Arnold Kling

Why Company Health Clinics?

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James Miller notes a New York Times story on corporations setting up in-house health clinics. Miller comments,


Much of economic growth comes from specializing. Whatever is requiring firms such as Pepsi to "unspecialize" by providing health care is greatly harming our economy

Indeed. What corporation wants to take on the hassle of managing a health clinic? Miller is right to ask what is wrong with this picture.

I think that the original sin here is employer-provided health insurance (for which the original sin is WWII wage controls and current tax law. See Clark C. Havighurst.).

What many people do not realize is that in most cases, insurance companies are merely the administrators of employer-provided health care. That is, if Aetna is the "insurer" for XYZ corporation's employees, and their total health bill comes to $800,000, then XYZ pays the $800,000, with Aetna merely taking a cut to administer the plan. (Aetna might insure XYZ against a catastrophic health care bill of, say, $10 million.)

So in most cases, the consumer does not care about cost. And the insurance company does not care about cost--as long as the corporation stays below its overall "catastrophic" limit. The only party with a real interest in controlling cost is the corporation.

So I think that the reason we are seeing company health clinics is that companies probably feel that they can directly control the choices of doctors in order to minimize unnecessary procedures and select the most cost-effective treatments.

I think that if we had catastrophic health insurance obtained by individuals, not through employers, we would not observe company health clinics. However, we would observe medical practices that pay more attention to cost-effectiveness.


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COMMENTS (6 to date)
Caliban Darklock writes:

I used to work for a company that provided these services to corporate clients. The idea is that while most employees will not take time off work to go and visit a doctor's office, they will drop by an in-house clinic on break. This means they tend to receive immediate care for injuries that they might otherwise ignore until they became Workers' Compensation claims, which saves the company massive amounts of money.

It's really not "unspecialising". The large company provides a space, but contracts with a specialist to provide the staff and equipment. Economically, there is no difference between this arrangement and an external office; the clinic leases the space from the client, and the client pays for the service through insurance claims. The client doesn't manage the clinic. External patients are still seen at the clinic. It's just that the clinic is located in a more convenient place for the client's employees, which provides significant economic benefit to both companies.

Brad Hutchings writes:

Arnold, How do you explain the corporate cafeterias that are becoming popular perks? It's not uncommon in SoCal for medium to large companies to have in-house cafeterias with high-end hotel class chefs that serve meals which are much less expensive and usually way better than going out.

My bet is that in-house clinics are a combination of cost containment and convenience. I'd also wonder whether taking some health care in-house lowers the number of sick days employees take.

Bob writes:

Agreed. We're often too quick to assume that constraints (e.g., the tax benefit of employee-provided "fill in the blank") lead to large costs. People are very creative about finding ways around constraints.

My point is not that tax law, regulation, etc. generate no costs or distortions. Rather that these costs are likely to be smaller than we'd first imagine.

JKB writes:

While, I can see the benefit for controlling costs of an in-house clinic, are we sure that this the driving force. Perhaps it is more for productivity. If an employee has to leave the site for an appointment, their workday is shot. A quick walk to the clinic to have that sniffle checked or cut bandaged puts them right back to work. This is productive for the company and the employee. The employee avoids the increasing hassle of traffic to accomplish minor errands. If they offer on-sight childcare, it makes even more since since mom or dad can check out the little darling, attend the checkup and then get back to work. A similar reasoning can work for an on-site cafeteria, the company may subsidize it a bit with free rent but makes it up as employees aren't forced to get in their car for a bite to eat and so take less time. You see the real benefit of this in programming and design as the shorter the interruption, the easier it is for the developer to get back into his groove after the break.

Quality of life and productivity will be the driving factors. Companies have a choice, relocate to where employees can have a decent life or help remove some of the irritants. A clinic or good cafeteria seem to be much less costly than relocating a plant. Happiness does not come in a large paycheck if you don't have the time to accomplish your daily life. Not to mention, once raised it is difficult to reduce salaries but you can seek efficiencies in a service provided.

Brad Hutchings writes:

JKB, I'm certainly not saying it's right. I worked in a small startup that did the in-house lunch thing everyday and it was always clear that the intention was team building and cohesion and frankly, it got downright creepy. Some people need the lunch hour to decompress a little ;-). It's not such a bad idea in a big company where you can get lost in the crowd for a little while.

But obviously, if employers are getting on this bandwagon and they stick with it, they must be getting some advantage. I wonder exactly what they perceive it to be and what employees think about it. I also wonder how many employees are driven over the edge into the entrepreneurial class by such corporate paternalism. I am sure that's happening too!

Ivan writes:

Is my company not specialized enough because it has a cafeteria?

It probably isn't the best food for the money, but it certainly optimizes the employee/employer time/money.

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