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.