Well, that was unsatisfactory. First it gave an account of how it's possible that health insurance does not induce moral hazard (by giving the patient a lump-s

Well, that was unsatisfactory. First it gave an account of how it's possible that health insurance does not induce moral hazard (by giving the patient a lump-sum). But then you realize that that's not how the world works. What's the solution, just give patients a lump sum for each diagnosis for them to spend as they please? The underlying assumption here is that patients are consumers (that they can effectively assess the value of some treatment option), which Paul Krugman directly refuted [1]. Therefore, it is up to the doctors to be honest with what treatments to offer the patient. [1] http://www.nytimes.com/2011/04/22/opinion/22krugman.html http://www.nytimes.com/2011/04/22/opinion/22krugman.html