Co-blogger Arnold Kling posted last week on health economist John Nyman’s 2004 article, “Is ‘Moral Hazard’ Inefficient? The Policy Implications of a New Theory,” Health Affairs, 23, No. 5: 194-199. I won’t repeat Nyman’s argument, which is brief. Instead, I want to point out a non sequitur.

Nyman argues that many health economists have overstated moral hazard in health insurance. Whether that’s right is an empirical issue, but let’s say he is right. What follows from that? In a section titled “Implications for Policy,” Nyman writes:

The new theory suggests that health insurance generally makes the consumer better off. Therefore, the subsidies that encourage consumers to purchase insurance voluntarily, or a national health insurance program for the entire U.S. population, would improve society’s welfare.

But from the fact that health insurance makes the consumer better off, it doesn’t follow that government should subsidize its purchase. To advocate subsidies on standard efficiency grounds, Nyman must argue that there’s a positive externality. In his next sentence, he suggests that there is, writing, “This is especially true because we as a society are altruistic and benefit when all who become ill have access to modern medical care.”

I think that reasoning is weak, but let’s say you disagree and think it’s strong. The point is that he shifted arguments in mid-stream. He went from arguing that there’s less moral hazard in health insurance than we thought to a conclusion that the government should subsidize health insurance, a non sequitur. Then to support his case, he brought in positive externalities in health care consumption. These may or may not exist, but they have nothing to do with his original argument. Absent externalities, his argument that we have overstated moral hazard simply does not justify subsidizing health insurance. His ultimate argument for subsidies that could make sense is based solely on the supposed positive externalities in health care, not on the “new theory” that he exposits in his article.