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. (Walmart 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.