Tethering unhappy workers with health insurance: perhaps it’s time to break those ties. Entry 17 - 2008

One of my neighbors is in her early sixties. She works part time for a large company, taking calls from customers making travel reservations. She admits that she a) doesn’t really like the work, b) doesn’t respect the company, and c) doesn’t really need the extra income. So why work? “Because I can get health insurance until Medicare kicks in.” She’s counting down: “Only nineteen more months to go!”

From my interactions with her, I assume she performs her job politely and capably. However, I can’t help but think that her real feelings about her job and her employer come through in one way or another. Motivation is the charge in a person’s batteries; when low, it’s harder to get started, hard to move fast, hard to keep going. As customers, we sense when a cashier or receptionist is happy to be there, and when she isn’t. Competent and motivated are not the same thing. Even high-end halogen headlights become dim when the battery is low.

Plus, think about it, is an unhappy, unmotivated worker who is only working to get health insurance likely to use more or less healthcare on average? Isn’t there a strong incentive to justify the sacrifice?

So, what sort of workforce do we create by chaining workers—unhappily—to employer-sponsored healthcare?

First, let’s look at the phenomenon. Results from a Times/Rockefeller poll last month indicate that 46% of us are worried about losing health coverage. And, over 70% would rather have health insurance and a pension from their job than higher pay (1). Another national survey shows that 23% made a job decision based primarily on healthcare access and 7% got married (!) primarily so the new spouse could get medical coverage (2). The “Cover America Tour” on Consumer Reports’ website relates stories of life decisions made for insurance reasons, including a young man who declines a significant career opportunity because he wants to keep his current healthcare coverage until his wife delivers their second child (3). These are major work and life choices made because our system so closely ties health insurance to employment.

On the one hand, we have to commend employers who do provide affordable insurance. Wal-Mart—criticized repeatedly in the press—has actually provided health insurance to some 140,000 part-time workers and their dependents, the majority of whom had none before these low-cost plans were offered in 2006 (4). At a time when the vast majority of employers require full-time employment to qualify for insurance, opportunities for part-timers to get affordable coverage are few and far between.

On the other hand, shouldn’t we worry that this single benefit has become a predominant reason for employment decisions? Shouldn’t employment contracts really be about career opportunities, competitive wages, and shared business goals? Wouldn’t we like to think employees choose a firm because it is a match for their talents, attitude, and effort, not because their health plan covers the medicine they need?

I wonder, how many would-be entrepreneurs decide not to start a business because of fear that an existing health condition will prevent them from getting their own insurance? How many start-ups can’t recruit top people because they can’t offer competitive health insurance? How often do companies lose healthy workers (who have more options) and keep unhealthy workers who feel trapped? Worse, how many unhappy workers—like my neighbor—take jobs, or stay at a firm just to maintain access to paid medical care?

In the past, workers were tied to their employer to become “vested” for pensions, and executives had so-called “golden hand-cuffs” which required them to wait a prescribed period after mergers to earn bonuses. Now it seems workers are tethered by guaranteed insurance coverage.

And, an irony we rarely consider: unhappy workers will likely use more healthcare.

Other things being equal, we know that dissatisfaction with one’s job or life increases healthcare costs (5, 6). This could be attributable to how one feels (lousy) when life seems oppressive. A person’s response to a stressful, dead-end job may include fatigue, headaches, or other symptoms for which he will seek care. Alternatively, for someone who stays at a job because of benefits, the only way to get more value from those benefits is to use them. So, there may be a tendency to make sure to “get their money’s worth” by seeking more discretionary services (which we know carry risk).

Additionally, our research suggests that high motivation and rewards increases the likelihood of health protection. In so many words, “I like and get value from what I am doing so I take better care of myself.” So, the workers who accept lower wages and a less satisfactory job in return for the security of healthcare coverage may actually find that personal health is less important to them. They develop a type of atrophy—in both motivation and health—resulting (ironically) from a desire to avoid being uninsured.

In the language of economists: a person will balance the optimal mix of responses to costs and prices. This suggests that if sickness and healthcare utilization are subsidized at the margin by insurance, individuals will rationally choose more of that which is subsidized—a lower health status. Protect people from the risk of illness, and illness becomes more acceptable.

Separating healthcare from employment doesn’t automatically mean a government-sponsored solution.

When we mention removing healthcare sponsorship from employers, obviously it implies a substitute. Quite naturally, many look to government to replace employer sponsorship. But another third-party only perpetuates so many of the misaligned incentives that got us to the costly system we have now. Instead, if we level the playing field and acknowledge the transient nature of 21st century life, new market solutions can and should fill the gap when employers relinquish this role. Think of these four directions we can take to make a market viable for individuals.

One: Give employees and employers the same tax break on healthcare premiums. Today, employers get tax relief for insurance premiums, but individuals don’t. This only perpetuates a flawed connection between work and insurance, and creates a disincentive for individuals to purchase their own insurance. Either we provide the same tax credit for individuals, or, perhaps better yet, remove it for both.

Two: Start with health savings accounts, then move eventually to higher pay in lieu of benefits. As workers become accustomed to being purchasers, and the majority accumulates money in their accounts, the prospect of facing future health expenses becomes more bearable. The reason 70% of the public would prefer health insurance to higher pay is only because individuals have no confidence that they can purchase an equivalent product themselves for an equivalent price. However, if a larger population of healthy, working adults were in the individual insurance market, better options would evolve.

Some may argue that the total package will be less if employer-provided insurance is replaced by a competitive insurance markets. But economic forces dictate otherwise. Competition will force employers to pay workers the value of their marginal product. And if the insurance benefit is eliminated, competitive employers will have to pay workers higher salaries to compensate.

Three: Encourage long-term healthcare coverage. Far more people switch health insurance annually than homeowners’ or auto insurance. This is not because workers want to change, but because workers change jobs and are forced to take the new employer’s insurance, or employers change carriers to get better prices or products. Further, because policies are dictated by state law, workers who move to another state must also change policies and possibly carriers. In a time where jobs, locations, and roles are as transient as ever, it makes more sense for coverage to be portable and available across state lines. Plus, insurers would be able to calculate their actuarial risk more accurately if they weren’t churning new members in and out each year.

Four: Support a variety of competitive insurance pools. Each year, more and more options appear for individuals who do not have employer-sponsored insurance. In Colorado, anyone self-employed can receive group (meaning it is a pool of all self-employed people) insurance rather than having to qualify based on medical history. Similar programs exist in 34 states (7). The “Freelancers Union” offers benefits options (including healthcare, life and disability coverage) to any self-employed member (8). Retailers like Costco offer association-sponsored plans (9).

A market cannot evolve without purchasers, so a competitive individual market will not evolve until a large number of individuals (both healthy and unhealthy) descend on suppliers with their own money to spend. Until then, we will continue to build an apathetic workforce, tethered to their benefits and counting the months until Medicare kicks in.

Why this matters
A motivated, skilled and healthy workforce creates a clear business advantage for an employer. Motivation comes from many sources including opportunities, financial rewards, and a sense of belonging. When workers sacrifice pay for better benefits, and limit career choices for reasons unrelated to the job, motivation is bound to suffer. Workers tethered to a job they don’t want will not be high-performing, positive stewards of the business. It is time to begin the process of separating health insurance from employment, and developing viable market alternatives.
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References
1. The Rockefeller Foundation. 2008. The Rockefeller Foundation/Time Campaign for American Workers Survey: Executive Summary. 25, 21. (accessed August 17, 2008).

2. Henry J. Kaiser Family Foundation. 2008. Kaiser Public Opinion Survey Brief: Economic Problems Facing Families. Publication #7773 ed. (accessed August 17, 2008).

3. Bohne, M. 2008. Cover America Tour: Keeping a job just for the health insurance. Consumer Reports.org Health Blog. (accessed August 17, 2008).

4. Wal-Mart. 2006. What's the story about Wal-Mart health care benefits? (accessed August 17, 2008)

5. Yen, L., D. W. Edington, and P. Witting. 1991. Associations between health risk appraisal scores and employee medical claims costs in a manufacturing company. Am J Health Promot 6, no. 1: 46-54.

6. Manning, M. R., C. N. Jackson, and M. R. Fusilier. 1996. Occupational stress, social support, and the costs of health care. Academy of Management J 39, no. 3: 738-50.

7. Risk pools for the medically-uninsurable Health Insurance Resource Center. (accessed August 17, 2008)

8. Freelancers Union website Freelancers Union. (accesssed August 17, 2008).

9. Moody, R. J. 2006. At Costco: hot dogs, free food and health insurance. (accessed August 17, 2008).