Why I Do Not Like Providing Health Insurance to My Employees

Harold Pollack notes a number of advantages of employer-based health insurance, including the potential for large employers to serve as more reliable (and potentially wiser) purchasing agents than are individuals at sea in the health insurance market. But my experience as an employer makes me intensely dislike this feature of the U.S. health insurance system nonetheless.

It’s not that I don’t want my employees to have health insurance, but that I don’t want to have personal control over their access to it. The employer-based system is fine when an employee is doing well at work, but it creates an ethical and emotional morass when an employee is not performing.

Consider this fictionalized example based on real events. An employee you hired 6 months ago has been a disappointment. He is often late to the office and slow at completing assignments. His interpersonal skills are also substandard. He is sometimes out and out rude to his co-workers, but more often he is just lazy and manipulative on work teams and ends up getting his colleagues to clean up the numerous messes he makes. Good employees have complained to you that they feel angry and exploited by his behavior. He has been counselled about these problems orally and in writing on multiple occasions. Each time his behavior and work performance improved for a week or so and then slid back to its usual low standard.

As his boss, you set a meeting with the employee in which you detail the problems he has had, his failed efforts at correcting them when counseled to do so, and your decision to give him two weeks notice. And then he starts to sob.

“My little girl was diagnosed with leukemia three months ago! She’s on my health insurance and we can’t afford her treatment at the cancer center.” He reaches into his briefcase and produces the latest bill paid by his insurer: It’s more than his annual salary. Even the co-payments will be a challenge because he has no savings. “Please don’t fire me!” he begs.

You know he can’t afford to COBRA back his employer-based insurance. You can tell yourself that if you fire him, his child will be swiftly moved onto your state’s Medicaid program, allowing a seamless financial transition that will not even be noticed by her current clinical care team and cancer center. And also of course the Easter Bunny, who is trained in oncology, will lend a hand.

But you know the reality: If you fire this person and it takes him even 8 weeks to find a new job, his daughter’s care might be compromised by his loss of health insurance. As you struggle with the decision, some of the co-workers who formerly complained to you come in and start saying that the guy really isn’t that bad. You learn that one of your employees has a son who attends school with the cancer-stricken daughter and thereby learned of the family’s situation. The story has gone around the worksite and many people are now afraid that if they are honest with you about the problem employee’s continuing poor performance, they will be responsible for his daughter’s loss of health insurance.

Even though he was a terrible employee long before his daughter’s diagnosis, people who know better start saying that his work was always great before his family’s misfortune. Now some people are not only doing his job for him, they are also lying to cover up for him. Other continue to resent him and start resenting the people who enabling his poor work behavior. Meanwhile, the employee himself is clearly terrified of you, because he sees you not just as someone thinking about firing him, but as someone who has the power to end his child’s life.

Each day he continues to be a poor employee, wasting money, making life intolerable for his co-workers, alienating customers and putting the future of your firm at risk. And every time you reach for your firing pen you think of that little girl and your heart breaks.

What would you do?

What I concluded as an employer from experiences like these is that employer-based health insurance gives me far more power than I want or should have over the health of my employees and their families. Yes, I could just be a cold bastard and fire people like the employee in my fictional example, telling myself that if his daughter doesn’t like it she can complain to Adam Smith. But I’m not built that way and I don’t think most other employers are either. People who do their jobs badly may well deserve to be fired by their employers, but whether they and their families live or die should not also hang in the balance.

Comments

  1. Ken Rhodes says

    Here’s a “thought experiment.”

    Suppose we had a law that health insurance could not be denied because of preexisting conditions. Suppose further that there could be a variety of “groups” for the purpose of obtaining health insurance at fixed level premiums. For example, any pro golfer who belonged to the PGA could get health insurance from (let’s say) Aetna at their fixed “PGA Member” group rate. Suppose also, for the purpose of this experiment, that the law specified that anyone who was in a group could remain in that group, for insurance purposes, even if his circumstances changed so that he would no longer be eligible to enter the group. In my example, for instance, a pro golfer who stopped playing golf, and who no longer belonged to the PGA, could nevertheless stay in the PGA Member group for insurance purposes.

    Suppose also that if an employer provided “expense reimbursement” for health insurance premiums, that would be considered, for tax purposes, a non-taxable reimbursement of personal business expenses. With all those suppositions, as an employer you could thus cancel your direct payments to your group health insurance plan and instead, you could simply add a monthly reimbursement stipend to each of your employees’ salary to compensate them, tax free, for their payment for their own policy under your group plan.

    Now, in your fictionalized example based on real events, suppose you are faced with the same fire-or-not decision about the same unlucky, but underperforming, employee. This time, though, your concern need not be for the eligibility of the employee to continue the same insurance at the same cost. Rather, your concern is limited to the single question, “How will poor Joe continue to pay for his health insurance without his pay which he gets, but doesn’t exactly ‘earn,’ from me?”

    Under my proposed suppositions about insurance eligibility and premiums, that question now goes onto a list of essentially identical questions:
    How will poor Joe continue to pay his mortgage?
    How will poor Joe continue to buy groceries?
    How will poor Joe continue to pay his utilities?
    How will poor Joe continue to pay his car payments and put gas in the tank?
    How will poor Joe continue to pay the modest co-pay on his daughter’s cancer treatments?

    Well, you’ve now got a dilemma that has nothing to do with your hypothetical current provision of employer-based health insurance, nor with any power you currently have over the health of your employees and their families. The only power you have in my experiment is the power to pay them money, and that power, sadly, you can’t divest.
    ———————
    Now change my thought experiment. Forget about my endless variety of groups and group premiums and group eligibility. Forget about my revision to the tax code to allow you to pay your employees in tax-free cash so they can buy their own insurance. Forget, even, about my non-exclusion law in my first sentence, because for anyone who is already a member of your group, with whatever coverage he currently has, he is already past that phase in your own hypothetical.

    All that’s left to create my thought experiment within your hypothetical is a small change to the COBRA law. Remove the 18-month limit on COBRA coverage. Let poor Joe keep his COBRA insurance as long as he wants.

    Sadly, though, I can’t come up with any way to assuage your discomfort with firing a guy who really needs the money.

    Hey, if being the boss were easy, more folks would be the boss.

    • says

      “Hey, if being the boss were easy, more folks would be the boss.”
      Not sure how directly this goes to your larger comment. But this last line got me thinking about just how common a *form* of this thinking might be. Because I’ve often felt that being the boss was not so much easy, but rather dull and unrewarding, the sacrifice being made primarily for monetary reward. Often, the real work being done in an enterprise is out on the “line”. This is where the rubber really meets the road, where the real value is actually being created. The boss is often forced to remain a sort of neutered apparatchik, a bureaucratic yes-man tasked with bridging the gap between the humanity of production and the bottom line of ownership. Of course, this entirely depends on the type of work being done, but you’ll often hear bosses or managers lament the relative disengagement of their position.

      All of this to say, and not that being the boss could often certainly be difficult – especially when the business is your own, but that a more salient reason more people are not the boss is that the work simply isn’t as meaningful. What you’d often hear from underlings? “They couldn’t pay me enough.” So it’s a mixed bag.

      • Ken Rhodes says

        Yes, “being the boss” is certainly a mixed bag. But my comments were in reply to Keith’s post, in which he was not simply a mid-level manager or administrator, but an owner/entrepreneur, where he had to “run the business” in the sense of setting business policy and making business decisions. You will hear many workers say “they couldn’t pay me enough,” but in those cases there is frequently a “they” above the boss they are talking about, or maybe several layers of “they” in a really big company. You will also hear quite frequently, something to the effect of “If I were the boss we wouldn’t make such bad decisions.” My comment was really addressed to that concept, to point out that being the “boss” in the decision-making sense isn’t so simple as the non-boss would like it to be.

    • Barbara says

      There is a difference between cancer treatment and the mortgage that transcends the amount of the payments involved (though that is also a vast difference in most cases). Hint: You can buy another house or move to an apartment or for many people move back to your mom and dad’s house.

  2. J says

    Yikes. That’s an eye-opener. Thank you for posting that. I’ve always felt that employer-provided health insurance was a problem, for various reasons, but never thought about it from that perspective.

    • says

      Want another eye-opener?
      I’ve never much of a Matthew Yglesias fan, but this piece on Slate is molto exceptional:
      The Hidden Health Care Mandate

      Yglesias explains the origins of employer-based health insurance and the built in biases…
      And reading that you will realize even more that US health care is a messy, ineffective, dumb kludge; an absolute patchwork of stupidity.

      In fact US health care reminds me of the US transportation system: ugly, no overarching design, extremely wasteful, and kills a ton of people every year.
      Obviously, both systems need to be redesigned from the ground up.
      Of course that won’t happen until they collapse under their own weight.
      (I believe we call that inevitability: the “wisdom” of the marketplace.)

  3. Lowry Heussler says

    You’re absolutely right, of course, but don’t be stingy with condemnation for the insurance industry that resists a single-payer system. There’s simply no excuse for the current for-profit health insurance system. Where you work (and what plan you can afford if the employer offers more than one) are now more important to your health than any other factor. We used to worry about choosing the right doctor, fearing that an uninformed decision could increase risks of morbidity and mortality. It hardly matters now that a business manager gets to decide what the doctor can do for us. Most people are not aware that insurance companies have no obligation, contractual or government-imposed, to make decisions consistent with your heath needs, or even logical or fair decisions. I represented a Jehovah’s Witness who needed open heart surgery. No doctor in her plan would agree to do it bloodlessly. She found a surgeon in Texas who would, and went through the whole appeal process to approve the out-of-plan care. No dice. So she and her husband borrowed the money and had it done. Then I sued Blue Cross/Blue Shield. The case was a loser from the beginning, but I hoped the company might be shamed into doing the right thing. At a hearing on a motion to dismiss, the judge was clearly disgusted with BC/BS, but stymied by the language in the plan documents clearly permitting BC/BS to refuse the request. He took the motion under advisement, though and did me a huge favor. He ordered BC/BS to review the bill from Texas and inform the court what the surgery would have cost if done within the plan. And so it came to be that BC/BS was forced to admit that my client got the job done cheaper than BC/BS could have here in Massachusetts. So BC/BS reimbursed my client for everything but her legal bill.

    The employment problem you outlined is a doozy. I can tell you this. Some employers have had it with insurance costs and are choosing to pay their employees’ medical bills. So far, my spies tell me, it’s working.

    • Freeman says

      I can tell you this. Some employers have had it with insurance costs and are choosing to pay their employees’ medical bills. So far, my spies tell me, it’s working.

      That’s interesting. Of course, it’s completely unworkable for small employers, but for large multi-billion dollar corporations it probably saves a lot of time, money, and hassle. Of course, someone at the corporation probably has to negotiate costs with the medical providers (they routinely have deals with insurance companies and charge a LOT more to patients outside those deals, in my experience about two to four times as much!), but that’s probably no more overhead cost than negotiating with insurance companies.

  4. Ebenezer Scrooge says

    Keith’s point isn’t exactly wrong, but it isn’t exactly right either. Unless you are a psychopath, it is always hard to fire anybody, except for moral turpitude. (And even then, only a few very moralistic types can take full advantage of this out.) Firing is shunning, and shunning is punishment, and only sadists enjoy punishment. That’s why layoffs are easier than firing: shunning a group is different than shunning an individual. This is before we get to the consequences of firing: loss of income, self-esteem, and reputation. These consequences are similar for layoffs, but firing is much worse.

    Health insurance makes an already bad situation worse, but it is never easy to begin with. “But s/he has four kids” makes anybody’s throat catch, even if the kids are all healthy.

    And that’s why every workplace, outside of professional sports, puts up with a lot of sub-optimal employees.

  5. Freeman says

    Even though he was a terrible employee long before his daughter’s diagnosis…..What would you do?

    I guess I’d kick myself for not firing him “long before his daughter’s diagnosis” when he clearly deserved it, and take it as a lesson learned that putting off this very difficult decision can have some very negative consequences. And I’d fire the guy, and maybe start up an office pool (which I would contribute to) for those who want to do something about his daughter’s situation. I am in favor of decoupling health insurance coverage from employment, but making it easier on the conscience to fire under-performing and disruptive employees isn’t real high on my list of reasons why.

    I’ve seen situations similar to this problem before, and it never seems to end well for employers who don’t seem to have the stomach to cull out the deadwood. The smallish business I quit two years ago was struggling financially dealing with the Great Recession and escalating insurance costs. There hadn’t been any raises for anyone in several years, and each year the employee’s share of health insurance costs went way up, while the employer held the line on their contribution commitment. I would say the employer didn’t have much choice in the matter, as everyone would be worse off if the employer couldn’t pay the bills and went under, but the tough economy wasn’t the entire cause of this business’s financial difficulties. There were several employees who did not earn their pay, were dragging us all down with them, and had been complained about over and over again. Unfortunately, two of them were related to the owner, who told us flat-out that firing them was not an option (and apparently it wasn’t an option for the non-related deadwood either). The last straw for me was the day when they announced another large increase in employee contribution to insurance costs, and I had heard earlier that day that the boss’s sister, who showed up for work maybe two or three hours a day, was throwing a party to celebrate the new deck and granite countertops she had recently added to her house. I was their top performer, and I walked away the first decent opportunity I got. Yesterday I learned that another top performer there has accepted a job elsewhere. They still have all their deadwood, and are losing their top performers. Not a recipe for success or even survival in the business world.

    If you run a business you have a conscientious obligation to your productive employees to get rid of the unproductive ones. Anything less is a waste of investment in the business, an insult to your productive employees, and a recipe for disaster.

  6. says

    For decades I’ve been sort of baffled by the resistance of the business sector to single-payer plans or even socialized medicine. Do they like paying out all that money and administering pain-in-the-ass programs? Do they like competing with foreign firms that don’t have to do this. I suppose American executives like having their employees uttterly dependent, and their determination not to let free-riding (read: brown-skinned) people get something they ‘didn’t earn’ overrides their own self interests, and finally they are totally bought into the fanatsy that the Market does everything with infalliable omniscience. Or, varying mixtures and degrees of these things. But still, it’s so irrational….

    But this aside, given the example above maybe some direct communication and enlisted support is what is required: the non-performing putz is not the only one in the boat, so maybe it should be made clear to him, the mother of the ill child, and his co-workers that if he doesn’t shape up he will have fired himself, and doomed his daughter. Put the ball in his court and make sure involved others understand HIS responsibilities in the matter. That may seem to put him in a tough position, but he and the leukemia did that, not his employer. The employer has more responsibilities than just putz’s welfare.

  7. MikeM says

    What kalkaino said. I’ve only “fired” one person directly; I sat down with him and showed him chapter and verse what he was (and wasn’t) doing, told him that he was obviously smart enough to do the work well but that for some reason he was less than enthralled with it,* and gave him a few weeks to look for another job. Which he did, and left soon thereafter. I realize that jobs nowadays are harder to come by, but a gentle shove (or the approach in kalkaino’s second paragraph to prod him into shape) might be a solution.

    *This was forty years ago, during the cold war, and he disliked doing defense work.

  8. Barry says

    kalkaino says:

    “For decades I’ve been sort of baffled by the resistance of the business sector to single-payer plans or even socialized medicine. Do they like paying out all that money and administering pain-in-the-ass programs? Do they like competing with foreign firms that don’t have to do this. I suppose American executives like having their employees uttterly dependent, and their determination not to let free-riding (read: brown-skinned) people get something they ‘didn’t earn’ overrides their own self interests, and finally they are totally bought into the fanatsy that the Market does everything with infalliable omniscience. Or, varying mixtures and degrees of these things. But still, it’s so irrational….”

    Matthew Yglesias commented on this, especially concerning the recent healthcare reforms.

    His conclusion, which I share, is that this is a telling piece of evidence in support of the reality of class solidarity. Even the leadership of whole industries which would benefit greatly were unwilling to support it.

    • says

      Another way of saying this is that way too many managers are the opposite of Keith. It might be going too far to say that they enjoy having that kind of power over their employees, but they certainly find it a useful part of the management toolbox.

      I was thinking, by the way, that Keith’s story would play out along different lines, with the employee claiming some kind of plausibly-job-related ailment (whether mental health or substance abuse or chronic illness) that would hold out the possibility that the employee could improve if treated. Of course, the treatment would hinge on continued employer-paid health insurance, and so forth. That would be a case of both too much power and too little.

      Oh, and the alternative to the employer-provided healthcare market need not be the disastrous individual market. Unions and other associations are well-placed to fulfill the position of honest broker (or would be if the rules weren’t so strongly tilted).

    • Barbara says

      This is especially evident in the case of the automobile industry. There is no other set of companies that would benefit more competitively from the rationalization of health care spending in the U.S. than the big autos (because they compete around the globe). That the idiots who ran GM felt more loyalty to their country club compatriots than their shareholders, let alone their employees, tells you how pathetically run GM really was.

  9. marianne19 says

    I’ve been in HR or Finance at small companies for more than 25 years. Years ago I fired a woman who had had three triple bypasses, just to get her off the company’s health insurance (BTW, it was a “hire/fire at will state, so as long as we told her “it’s just not working out, she had no recourse). Why was I so heartless? I wanted to preserve coverage for our other 35 employees. If she stayed on the policy, premiums would have gone up 40% and the company would not have been able to afford coverage for anyone.

    I hoped she would find another job soon. But HR/Finance people shouldn’t have to make medical triage decisions and that’s why I hate employer based health insurance.

    • Keith Humphreys says

      Vivid example. You are not the first person I have heard face this dilemma, it comes on even faster in smaller businesses.

      • Ravi says

        I was going to say: I wonder if the more heartbreaking example would be if the guy is a great performer and was still going above-and-beyond despite his daughter’s illness (for some people work can be a welcome distraction at times like these), but you have to fire him because next year’s health insurance quote is astronomical (if his family is still on the plan). I guess, for now, you might be able to get around that if moving the family to Massachusetts is an option, but it easily might not be.

  10. CharleyCarp says

    It’s off this topic, but the following sentence was in an op-ed in my local paper this morning. No warranties made re veracity.

    Signing the bill [which enacted Title X], President Richard Nixon stated, “It is my view that no American woman should be denied access to family planning assistance because of her economic condition.”

  11. Charlie says

    While I agree strongly with your larger point that employer based insurance is a bad system, there are two items in your post that need to be addressed.

    First, you say that “But I’m not built that way and I don’t think most other employers are either”. You are certainly qualified to speak for yourself, but if you think large corporations care about firing people, you are living in a fantasy world. Sure, by the time a budget cut percolates down to an individual manager, he/she may be genuinely upset about firing people, but at the corporate level, they really don’t care.

    In your example, which I understand was contrived to make a point, the concern is for the sick child. Why not put at least some blame on the employee, who seems not to love his daughter enough to change his behavior and protect her healthcare. He had warnings, he knew the insurance was tied to the job, yet he did nothing to help his child.

  12. venice says

    Been there. I couldn’t’ fire the employee, either.

    It’s a sucky place to be as an employer, but it’s an ok place to be as a human being. Compassion is a funny thing, we’re most compassionate when the person before us hadn’t earned it.

  13. NCG says

    Let’s not forget — I think this system also worsens the existing age and sex discrimination. Of course a small business owner is going to be less likely to hire someone in their 50s, or a woman. Why wouldn’t you? We’ve mostly just agreed that preserving health care for existing employees is justification enough.

    • says

      NCG: You also don’t really want to hire men who might want to get married, much less start a family. Or anyone who engages in dangerous sports/hobbies. Or drinking in venues where fights are known to break out. Employer-based coverage makes about as much sense as employer-based housing. (Or employer-based legal residency, for that matter.)

  14. Ralph Hitchens says

    A fine conundrum. Calls for firm but sensitive management — willing to retain the employee but contingent on him accepting a “performance improvement plan” (as my employer — a large “beltway bandit” — calls it). The employee needs to know that his daughter’s health outcome depends on him becoming a more productive person in the workplace, with clear metrics and a scheduled period. Is that too much to ask?

    I sense a HBS case study in the making….

  15. James Wimberley says

    The employer-based system is fading anyway: the perecentage of non-elderly Americans with it has dropped 10 percentage points in the last decade, to 58% in 2010. Among 18-24 year-olds, it’s already a minority (46%). And that includes rubbishy plans. The trend is not, I fear, driven by the (justified) ethical qualms of decent employers.

  16. Andrew Laurence says

    Being a kid sucks, because you don’t get to choose your parents, but this little girl’s real misfortune is that she has a father who doesn’t care enough about her to do his job well even if his failure to do it well could lead to her death. It would be one thing if he simply weren’t competent and the job was beyond his abilities, but his shortcomings here appear to be well within his control. Maybe he can never be an exemplary employee, but the scenario makes it seem like it’s within his ability to become an adequate one.

    As the employer in this scenario, I’d hate to see the little girl die, but I wouldn’t see my firing her father as the real cause of her death. Those would be our country’s bad health care financing system and her father’s poor work performance.

    Nonetheless, were I the one who had to pull the trigger here, I think I’d have a lot of trouble coming to terms with it. I’m not a monster, after all. But work is not a charity. We don’t employ people because they need the money, and we don’t employ them because they or their children need access to health care. We employ them because their efforts reap financial rewards for the employer. That’s a basic fact of capitalist economics.

    This is why I support a health care financing system which offers universal coverage to everyone regardless of employment status.

    • J. Michael Neal says

      What if we change the scenario a bit. What if the employee had been productive until a few months ago and then started to deteriorate. When you call him in, he explains that his performance has declined because of the stress of having a child with leukemia?

      • Keith Humphreys says

        Or another version, the guy is genuinely trying really hard at work and is desperately motivated to do better…he’s just not that talented and never will be (i.e., can’t just say it’s his fault..we made a hiring mistake).

        I just gave one fictionalized (enough for privacy) example, but there are many variants…I suspect almost anyone who is an employer for an extended period of time will run into a situation that is not easily resolved.

    • Katja says

      I think Keith’s bigger point is indeed that these nightmare scenarios do not tend to happen under healthcare systems that don’t put such a burden on the employer and that most employers should reasonably prefer being rid of it.

      For example, if this guy gets fired in the UK, his daughter is still entitled to the very same treatment as the children of the Prime Minister. Firing the employee does not deprive his daughter of treatment.

      Note that a system does not have to be a single-payer system for this, health insurance just does not have to be contingent upon employment. For example, in Germany, employers technically pay half of an employee’s health insurance (it is, for all intents and purposes, a payroll tax, except that it goes to sickness funds); but if you lose your job, the state will pay for your health insurance (fully) and there will be no coverage gap [1].

      In either country, losing your job still sucks for both the employer and his daughter. But it’s not a death sentence for the girl.

      [1] Not that I’d recommend the German system, which is a fair bit of a mess that has never gotten fully cleansed of its Bismarckian origins; I’m merely using it as an example of a system that still involves the employer and doesn’t have this particular problem.

  17. Matt Mangels says

    After reading through the comments I’m left wondering: where is Brett Bellmore? Shouldn’t he have shown up here by now to give us the free-market solution to this hypothetical scenario?

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