Moral Hazard and Individual Mandate

Website Development
October 10, 2019
Introduction to LGBTQ Studies
October 10, 2019

PHPM 310: Health Care in US


To receive full credit for homework assignments, students must:

Compose 400-600 word response excluding title and reference list. The word count must be clearly documented.

Font must be 12 pt, line spacing must be double-spaced, margins must be exactly 1 inch.

All references, including any required or recommended reading, must be documented using the American Medical Association citation style (e.g., JAMA or NEJM).

In addition to any required or recommending reading, students must use and cite 1 additional article indexed in PubMed.

Recommended journals: JAMA, NEJM, Health Affairs, Health Services Research, and American Journal of Public Health.

The plagiarism software,, will be used to evaluate all assignments. The originality report is made available to students; therefore, students are wholly responsible for addressing any issues prior to the due date.

Up to 4 extra credit points may be earned if the following conditions are fulfilled:

Students upload a substantial draft to d2L by 4 pm on the Monday prior to the due date.

Students use no direct quotations and achieve a similarity index of <5% as measured by excluding quotes and bibliography.

The following additional requirements apply to team assignments:

Each student must serve as a writer and editor twice.

Both students will earn the same grade including any mandatory deductions or sanctions.

Students must be in the same group, either A or B, and the team must turn in a response for 3AB, 4AB, 5AB, and 6AB.

Each assignment must clearly indicate each student’s role.

Extra credit for early draft submissions does not apply to team assignments.

Questions (answer either question 1 or 2):

The concept of moral hazard posits that people act more recklessly when insured against risk. With regard to health insurance, making patients pay for some of their health care out-of-pocket is supposed to incentivize them to think more carefully about the appropriateness of the care. The RAND health insurance experiment demonstrated that patients who face higher out-of-pocket expenses consume less health care and have outcomes similar to those who consume more care. Others have argued that cost-sharing is counter-productive if patients cannot differentiate between medically necessary care and wasteful care, if patients skip needed care because of cost, or if patients who have chronic medical conditions are disproportionately affected.

Historically, insurance companies have worried a great deal about inappropriate use of the emergency department (ED). They argue that many patients inappropriately seek care in the ED for non-emergent problems when care in other settings would be more appropriate and less costly. To address this problem, insurers have used deductibles, co-payments, and/or co-insurance to incentivize patients to act in more desirable ways. However, Anthem, one of the nation’s largest insurance companies, has implemented a new policy that denies payment for ED visits that Anthem believes to be unnecessary. This policy marks a substantial departure from past approaches to control patients’ use of health care.

Specifically, students should:

Construct an argument supporting or opposing Anthem’s policy of retroactively denying claims for ED care it deems inappropriate.
Compare and contrast Anthem’s policy to typical cost-sharing strategies used to incentivize patient’s use of care (e.g., deductibles and co-payments).
Consider the policy’s likely impact on individual patients’ health care use and health status given what is already known about cost-sharing.

Required Reading:

Kliff, S. An ER Visit, a $12,000 bill – and a Health Insurer that Wouldn’t Pay. Accessed August 7, 2018.

Gruber J. The Role of Consumer Copayments for Health Care: Lessons from the RAND Health Insurance Experiment and Beyond. Published October 2006. Accessed August 7, 2018.

Recommended Reading:

Baicker K and Levy H. Cost Sharing as a Tool to Drive Higher-Value Care. JAMA Intern Med. 2015;175(3):399-400.

Baicker K and Chandra A. The Veiled Economics of Employee Cost-Sharing. JAMA Intern Med. 2015; 175 (7):1081-2.

Insurance is intended to protect individuals from economic harm owing to rare, but catastrophic health events. Small monthly premium payments made by everyone are used to offset high health care costs among a few. This approach works best when people have similar health risks because most health insurance is community-rated, meaning everyone pays the same monthly premium. When health risks differ markedly, healthier individuals pay higher premiums to subsidize those who are sicker.

Understandably, the healthy often perceive health insurance to be unaffordable and sometimes unfair when their monthly premiums seem higher than their actual health status suggests it should be. In response, many choose to go without health insurance. When they exit the health insurance market, those who remain are sicker than average. To compensate, health insurance companies raise monthly premiums causing even more healthy people go without health insurance. This escalating pattern is called a “death spiral.”

To prevent such an event, the Affordable Care Act requires individuals to purchase health insurance or face a tax penalty. This provision, the individual mandate, is the most hated aspect of the Affordable Care Act. In December of 2017, Congress passed and President Trump signed a repeal of the individual mandate as part of a larger overhaul of the US tax code. Health policy analysts are closely watching the health insurance marketplaces for evidence of increasing premiums and an impending death spiral.

Specifically, students should:

Compose an argument supporting or opposing the decision to repeal the individual mandate.
Define experience-rating, community-rating, and adverse selection as needed to support your argument.
If supporting the repeal, address how the health needs of older and/or sicker Americans can be met in its absence.
If opposing the repeal, address the extent to which it is fair to ask younger and/or healthier Americans to subsidize the care of older and/or sicker Americans.

Required Reading:

Kaiser Family Foundation. Health Insurance Market Reforms: Rate Restrictions. Accessed August 7, 2018.

Sacks DW. The Health Insurance Marketplaces. JAMA. 2018; Jul 9 [Epub ahead of print] doi: 10.1001/jama.2018.8117.

Recommended Reading:

McDonough JE. Revisiting the Land of the Individual Mandate. The Milbank Quarterly. 2018; 96 (2): 219-222.

                                                                                Place Order