primary-care physicians (insufficient office hours) and too many uninsured people who lack access to care except in an ER. 
The big moral hazard headline in the data below is that Medicaid recipients use 45% more non-urgent care than people with private insurance! Forty-five percent! 

Forty-five percent sounds like a huge percentage increase in moral hazard, but compared to the total amount of ER care, it is insignificant.  Medicaid recipients only get 3 percentage points more non-urgent care than people with private insurance so if all the extra non-urgent care were eliminated, there would only be 3% fewer ER visits for Medicare patients.  And non-urgent care is the cheapest care so the dollars lost are probably much less than one percent of total ER expenditure.  A few expensive urgent-care patients cost almost all of the money.  In healthcare, 20% of patients typically account for 80% of the spending and non-urgent care is the very cheapest kind of care. 

But the number of non-urgent patients sometimes looks overwhelming if you look around in any busy ER.  That is because the non-urgent care is triaged, so those patients have to wait.  A busy ER will typically have many non-urgent patients impatiently waiting for care until the ER doctors have the free time to deal with them.  That will make them much more visible than the urgent care that gets dealt with immediately.  Even though non-urgent patients are less than 10% of the people coming into an ER, they might make up more than 50% of the patients who are present in the ER because they have to wait longer, sometimes many hours (in my own experience).  

Many economists think that moral hazard on the part of patients produces most of the expensive waste in the US healthcare system, but I have never seen statistical evidence that moral hazard are a significant problem compared with high administrative costs or over-treatment by providers.  This data seems to confirm that the moral hazard of Medicaid is not particularly important in the big picture.  The use of ER care for Medicaid recipients and people with private insurance is broadly similar. Neither group uses much frivolous, non-urgent care compared with the total volume of care according to this data and in dollars spent, it is trivial.  And remember, much of the non-urgent care is not frivolous.  Much is useful care that happens to be outside of office hours.  It isn't completely clear if any of this is really moral hazard at all, but even if all non-urgent care were moral hazard, it would not be anywhere near the biggest source of waste in our ER system.

Economists like Mark Pauly who focus on 'moral' hazard are usually using a warped ethical system which defines morality according to ability to pay.  According to this version of the theory, insurance should never cause anyone to spend more on healthcare than they would spend without insurance.  Any expenditures that a patient would not pay out of pocket is moral hazard.  Under this definition of moral hazard, poor people are always more guilty of moral hazard than wealthier people because poor people have lower ability to pay than wealthy people.  But the whole point of health insurance is to increase your ability to pay if you get a mortal illness and need more money to survive.  People who are wealthy enough to pay for any possible health problem out-of-pocket have little need for insurance.  Insurance is the most useful when the ability to pay for healthcare could make a life-or-death difference.  This warped morality underlying 'moral' hazard explains why economists like Mark Pauly see greater moral hazard in insurance for poor people like Medicaid than in insurance for the rest of us.  Under the 'moral' hazard view, elites like Bill Gates should be able to get whatever they can afford, (whether insurance pays or not) but healthcare should be rationed for the middle classes and healthcare for the poorest people is pure moral hazard that should be eliminated.  According to the 'moral' hazard view, a billionaire alcoholic whose habit burns through liver transplants at a black-market boutique hospital is exercising his consumer sovereignty and efficiently maximizing consumer surplus whereas a homeless guy who gets a lifesaving $10 antibiotic at an ER is squandering society's resources because his life is worth less than $10 if he isn't willing to pay that much to save it.  

If there is more actual wasteful treatment among Medicaid recipients, (as opposed to 'moral' hazard), I have yet to see it measured in any statistical work.  There is wasteful treatment for people with every kind of insurance and I don't know why providers would want to do more for Medicaid recipients than for the rest of us. 

Set The Nurses Free

Licensure raises costs which can only be justified if it also raises quality.  However, the evidence makes it clear that licensure restrictions on nurse practitioners is too strong.  If we set the nurses free, we can get lower costs.  Yglesias:

In 18 states (disproportionately but not exclusively rural ones) and the District of Columbia, a nurse practitioner can examine, diagnose, and treat patients in a primary care context. Nurse practitioners also get paid less than doctors. Medicare reimburses them at 85 percent of the doctors' rate, for example, but they also charge less to insurance companies and out-of-pocket patients. And since the "blue states" in this sense are a pretty diverse lot, we can get pretty good quasi-experimental data as to whether cheaper nurse practitioners are actually any worse than primary care doctors in this regard. The answer is a resounding no:

There is a growing body of research demonstrating that patients perceive that receiving primary care and having a usual source of care is more important than who it was that provided these services. Studies comparing the quality of care provided by physicians and nurse practitioners have found that clinical outcomes are similar. For example, a systematic review of 26 studies published since 2000 found that health status, treatment practices, and prescribing behavior were consistent between nurse practitioners and physicians.

What's more, patients seeing nurse practitioners were also found to have higher levels of satisfaction with their care. Studies found that nurse practitioners do better than physicians on measures related to patient follow up; time spent in consultations; and provision of screening, assessment, and counseling services. The patient-centered nature of nurse practitioner training, which often includes care coordination and sensitivity to the impact on health of social and cultural factors, such as environment and family situation, makes nurse practitioners particularly well prepared for and interested in providing primary care.

It isn't surprising that nurse practitioners get higher quality ratings from patients than physicians do.  Patients typically judge quality according to bedside manner and medical schools don't select students based on their warm-and-fuzziness!  They want the academic elites of society.  In contrast, nursing programs have a long tradition of seeking to provide comfort.  The very word 'nurse' means to take care of.