%0 Journal Article
%T John Nyman and the Economics of Health Care Moral Hazard
%A Sander Kelman
%A Albert Woodward
%J ISRN Economics
%D 2013
%R 10.1155/2013/603973
%X In 2003, John Nyman published The Theory of Demand for Health Insurance. His principal contributions are (1) to replace the previously unexamined axiom of risk avoidance with the axiom of welfare maximization; (2) to uncover a misinterpretation in the literature on moral hazard, namely, the insurance payoff as a price reduction, rather than as an income transfer. The immediate consequence of these reformulations is to recognize insurance-induced health care utilization as resulting in an increase in social welfare. Despite its evident validity and enormous implications, Nyman¡¯s work has received very little attention or recognition in the health economics literature. 1. Introduction Although it remains to be seen whether the US can bring its per capita health care costs into line with other industrial nations [1], the US, after nearly 100 years of effort, passed national health care legislation in 2010. The Affordable Care Act, as it is widely known, passed with expectations of eventually bringing the nation close to a state of universal health care coverage. The legislative and other debates leading up to passage covered a wide range of topics, but one important concept¡ªhealth care moral hazard¡ªwas never explicitly encountered in the debate. The absence of moral hazard in the debate appears to be an aberration. For more than 40 years one of the central tenets of health care economics has been the presumption that universal coverage would induce a rather substantial degree of moral hazard and therefore would reduce national economic welfare correspondingly. Among economists, these tenets are rooted analytically in a framework known as welfare economics, the objective of which seeks the circumstances leading to improved or maximized human welfare. The nature of the framework and, more pointedly, the manner in which that framework has been mobilized to characterize the health insurance policy payoff results in a habitual conclusion that more insurance-induced health care utilization results in a decline in human welfare. Consistent with that result had been the omnipresent policy caution that extensions of health insurance coverage to the general population were to be avoided. In 2003, John Nyman published The Theory of Demand for Health Insurance [2] that uncovered a number of what he argued to be critical errors in the way in which the insurance payoff has been understood through the lens of welfare economics, and that the cumulative effect of these errors has been to introduce a decided bias in the formulation of health coverage policy. The book is
%U http://www.hindawi.com/journals/isrn.economics/2013/603973/