Allegory in the Making

What do these three stories about health insurance add up to?

Today's Wall Street Journal reports that Wal-Mart is pondering ways to cut its benefits costs by hiring healthier workers and imposing policies that make working for Wal-Mart less attractive to people who can't get or stay healthy. The Journal's site is subscription-only, but here's a taste:

The Wal-Mart memo to the company's board of directors proposes incorporating physical activity in all jobs to discourage the infirm from applying. For example, the memo suggests that Wal-Mart arrange for "all cashiers to do some cart gathering." The memo also promotes health-savings accounts, which are funded by workers' pretax dollars and can be diverted to retirement accounts or rolled over to pay for health care the following year. Health-benefits specialists say these accounts are most appealing to younger, healthier workers.

"It will be far easier to attract and retain a healthier work force than it will be to change behavior in an existing one," says the memo, which was previously disclosed in the New York Times yesterday. "These moves would also dissuade unhealthy people from coming to work at Wal-Mart."

This latest example of the corporate compulsion to dunn people for the fact that their health care costs money got me to thinking of a story published two months ago in the New Yorker. In it, Malcolm Gladwell argues that thinking like Wal Mart's is the reason this country can't come up with anything resembling a rational approach to providing health care to everyone.

In the past few decades a particular idea has taken hold among prominent American economists which has also been a powerful impediment to the expansion of health insurance. The idea is known as "moral hazard." Health economists in other Western nations do not share this obsession. Nor do most Americans. But moral hazard has profoundly shaped the way think tanks formulate policy and the way experts argue and the way health insurers structure their plans and the way legislation and regulations have been written. The health-care mess isn't merely the unintentional result of political dysfunction, in other words. It is also the deliberate consequence of the way in which American policymakers have come to think about insurance.

"Moral hazard" is the term economists use to describe the fact that insurance can change the behavior of the person being insured. If your office gives you and your co-workers all the free Pepsi you want--if your employer, in effect, offers universal Pepsi insurance--you'll drink more Pepsi than you would have otherwise. If you have a no-deductible fire-insurance policy, you may be a little less diligent in clearing the brush away from your house. The savings-and-loan crisis of the nineteen-eighties was created, in large part, by the fact that the federal government insured savings deposits of up to a hundred thousand dollars, and so the newly deregulated S. & L.s made far riskier investments than they would have otherwise. Insurance can have the paradoxical effect of producing risky and wasteful behavior. Economists spend a great deal of time thinking about such moral hazard for good reason. Insurance is an attempt to make human life safer and more secure. But, if those efforts can backfire and produce riskier behavior, providing insurance becomes a much more complicated and problematic endeavor.

Finally, and then I'll leave you to read these three stories and decide for yourself whether you don't think they add up to a bad case of blind men groping an elephant, consider Robert Kuttner's take on GM's attempts to blame workers' health care costs for its precarious financial position.

It would be a mistake to conclude that high wages or excess health benefits are bankrupting U.S. industry. Look at our competitors. Japanese labor costs in the auto industry are comparable to American ones and German wages are far higher.

There are, however, two offsetting differences. First, the Japanese and Germans are ahead technologically and have a knack for making reliable cars that consumers want to buy. Second, their healthcare is financed socially.

So GM's biggest problem is not labor costs; it's that except for its profitable SUVs (which are becoming white elephants as gas prices rise), too few consumers are buying GM's products. When management makes dumb decisions about design, quality, or marketing, autoworkers end up paying the price.

GM spends also $5.6 billion a year on healthcare -- more than it spends on steel. Its foreign competitors spend nothing on healthcare. So GM and the UAW are common victims of America's failure to have national health insurance.

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