How Much Do You Trust Your Employer?

Here is how most people approach the labor market: You search for a job you like, with health insurance tacked on as a fringe benefit.

But here is how other people approach the labor market: They search for the health insurance they need and agree to work in order to get it.

I first became aware of this second type of person in conversations with a major retailer which discovered it had a person way over-qualified for the job working in the company mail room. 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, as I show below, there are far better ways to handle social problems like this one than turning employers into an extension of the welfare state.

Left a good job in the city,
Working for the man,
Every night and day.


Under federal law, employers are treated just like insurance companies: They 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.

Unfortunately, these regulations — which will only get worse under ObamaCare — are changing the relationship between employers and their employees. Whereas there once was a time when we could count on our employers to be our protectors and defenders with respect to the health care system, under the new regime our employer has a financial interest in throwing us to the wolves if we have the misfortune to become seriously ill.

With the current regulations in place, for example, a rational employer has strong incentives to find every legal way possible to attract employees who are healthy and avoid those who are sick. And that’s just what they appear to be doing.

A PricewaterhouseCooper study finds that 73% of employers offer wellness programs. Of those with more than 5,000 workers, 88% did. But why offer wellness benefits? If they are not targeted at the minority of employees with a serious need to change their lifestyles, such programs cannot possibly pay for themselves. Preventive medicine may be a wise investment for the individual. But it rarely reduces overall health care 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, are overweight and out of shape do not fit in well with people who work out in the gym every day.)

Apparently no company wants to admit this not so subtle goal. The politically correct position is 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? Controlling health care costs by hiring workers who are healthier-than-average to begin with will beat any managed care technique known to man.

Moreover, discriminating in favor of the healthy and discriminating against the sick are just two sides of the same coin. As The Economist noted the other day:

A growing number of Healthways’s 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 Rovner pointed out in USA Today recently:

To try to control spending, some employers are requiring patients to pay a percentage of the cost of specialty drugs — from 25% to 33% or more — rather than a flat dollar co-payment. Surveys show that 13% to 17% 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 unsuspecting 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 type of health plans employers have defies all of the traditional principles of rational insurance: letting people pay out of their own pockets for the expenses they can afford, but protecting 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.

What is the right public policy? Allowing employers to contribute to employee-owned, personal and portable insurance that workers take with them as they go from job to job and in and out of the labor market is a start. I’ll write more about this in the future.

Comments (18)

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  1. Simon says:

    The freedom to have a health care plan of one’s choice supported by the employer would make better workers compared to forcing to the employee to meet arbitrary standards. The original purpose of health care plans was to increase employee productivity and limit the number of missed days due to illness. Plans have change over time, but isn’t that still a main goal?

  2. Carolyn Needham says:

    further evidence, you can’t mandate away the incentive structures of the free market.

  3. David C. Radford, D.C., M.Sc. says:

    We encourage all of our patients to participate in wellness and we have been doing this for decades. Just using a few simple biomarkers and setting reasonable goals is how you start. I often open a conversation with the patient’s body mass index, the BMI. I explain the goal is to get the BMI well below 30. Another good biomarker is the CRP level, it is a measurement of inflammation, and inflammation drives chronic illness. Over a third of our nation is obese. Obesity causes vitamin D deficiency. Vitamin D deficiency is far too common, and this nutrient is key to reducing many type of chronic illness. Visit the and learn more about how important this nutrient is to your good health.

  4. Devon Herrick says:

    I believe this is the wave of the future. I hope the Dept. of Health & Human Services does not come out against health plans using incentives (both carrots and sticks) to encourage enrollees to lead healthier lives. When I speak at conferences, attendees and speakers on both the Left and the Right agree people need incentives. But for some reason when it comes time to hold people accountable for their behavior, public health advocates back away because they are afraid to discriminate against someone who is less healthy for any reason.

  5. Buster says:

    It’s been suggested that overeating and eating calorie-dense, comfort foods is a rational decision for low-income people. Lacking resources, the poor tend to discount future benefits (or risks) at greater rates than more affluent people, so the future consequences of their actions matter less to them in the present. Food is cheap to prepare and affordable to almost any household. Lacking the means to attend the symphony, play golf, dine at nice restaurants, travel, and so on, high-fat comfort foods become the affordable indulgence.

  6. Greg Scandlen says:

    The essential “federal regulation” here is the original tax exemption for employer-sponsored plans. This has led to a pernicious employer involvement with the lives of their workers.

    I was in JCOAH meeting once where the medical director of a very large company was bemoaning that he couldn’t supervise the way employees use weed-whackers around their homes on weekends.

    The days of the company store may be over, but they have been replaced with the company owning our whole body, and that of our dependents. Some employers have threatened to fire workers if anyone in their family smokes.

    We need to get back to “good wages for good work” and leave the plantation mentality behind.

  7. Linda Gorman says:

    Best way to stop this is for companies to stop offering health insurance. Some have. They are free to “contribute” to employee health insurance by paying the higher wages that prospective employees are free to negotiate for. The kind of people who understand the difference and know they can manage their own affairs are often the kind of people one wants to hire.

    Tax policy, as Greg points out, is the fly in the ointment. The easy fix is to treat employer and individual health insurance premiums the same way.

  8. Don says:

    Good post. People need to be alerted to this.

  9. Marvin says:

    Attracting the healthy also means attracting the young, at least they are healthier statistically. This contributes to the last politically acceptable discrimination in this country: ageism.

  10. Virginia says:

    The problem with being overweight and unhealthy is that someone has to pay for that care. It’s not just about premiums; productivity is lower for unhealthy workers.

    We’ll see a lot more of these wellness programs in the future as employers have to shoulder more stringent regulations regarding what they must cover for their employees.

  11. Jim Morrison says:

    Greg Scandlen correctly identified a fundamental problem.

  12. Leon from Redding Ca says:

    Jon Huntsman and others have called for eliminating the business healthcare tax credit. Few (working class) employees would purchase health insurance if not provided through the employer, especially young people. Clearly employer sponsored insurance is government social engineering using the tax code to compensate for our flawed human nature. I look forward to reading about “employee-owned, personal and portable insurance”.

  13. Sandy Lutz says:

    I’m lost. How is an employer wellness program going to help this father whose child has catastrophic medical bills? I know real parents in this situation, and they’re not going to be solved by a wellness program for the worker. Many employer wellness benefits don’t extend to dependents.

  14. John R. Graham says:

    Sandy Lutz, I think you have misunderstood the post. A wellness program is designed to screen out potentially sick employees.

    However, employers do not know employees’ children’s illnesses, therefore it is easier for a healthy parent with a sick kid to get a job than a sick parent himself.

    Because of privacy laws, the employer cannot likely identify the parent of the sick kid who is costing $500,000 per year. Rest assured, they will try every clever way in the book to identify him – and then a way to let him go.

    Truly, employer-monopoly health care is a catastrophic health expense!

  15. Beverly Gossage says:

    I agree with Linda Gorman, but in the meantime, we have done work arounds like HB818 in MO.

  16. Dr. Bob Kramer says:

    Amen to that. You can’t imagine how many patients with Cystic Fibrosis I had who’s parents or they themselves kept a job they didn’t like or didn’t take other employment because they would lose their healthcare benefits by taking another job. Not satisfying a more challenging or better paying job that didn’t have the benefits.

    I’ve got more to say about this, and I will write more later.

  17. Brian T. Schwartz says:

    Great post. At risk of leaving a nit-picky technical comment after so many free-market health care policy “celebrities” have commented above, I’ll do it anyway because I’m really “Type A” (but don’t tell my employer!):

    The block quotes from USA Today & the Economist don’t show up as indented,* so it’s a bit distracting to distinguish when they end & when John’s writing resumes.

    * Firefox, Windows XP

  18. Consumer Sales says:

    I’ll right away take hold of your rss as I can not find your e-mail subscription link or e-newsletter service. Do you have any? Kindly allow me know so that I may subscribe. Thanks.