Insuring Health or Promoting Unhealthy Risks?

Which is better: to have health insurance or to not have health insurance?
If you have health insurance, which is better: high deductibles or low deductibles?

You probably answered that it is better to have health insurance and have low deductibles. That way you are more likely to go to a doctor when you need one and it won’t cost you hundreds or thousands of dollars. This answer is wrong. It may be better to have health insurance and low deductibles, but this answer does not address the costs involved.

How much does it cost you to have health insurance? Aside from the premium that you and generally your employer pays, there is another more hidden cost to having health insurance. For illustrative purposes, we can ignore the premium and assume that health insurance is given to us by someone else.

Economists often say that the number of doctors’ office visits will go up if people have health insurance that covers their monetary cost of seeing a doctor. Opponents of this argument often point out that the monetary costs might be a lesser factor in comparison to their opportunity costs and discomfort of having to be at the doctor’s office. Nevertheless, when the cost goes down, we can safely say that the quantity demanded will rise to some extent, given a downward sloping demand curve.

However, the number of doctors’ office visits will rise for another reason. People, knowing that they do not bear the full costs of their actions if they engage in behavior that risks their health, will engage in risky behavior. They won’t take care of their bodies as much as they might normally. They might put off disinfecting cuts and scrapes rather than tending to them immediately to avoid infection. They might not brush their teeth at least twice a day to avoid cavities and gum disease. They might not be so diligent at applying sunscreen to prevent melanoma. They might be more careless drivers, knowing that if they are in an accident, their health insurance will cover any resulting injuries. Why? The cost that they bear to engage in preventative care exceeds the cost of going to the doctor’s office to correct the problem. The time and effort that they would have to spend disinfecting cuts, brushing their teeth, applying sunscreen, and driving carefully over the course of a year, for example, is higher than the time and effort it takes to reduce that preventative care and simply go to a doctor a couple times a year.

On the other hand, those who are without health insurance or who carry only insurance for catastrophic events (e.g. $5,000 deductible and a low premium with no coverage for annual checkups) will make an effort to take care of themselves properly to avoid illness. They might not have the luxury of going to the doctor for every cough or every cut, but they won’t be so quick to eat unhealthy food, skip brushing their teeth, or neglect to wash their hands.

Next time you hear headlines saying “Millions of Americans Uninsured” and think it is a terrible crisis, remember, simply having health insurance is not an inherently good thing.