A law promoting obesity in diabetics

Posted by Marc Hodak on April 18, 2008 under Unintended consequences | 2 Comments to Read

That wasn’t the intent. A number of states (a.k.a. laboratories of democracy) have mandated diabetes coverage in insurance contracts. The idea, of course, was to help diabetics by improving their access to treatment. However, economics tells us that such a law has two likely, secondary consequences:

1) Price increases: This would be the economic result of constraining the right of insurance companies to freely contract with their customers
2) Moral hazard: If the likelihood of disease is partly driven by lifestyle, and people know treatment for the disease will be covered, they might be less conscientious about prevention.

Price increases as a response to mandates has been well-documented. The moral hazard question has been much less settled. Would a diabetic actually get lax about controlling risk factors, like their weight, if there were no marginal cost to treatment?

Well, a study of the moral hazard effect is in: it appears that mandating coverage for diabetes treatments increases incidence of obesity in diabetics. Here is what researchers Jonathan Klick and Thomas Stratmann concluded:

we employ a triple-differences methodology comparing the change in the gap in body mass index (BMI) between diabetics and nondiabetics in mandate and nonmandate states. We find that mandates do generate a moral hazard problem, with diabetics exhibiting higher BMIs after the adoption of these mandates.

The politicians who created these mandates were surely trying to help (thanks guys!). Now we have evidence supporting economic theory that these mandates may actually be counterproductive as well as costly. Now we just have to get politicians to pay attention to economics. After all, what’s the point of running these policy experiments if they are simply ignored?

(HT: Truth on the Market)