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Winter 2024 Issue

Eye on Ethics: Moral Hazard in Social Work
By Frederic G. Reamer, PhD
Social Work Today
Vol. 24 No. 1 P. 6

Despite their best efforts and intentions, social workers’ interventions may cause harm to clients or to third parties. On occasion, such harm occurs because social workers take unnecessary risks—what economists refer to as moral hazard. Moral hazard occurs when an individual has an incentive to behave badly and, in the process, generates costs for another party and causes harm.

The Concept of Moral Hazard
The concept of moral hazard originated with the creation of the insurance industry in the 19th century. It refers to the tendency for insurance against loss to reduce incentives to prevent or minimize the cost of loss. From this perspective, those with insurance coverage are more likely to expose themselves to risk. For example, if subsidized flood insurance is made available to the owners of houses in flood plains, people may be more likely to build houses in high-risk flood plains. If investment bankers can make high-leverage, high-risk loans and count on government bailouts if they lose those bets, bankers may be more likely to gamble with depositors’ money. These behaviors affect others, who may bear the burden when people have an incentive to engage in risky conduct.

In the context of health and human services, the concept of moral hazard has been applied primarily to health insurance. Beginning at least in the 1950s, critics have argued that insured individuals are more likely to use health care services and resources, thereby creating a hazard for insurance providers. In addition, some claim that individuals whose care is covered by insurance are more likely to engage in risky behaviors, overutilization of services, and malingering.

Moral Hazard and Social Work
In principle, social workers can engage in moral hazard if they violate the profession’s ethical standards because they believe they are protected against risk. For example, moral hazard can occur when social workers have an incentive to misrepresent their qualifications, which may lead some clients to receive services inappropriately. In one case, a social worker in a private (independent) practice provided counseling services to individuals who struggle with mood disorders and anxiety. As a result of the COVID-19 pandemic, the social worker’s in-person caseload shrunk, which led to a significant reduction in income. The social worker was having cash flow difficulties and was eager to expand her client base. She began advertising her services and touted her ability to address issues related to eating disorders in addition to her other areas of specialization. In fact, however, the social worker had no formal training in the treatment of eating disorders but believed she was protected because she was a licensed practitioner.

One of the social worker’s clients struggled with anorexia nervosa. The client’s symptoms became so severe that she was hospitalized and nearly died. The hospital-based psychiatrist learned that the client had been treated by the social worker and asked for a copy of the clinical record. The psychiatrist reviewed the social worker’s record and was “appalled” by the social worker’s apparent lack of insight and skill related to the client’s eating disorder symptoms. The psychiatrist telephoned the social worker and shared her concern; during the conversation, the psychiatrist asked the social worker to describe her eating disorders-related education and experience. The psychiatrist filed a licensing board complaint against the social worker, alleging incompetent and unethical treatment of the client, who, according to the psychiatrist, was harmed by the social worker.

Conflicts of Interest and Deception
Social workers are dutybound to avoid conflicts of interest, some of which can lead to moral hazard. In one case, a social worker employed by a mental health center provided counseling services to a 27-year-old man who struggled with clinical depression and alcohol abuse. When their clinical relationship began, the client was employed at a local car dealership. The client’s job-based health insurance covered a significant portion of the social worker’s fee.

The client’s insurance company initially agreed to cover 12 sessions. At the conclusion of the seventh session, the client told the social worker that he was thinking about “hitting the pause button” with the counseling. The social worker cautioned the client about terminating counseling and encouraged the client to reconsider. The social worker told the client that the client had ample insurance coverage, “so you may as well use it.”

Social workers are morally obligated to avoid any form of deception or fraud that can lead to moral hazard, for example, embellishing clients’ clinical diagnoses or billing for services fraudulently. In one case, a social worker was employed in a group practice. The social worker provided counseling services to a 47-year-old man who was grieving the death of his wife, who was killed in an automobile accident. The client reported to the social worker that he was feeling “despondent” and “out of sorts” and felt a need for emotional support. The client denied symptoms of clinical depression. The client had insurance from his job as a firefighter that covered behavioral health services.

The social worker knew from experience that the client’s health insurer would not approve coverage for an “adjustment disorder,” which was an accurate descriptor for this client’s symptoms. The social worker also knew that the client was worried about being able to afford counseling if he had to pay out of pocket, given the financial stressors he faced following his wife’s death. However, the social worker knew that the insurer would likely approve counseling sessions if the client’s diagnosis was “major depressive disorder.” The social worker decided to use this exaggerated diagnostic code to enhance the likelihood that the insurer would approve coverage.

Client Referral and Termination
Social workers also have a duty to terminate services to clients when there is evidence that social workers are not able to meet clients’ needs or when additional services are not necessary or in clients’ best interest. Continuing services when they are not effective or warranted, in part because of social workers’ financial self-interest, is clearly unethical and may lead to moral hazard. In one case, a social worker was employed as the clinical director and part owner of a for-profit substance use disorders treatment program. One of the program’s clients was a 34-year-old woman who was required to receive a minimum of 12 weeks of counseling as a condition of probation following her arrest on a driving under the influence charge.

At the conclusion of the 12 weeks, the client reported that she had gained significant insight into her drinking behavior and believed she had satisfied the court’s mandate. The clinical director, who was concerned about the agency’s profits, told the client that, in the social worker’s judgment, she would need at least five more weeks of counseling. The client was incensed, believing that the agency was more concerned about generating revenue than her well-being. The client shared her concerns with her probation officer, which generated an investigation into the agency’s protocols and ethical standards. The client also filed a licensing board complaint against the social worker, alleging violation of the board’s ethical standards.

Social workers are dedicated and skilled professionals who generally provide services with integrity. On occasion, however, social workers’ actions or the circumstances in which they work lead to moral hazard.

Some circumstances that lead to moral hazard may be a function in part of draconian or unreasonable policies and protocols. For example, some employers and insurers may not provide adequate coverage for behavioral health services, which may incentivize unethical conduct. In such instances, social workers should engage in assertive advocacy efforts to reform these policies.

At the individual practitioner level, social workers are morally obligated to avoid conduct that can lead to moral hazard. Practically speaking, this entails complying with key social work ethics standards pertaining to practitioner competence, misrepresentation, conflicts of interest, deception and fraud, client referral, and termination of services, among others.

Social work’s principal aim is to assist vulnerable people. Ideally, these efforts meet lofty standards of professionalism, competence, and integrity. And, importantly, these efforts should not lead to moral hazard.

— Frederic G. Reamer, PhD, is a professor in the graduate program of the School of Social Work at Rhode Island College. He is the author of many books and articles, and his research has addressed mental health, health care, criminal justice, and professional ethics.