At the heart of the Cadillac Tax lies the assumption of "moral hazard. " Moral hazard is the idea that the more generous the health plan, the greater the 'hidden cost' of health insurance to the patient. Since the patient does not feel the full impact of the health costs they are incurring, the patient does not feel the need to temper their health care consumption. Ultimately, the patient utilizes more health care resources as a result of insurance coverage, than if the patient had a cost-sharing plan and felt the financial impact of their medical treatment.
Moral hazard has been a popular health policy theory since the 1960s and it has largely led to the consumer-driven health care trend we are seeing now. However, more and more voices are questioning the validity of moral hazard when it comes to health insurance, namely because experts have questioned the conclusions of the RAND health experiment which may have misattributed how susceptible patients were to cost-sharing. If moral hazard is not an accurate guiding principle, there would be no justification for reducing generous health plans, heavy cost-sharing would be unnecessary, and the true focus of health reform could turn to controlling health care costs from industry.
Moral hazard has been a popular health policy theory since the 1960s and it has largely led to the consumer-driven health care trend we are seeing now. However, more and more voices are questioning the validity of moral hazard when it comes to health insurance, namely because experts have questioned the conclusions of the RAND health experiment which may have misattributed how susceptible patients were to cost-sharing. If moral hazard is not an accurate guiding principle, there would be no justification for reducing generous health plans, heavy cost-sharing would be unnecessary, and the true focus of health reform could turn to controlling health care costs from industry.