Moral hazard and its contribution to cost escalation in the private healthcare sector in South Africa

Presenter: Thulani Matsebula, Council for Medical Schemes

Abstract

Since health insurance is central to the functioning of health systems, health economists and policy-makers are interested in understanding the role it plays to influence utilisation of healthcare services. Because the individual does not have to make a payment at the time when services are needed, he may utilise services differently purely as a result of his insured status. The provider of healthcare services, also being aware of the patient’s insensitivity to price, begins to prescribe more services both in quantity and price. This type of behaviour, described as moral hazard, has the potential to result in a serious cost-spiral that policy-makers are keen to control. A significant cost-spiral has been experienced in the healthcare sector in South Africa during the past 10 years. Excessive utilisation of healthcare services due to moral hazard behaviour has been identified as a major contributor to this trend.

The objective of this paper is to understand the occurrence of moral hazard in the South African private healthcare sector. Factors that could be indicative of the occurrence of moral hazard are also suggested.

A survey conducted in 2005 provides a comprehensive dataset that for the first time enables an understanding of household trends in utilising healthcare services. The survey was limited to low-income households. The survey was primarily conducted to provide insights on household attitudes towards health insurance. It nonetheless, also generated useful data on a number of variables that enables comparison of utilisation between the insured and the non-insured population. This dataset has therefore been analysed to specifically identify the occurrence of moral hazard within the survey population.

A total of 21 percent of respondents (n=14,263) enrolled in health insurance had sought healthcare services within the preceding month as compared to 15 percent of those that were not insured. This however, is not necessarily indicative of moral hazard as it could mean that those without insurance face a barrier in accessing healthcare services. As expected, among insured individuals, the majority (80%) sought healthcare services in the more costly private sector compared to only 22 percent of those without insurance. The data collected did not include variables on the quantity of services prescribed per visit to a health care provider.

Whilst the analyses do not provide conclusive evidence of the occurrence of moral hazard, they do nonetheless, provide useful indicators that can be studied further within a properly designed longitudinal framework.