Bryan Caplan  

A Manager's Perspective on Health Insurance

Phelps on the Future of Capita... Kling-Schulz: An Immediate Del...
A while back, I wrote:
Yes, health insurance is bundled with jobs.  But markets bundle lots of products, and I see no evidence that this bundling undermines reputational incentives in the least.  Think about a typical restaurant.  It bundles many kinds of food, plus service, decor, cleanliness, and location.  But restaurants' concern for their reputations leads them to maintain quality on all of these dimensions.  Admittedly, it may be hard for any one customer to get exactly the combination of food, service, decor, cleanliness, and location he wants.   But if the restaurant can make a significant number of customers happier at a reasonable price, it will.
Just theory, you say?  Here's Don Boudreaux's view from the trenches:
When I served as president of the Foundation for Economic Education (1997-2001), I was impressed by the vigorous sales pitches that different insurers made to me in their attempts to persuade me to offer their policies to my employees.  And these insurance salespeople never failed to point out to me what a good recruiting device this or that splendid feature of their health-insurance policies would be in attracting and retaining good employees.
Does anyone else who's actually been in Don's position have experiences they'd like to share?

Comments and Sharing

COMMENTS (5 to date)
DVE writes:

Want to echo yr comments about Kling/Schulz -- just a super book that hits all the notes that an economically illiterate and hyperpoliticized press/media never hits. One of the few books that I have purchased in an airport that paid for itself in intellectual enjoyment. Lucid, incisive, and one of the best compendiums of thel best thinking that I have seen.

Re health insurance: vp level multiple startup experience, close to negotiations as COO. Echo all that H. writes and add that cos. were consciously competitive == it was in the out years that you had to watch them and talk to others. But that was no problem. They (ALL of them) came to you. Incessantly and it was not that difficult to get better deals every year if desired, but main obstacle was stability of employee situations under this or that policy. So, i. cos. had this leverage. Interesting.

mdc writes:

I think he's right that employer bundled health insurance does respond to incentives to satisfy employees. However:

1. Individuals buying insurance may be even more responsive to these incentives.

2. Insurance doesnt really make sense to bundle with employment. In the case of the restaurant, I consume all those things simultaneously. I don't continue to consume the decor when I get home, for instance. But people still get ill when they're not employed, despite most temporarily unemployed people not on medicaid being able to afford to keep paying for their insurance.

3. Corrollary to 2., it seems the best way to avoid people ending up uninsurable is to start policies early and keep them for life, so that the risks of contracting some incurable, debilitating disease as still risks and not certainties, and that the cost of them can be spread around.

Gary Rogers writes:

It is not the bundling that causes the problems, but the combination of bundling and tax policy. Given the choice of paying cash for most of our healthcare with only emergencies covered by insurance and the full coverage plans that most people have today it would be hard for the full coverage plans to justify their existence. When you change the rules to say that anything that is covered by your employer based plan is tax deductible and anything you do on your own is taxable, it makes sense to include as much as possible in your plan. Eventually as taxes and medical costs rise, we end up with the mess we have today. The ones that really get hurt are the self-employed or those employed by small companies that cannot afford insurance. This is one more unintended consequence of well meaning government action.

Ben Hughes writes:

Gary Rogers hit the nail on the head. If there's a justification for bundling health insurance with jobs, whatever it is, let is stand on it's own without tax breaks.

David writes:

Why don't we just bundle everything with employment? Shelter, food, water, air. Markets do it all the time!

Comments for this entry have been closed
Return to top