Here is how most people approach the labor market: They search for a job they like, with health insurance tacked on as a fringe benefit. But here is how some other people approach the labor market: They search for the health insurance they need and agree to the other terms of the job in order to get it.
I first became aware of this second type of person in conversations with a major retailer, who discovered that a person who was way overqualified was working in the company mailroom. The reason: The employee’s daughter required $500,000 a year of medical care—all paid for by the company’s generous health plan. (See a similar problem at Starbucks.) It’s hard not to sympathize with a father who goes to great lengths to take care of his daughter. But regulations that try to force companies to pay for social problems like this one are having unintended consequences for everyone else.
Under federal law, employers can’t deny employment or health insurance to people on the grounds that they are likely to need a lot of medical care. Nor can they charge a higher premium to employees based on their health status. These regulations are changing the relationship between employers and their employees. With the current regulations in place, for example, a rational employer has strong incentives to find legal ways to attract employees who are healthy and avoid those who are sick, other things being equal. And that’s just what they appear to be doing.
A PricewaterhouseCooper study finds that 73 percent of employers offer wellness programs. Of those with more than 5,000 workers, 88 percent do. But why offer wellness benefits? Such programs cannot possibly pay for themselves—unless they are targeted at the minority of employees with a serious need to change their lifestyles. Preventive medicine may be a wise investment for the individual, but it rarely reduces overall healthcare costs for an employer.
A more likely motive is to create a culture of healthy living. Such a culture is likely to attract new employees who are . . . well . . . healthy. (People who smoke or are overweight and out of shape do not fit in well with people who workout in the gym every day.)
Apparently no company wants to admit this not so subtle goal. The politically correct position is to claim that the company is trying to encourage everyone to be healthier. But what difference does the motive really make if the end result is the same?
Moreover, discriminating in favor of the healthy and discriminating against the sick are just two sides of the same coin. As The Economist noted:
A growing number of Healthways’ clients want to use sticks as well as carrots. . . . At Safeway, a grocery chain, the premium that employees pay for their health insurance falls if they keep their weight and cholesterol under control. In other words, the unhealthy are penalized. GE first offered incentives to employees who stopped smoking; now those who still smoke must pay $650 more for their health insurance. Companies may be nudging now, but in future they may shove.
Another technique employers are using is to make their overall structure of benefits increasingly less attractive to people with expensive health problems. A typical employer plan these days, for example, will provide first-dollar coverage for checkups and preventive care (expenses most employees could have easily paid out of pocket) but leave employees vulnerable for a large share of catastrophic costs. As Julie Appleby pointed out in USA Today:
To try to control spending, some employers are requiring patients to pay a percentage of the cost of specialty drugs—from 25 percent to 33 percent or more—rather than a flat dollar co-payment. Surveys show that 13 percent to 17 percent of employers have added a “specialty” category to their drug benefits, and more are likely to adopt them, given that more than 600 specialty drugs are in development.
These costs can total tens of thousands of dollars in out-of-pocket spending for cancer patients. And they do more than just shift costs to employees. They encourage prospective employees with a health problem to look for work elsewhere.
Increasingly, the health plans employers offer defy all of the traditional principles of rational insurance, which require people to pay out of their own pockets for the expenses they can afford but protect them against catastrophic costs they cannot afford.
Here is the sad bottom line: perverse incentives created by federal regulations are destroying the relationship between employees and their employers as well as any possibility of obtaining the kind of health insurance most people want and need.
For more information, please see my Independent Institute book, Priceless: Curing the Healthcare Crisis.