Health Economics in One Easy Lesson
Employer-based insurance ala Uwe Reinhardt:
Let me propose this definition: Employment-based group health insurance, American style, is publicly subsidized, privately sponsored, community-rated social insurance sold to American employees on formally organized health insurance exchanges.
Perverse incentives such a system creates ala John Goodman:
Consequently, the plans [i.e., employers] have strong financial incentives to attract the healthy and avoid the sick. After enrollment, their incentives are to over-provide to the healthy (to retain their membership and attract more of them) and under-provide to the sick (to discourage their continued membership and repel others just like them).
Exercise for the reader:
Show how employers are responding to these incentives in the design of the health plans they are offering to prospective employees. (I’ll provide my answer in a future post.)
Good rejoinder.
Good post. Agree that incentives are perverse. I’ll have to think about the exercise for the reader.
Let me guess. Employers are not going to want to hire sick people. That one was easy.
Employer health plan risk pools work well in some instances; and don’t work in others. Employer risk pools are essentially arbitrary pools created by diverse people who have one thing in common — they want a job. Whether this arrangement results in a stable risk pool has to do with many factors. But it probably has more to do with the type of employer than the nature of employer sponsored health insurance.
If you are too sick to work, your coverage ends after leave days expire and company patience runs out. If you are too sick to work full time you may not be offered coverage. The coverage may be HMO style with lots of cheap routine care, but long waits for diagnosis and treatment.
One guy I know injured leg in racketball game. Did the diagnosis dance for weeks in wife’s employer’s HMO. Finally paid out of pocket for private diagnosis and treatment. Surgery a week later.
As an insurance agent who works with employer groups of 2-250 employees. I will say Devon hit the nail on the head with “It probably has more to do with the type of employer than the nature of employer sponsored health insurance.”
Some employers appreciate their employee’s efforts and offer generous benefits as a cost of doing business, others see employees as a necessary evil and a drain on resources and it is reflected in those companies’ benefits.
And a third set of employers pays generously and expects employees to use the cash to choose the benefits that they want.
Linda, is NCPA in the third category?
Actually, my employer has started to get aggressive about employee health with financial incentives. I bicycled for years until my weight gain kept busting $100 rims. At that point it is cheaper to drive.
This type of program is absolutely no help for my chronic auto-immune disease. Last time I went to my allergist, he said to mention if I’m put on high blood pressure meds. He didn’t notice my blood pressure was 119/85, he just assumed that 375 lbs = high blood pressure. With my body destroying my intestines I can eat all the junk food I want without my weight moving either up or down with healthy food.