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Many companies spend lots of money providing health insurance coverage to their employees. And the costs of that coverage continue to rise, in part because the girth of the American public is also rising. Overweight and obese employees cost companies money, through increased sick leave, disability claims, and, of course, healthcare expenses. As a result, some companies levy additional insurance premiums for overweight and obese employees, both to encourage them to lose weight and also to cover the greater expected costs of their benefits. Are such premium hikes fair? Do they unduly stigmatize obese employees?
Consider two companies. One raises health insurance premiums for obese employees; the second offers a discount on health insurance premiums for employees who are not obese. Is the second company’s policy fairer?
On the surface, this seems like a silly question. Both companies charge overweight and obese employees more money for their health insurance than they charge other employees. But according to a recent study, many people prefer the second company’s approach to the first. They think the first company, in increasing premiums for obese employees, must think negatively about such people.
As behavioral economics has taught us: framing matters. The same situation feels very different to people depending on how it is described. A $2,000 premium with a $500 surcharge for obese employees feels different to people than a $2500 premium with a $500 discount for non-obese employees. In fact, the researchers conducting these studies assessed how biased participants were towards obese people through the well-known Implicit Association Task. They then asked people whether they favored “stick” policies, that hiked premiums for obese employees, or “carrot” policies, that lower premiums that lower premiums for non-obese employees. People who held implicit negative stereotypes about obese people were more likely to favor a stick policy:
The bottom line here is simple. Companies that want to vary health insurance premiums based on employees’ body mass indexes should avoid stick policies that hike premiums for obese employees, and risk alienating and further stigmatizing that portion of the work force. Instead, they should simply hike the premiums and then offer an actuarially equivalent discount to non-obese employees.
Fairness often depends as much on perception as reality.
***Previously Published in Forbes***
