Insurance, companies...and you

Interesting article about how one company, Scotts Miracle-Gro and its CEO Jim Hagedorn, is dealing with rising insurance rates. Interesting for two reasons, one, it touches on the larger topic of how complicated employer based health insurance is becoming, and two, the article completely misses the larger point with its examples.

I'll start with the second. The article uses a lawsuit filed by a former employee (although his status is contested) who claims he was fired because he was a smoker but then goes into how Scotts has a whole expensive program in place to help people get healthier to bring down insurance costs. In my mind, this is really two articles. One about Scotts efforts to help employees get healthy thereby reducing insurance costs, and one about Scotts firing people who are unhealthy to reduce insurance costs. While it may not seem like much of a difference, there's a huge gulf between the two. I want to be clear, I'm not saying Scotts is did anything wrong, rather I think there was a very interesting and topical story about Scotts reducing insurance costs by firing unhealthy people. If the company's figures are correct and health insurance consumed 20% of the net profits and was growing at a rate of 20%, then it had to act. No one complains when a company fires an employee who is costing it money through ineptitude, slacking, etc, why is it wrong to fire an employees whose actions are hurting the company due to the health insurance impact? Touching on point one above, if the company is on the hook for your health insurance costs, they do have some (the line is very debatable) right to interfere with your choices as it directly affect the company. You will see companies moving farther and farther into your private lives in an attempt to constrain the growth of health insurance expenses. It will also be hard to argue against it, after all, they're paying for it.

Which is why employer based health insurance is on its last legs (unless congress steps in and forces things). It makes the least sense for the employer and employee. Not the benefit, but the method. Health insurance is a major carrot for most companies and they cannot compete for high quality employees without it. But its also enormously inefficient for the employees. They cannot shop for the plan that best suits them, and are forced into the company plan. And while it is subsidized, like all subsidies its still costing the employee only the cost is hidden. Lower profits mean less money to pay out, less money to invest, lower cushion against hard times, etc. Bottom line, less money is less money. Not only that, but healthy employees pay the costs for the unhealthy ones. Does that really make sense?

What does make sense is for employers to pay employees and for employees to determine how to best use their income. As an employer, I would much rather cut health insurance but pay employees more. Let employees find the plan that fits them best, if they can find it cheaper than their increase in pay, good for them. Heck, they could even opt out and decide to take the risk, whatever. For this to really work private citizens should be able to band together for cheaper rates, which, I believe requires a change in law. I would love to see private co-ops. Also, as I've said, W's plan to tax this benefits like cash will make this transition easier.

Health insurance is going to force companies to examine their own practices. Some will opt out and try to hire without the carrot, some will dive deeply into employee lives in an attempt to constrain the expense growth, some will, inevitably fire unhealthy employees. It doesn't have to be this way. Employees should manage this expense like they do all their other expenses. Its the most efficient way.

Finally, I do think its odd that employees are comfortable letting the HR department manage something so very personal. A company owns everything it pays for, from emails to the office. If it pays for your medical bills, it follows that they own the rights to that information as well. If employees paid for it, there would be no debate, no lawsuits, and no claim of Big Brother or other personal invasions. Bad policy begets bad policies.