Employers

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Employers Pushing Healthier Living

August 8, 2011 in Employee Benefits, Health Insurance | 3 comments

“This isn’t about big brother telling people what to do,” says John Rice, GE’s vice-chairman, “but helping them make better choices.”

The Economist reviews large employers efforts to improve employee health and thus decrease their own health care costs.  Some of these efforts include:

  • Prohibiting smoking on company premises
  • Handing our healthy recipes
  • Building on-site gym
  • Bonuses for healthier living

Take these examples from Fortune 500 companies:
“At IBM, employees receive a $150 bonus for exercising, eating nutritious meals and so on. One such bonus is designed not just for an employee but for his entire family. According to IBM’s own data, caring for a diabetic child is six times costlier than caring for a healthy one.”

Kevin Volpp, the director of the Centre for Health Incentives at the University of Pennsylvania, found that GE’s anti-smoking incentives prompted 9.4% of smokers to remain smoke-free after 18 months. Without incentives, only 3.6% of those who tried to quit succeeded. A review published in Health Affairs last year found that firms saved $3.27 for every dollar they spent on health programmes.”

Is this a good thing? Health insurance should account for random health risks. Health risks due to individual employee behavioral choices, however, should be internalized by the individual. Since the premium prices are basically the same (free) for most employees in large firms, they have a smaller incentive to maintain a healthy behavior than would be the case if employers used individual underwriting in pricing policies. Thus, efforts to give bonuses for healthier behavior by employees and their families is, in essence, an effort to increase net premiums for those who do not engage in healthy behaviors. With health care costs consuming a larger and larger portion of employer’s budgets, these efforts to control costs will be increasingly important over time.

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Employers must be involved in health insurance?

May 28, 2008 in Health Insurance | Permalink

At least Joe Paduda thinks so.  His post today gives an example from the employer GTE.  GTE was worried about ER and inpatient admissions rate for children with asthma.  Why?  Because employees who were single parents would miss work to take care of their children when they were sick.

Mr. Paduda’s argues convincingly that employers care about the health of their employees in order that they come to work and make profit for the company.   Of course, individuals also have an incentive to maintain their health for personal reasons.  Employers may be more worried about employees missing work if they are paid on a salaried basis; the cost of the lost time at work accrues mostly to the company.  On the other hand, if an employee paid on an hourly basis without sick days, then the cost of missing work may fall more upon the employees.

The argument that employers prefer insurance benefits which return individuals to work and do not encourage them to stay at home is a key point.  However, employers likely care more about maintaining healthy people’s health.  This way they won’t miss work and the firm can recoup the training costs they invested in the employee.  On the other hand, if an employee is stricken with a long-term, debilitating disease, the employer would prefer to get rid of the employee and not cover his medical costs whereas for the individual, the case of a drawn out, expensive, debilitating illness is exactly the reason they want insurance.

Thus, while there are many compelling reasons why insurance should be employment based (e.g., risk pooling, economies of scale, more choice than a single payer system), believing that employer’s can design a superior health insurance benefit schedule is not one of them.

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