The moral hazard of public health measures

Ten years ago, I purchased an SUV that came with “stateof-the-art” all-wheel drive, at least according to the salesperson, who told me, “You will not need snow tires with this baby!” And indeed, the traction was impressive. But after the first snowfall, I took a corner too fast and slammed into the curb, bending the wheel and ruining the tire. Suitably chagrined, I had the wheel repaired and purchased snow tires. On the way home, I marvelled at the improved handling provided by the all-wheel drive and the new snow tires. My speed increased. Then, on the same corner as before, I came within centimetres of repeating my earlier folly. The false security offered by the snow tires and the allwheel drive had induced me to change my driving behaviour and — almost! — eliminate the benefit of both these safety measures.

This story demonstrates moral hazard, that element of behavioural economics that captures the difficulties awaiting us in the return to post-COVID “normal” in 2020 and beyond. First developed by insurance companies in the 17th century, and then resurrected by Kenneth Arrow in the early 1960s, moral hazard occurs when insurance or policy inadvertently and self-defeatingly encourages people to behave in more risky ways.

What does moral hazard have to do with COVID-19? Consider masks. Surveys taken in July suggested that respondents did not believe wearing a mask eliminated the need for other measures, such as social distancing. Yet as summer rolls into fall, the closer we get to mandating masks in closed spaces, something I support, the more likely that people will treat masks as a substitute for, and not a complement to, other risk-reduction strategies.

Those who wore masks voluntarily in the early stages of the pandemic likely practised all the other hygiene measures with vigilance. In early February, in a bakery, a mask-wearing customer berated me for being too close. Soon after I was completely on board with masks, going so far as to make early versions out of shop towels, staples and elastic bands — a strong fashion statement! I washed my groceries obsessively and my hands to the point of terminal dermatitis.

Now, not so much. My handwashing has slipped, and I notice when in stores that the masked customers who in April used to follow the arrows and patiently wait for me to move down the aisle now brush close by with irritation. When I and others assume the mask allows us to be closer to each other in the store, we are guilty of moral hazard.

Harriet Hall, the SkepDoc, offers this advice on masks during COVID. “Wear one, but act as if it does not work.” That's a neat antidote to moral hazard.

Another moral hazard may emerge with a vaccine, assuming it is safe. People who refuse vaccination will clearly slow the defeat of COVID-19, and a botched vaccine that caused harm would undermine public trust in public health. But even among those who do choose to get vaccinated there's likely to be at least some moral hazard, especially if people believe inoculation guarantees immunity.

The big problem with that belief is that no vaccine is 100 per cent effective. Even the highly effective measles vaccine is only 93 per cent effective, suggesting that for every 100 children receiving the shot, seven will still contract the disease. The 2020 version of influenza vaccine was only about 50 per cent effective — higher for one strain and lower for another. The effectiveness of the COVID-19 vaccine will not be known for months after its introduction, but early versions will likely have relatively low rates. If we behave as if they're magic bullets, however, and relax our other public-health defences, such as handwashing and mask-wearing, we'll be engaging in moral hazard. Of course, the blame if that means we don't get as big an eradication bang from the vaccine will be on vaccination itself, rather than our giving up on the other measures.

The University of Illinois offers a striking lesson in moral hazard. It reopened fully and welcomed students and staff back to campus, screening everyone twice a week with a test (developed at its campus) that has a sixhour turnaround and comes with a notification app. Displaying a negative result from the last test on the phone is the passport to gain entry to a class. Anyone who tests positive goes into isolation, but since so many of the students reside on campus, the university created temporary housing where these students can be quarantined, continue their studies and not return to their homes to spread the virus.

Three days after the president of the university gave an interview on CNN extolling the benefits of this approach, the campus had to reverse itself in the face of a sudden surge in cases. It turns out comprehensive plans involved widespread moral hazard as many staff and students believed the new measures allowed them to act under the “old-normal” not the “new-normal” rules.

Public policy is hard in the best of times. Mix in moral hazard with conspiracy cocktails and a novel virus and we could be in for a long slog.

THE EFFECTIVENESS OF THE COVID-19 VACCINE WILL NOT BE KNOWN FOR MONTHS.