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The Health Care Responsibility of Profit-maximizing Business. Mark Pauly February 2006. What would a profit maximizing business do about worker health and health insurance?.
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The Health Care Responsibility of Profit-maximizing Business Mark Pauly February 2006
What would a profit maximizing business do about worker health and health insurance? • I will outline what economics suggests that a profit maximizing lawful business would do about worker health and health insurance. • Then we can ask whether that is enough. • And we can also ask if actual firms seem to know what is in their interest.
Three hypotheses about what a firm should do. • Observe the laws about worker health; create and maintain a safe workplace. • Invest in health care (directly or indirectly) that improves worker productivity in a way that employers can capture. • Most important! Divide total compensation between money wages and health benefits in the way workers prefer.
Total Compensation • In the 90% of the private sector that is not unionized, firms offer health benefits in the form and on the terms that will attract and retain good workers. • Holding worker quantity and quality constant, they will choose to increase the amount spent on health insurance as long as doing so permits a larger dollar reduction in money wages.
The two main advantages of group insurance to workers • Lower administrative costs • Tax breaks to workers. • But the main disadvantage is that the boss picks your insurance and changes it when he gets up on the wrong side of the bed. • This system works well in large firms with good benefits departments; it works poorly for small or distracted firms.
Do some workers decide they would rather have no insurance? • Circumstantial evidence clue #1: The people who lack insurance are those who would have to pay high prices for it. • Circumstantial evidence clue #2: The likelihood of getting insurance depends on what workers can “afford,” not what the firm can afford. (Wal-mart as Exhibit A.) • A problem: a minority that wants insurance (a little) can get mixed with spouses and teenage part timers.
So what should profit-seeking employers do? • Stop talking nonsense, like how they are being forced to shift the cost to workers—workers already bear the cost. • Push workers toward high quality or low cost only if that is what workers think they want.
So what should responsible employers do (more)? • Job #1: Pierce the veil: Level with workers about whose money it is and how it is being spent. • Scare employees into taking coverage (this is your brain without health insurance). • Fight mandates only if workers say they do not want to sacrifice 5 years of raises. • Design policies lowish wage workers like.
Tasks 2 • Invest in employee health when it impacts absenteeism or impaired presenteeism. • Take a middle road between the Nanny department and full defined contribution consumer responsibility. • Provide information to workers paying out of pocket or deciding on Rambo HMOs.\ • Should they act paternalistically if workers do not want high quality? An ethical dilemma: my foolish brother’s keeper?
Conclusion • Most employers are pretty close to responsible behavior when they maximize profits. • But they need to stop whining about the “cost” of health care being higher than steel or coffee beans. Would workers rather have plasma TVs? • They do need to expect to be the abused messenger when the message is that good health care costs big money.
