Market solutions

A while ago, I wrote about the market fundamentals of the alleged American "obesity epidemic." Briefly, consumer preferences shape what companies provide, not the other way around, regardless of Paul Krugman's accusations (unbelievably, that American companies are conspiring to make us fat). So I was quite pleased to see this article about successfully application of the very market solution I proposed: higher insurance premiums to encourage people to lower the risk to their health.

Companies Offer Workers Deals to Get Fit

Jim Brown started doing aerobics, running and lifting weights two years ago to slim down. Now his employer is giving him another reason to stay in shape and eat right: Money.

Worthington Industries Inc. — one of the rare businesses that has been paying the full cost of employee health insurance — put limits on its generous policy last year. The company said its workers had to take responsibility for their health if they wanted to continue getting free health insurance.

"I had a choice to be lazy or lean," said Brown, 44, an information technology employee who lost 90 pounds and has reached his goal of 210 pounds. Despite being overweight, Brown didn't have any health problems, but he noted: "If I hadn't changed, things probably would catch up with me."

Worthington, a steel processing company that employs 8,000, is among a growing number of businesses turning to worker incentives, both big and small, to help slow health insurance costs.

In Minneapolis, Fairview Health Services gives gift certificates of up to $100 at the company store for workers who take part in health programs. UnitedHealthcare, headquartered in the Minneapolis area, will knock about $100 a year off health insurance premiums for filling out a 10-minute assessment that asks employees about their diet and blood pressure and then suggests ways they can improve their health.

The nation's largest hospital operator, HCA Inc. of Nashville, Tenn., said that in 2002 it saved $2.76 for every $1 it invested. The employer gave a $116 cash incentive to each participant who completed a weight-management program....

Health insurance costs have been rising at double-digit percentage levels for several years. The increase slowed from 12 percent in 2004 to 10 percent this year, according to a study by consulting firm Watson Wyatt of 555 employers with at least 1,000 employees.

Bruce Kelley, a senior consultant with Watson Wyatt, said in an e-mail that many companies realize that without incentives health programs tend to draw few workers or those at low risk of problems.

"That's a smart strategy," Kelley said of Worthington's Healthy Choices plan.

Worthington pays insurance premiums as long as employees work toward their goals, which could be as simple as trying to climb a few flights of stairs.

Employees who don't participate must pay $25 a month for single coverage and $50 a month for family coverage, still far below what other corporate health plans require. Typically, U.S. workers pay an average of $64 per month for themselves and $200 for a family plan, according to a Watson Wyatt survey of employers.

At Fairview Health Services, the rise in the cost of health insurance premiums has slowed to 9 percent a year over the past three years, said Barb Eischen, director of health and benefits services at the company, which operates hospitals and other medical services.

The "free" healthcare isn't really so, of course.

Krugman infamously said in his follow-up column, "only a blind ideologue or an economist could argue with a straight face that Americans were rationally deciding to become obese." Earlier I wondered if he slept through microeconomics, but now I think he really does understand its principles like consumer preference. He just pretends they don't exist, because he wants government to step in again and "save us" from another bogeyman.

You shouldn't have to be an economist to know that people respond to incentives. People do tend to make rational decisions, including that eating fatty foods now is worth the perceived future costs. Whether or not the decisions are "incorrect" compared to some absolute standard, people go by their own subjective value judgments. The anticipation of future health problems is not a sufficiently great incentive for most people to eat better.

But money in the here and now is a very powerful incentive. There was no government program that helped Jim Brown slim down by 90 pounds, no company mandate that he "slim down or else." The beauty of this free market solution is that there's absolutely no force involved. An employee at any of the mentioned companies is perfectly free to give up the monetary incentives if he or she doesn't think they are worth the required exercise and better diet. He or she is also free to pursue employment at another company that doesn't offer those incentives for a very good reason. Perhaps the company wants to attract specific overweight people who are more intelligent and productive, even if they will cost more in health benefits.