The Carrot Works Better than the Stick

There is no wonder that health care is fueling much of the debate in this election year. A new report in the Kaiser Family Foundation’s Snapshots: Health Care Costs series examines changes in wages and benefits since the 1960s, and concludes that one way working families may be feeling the impact of rising health care costs is through smaller increases in their paychecks.

The report, looking at the same data used by the government to track changes in the U.S. economy over time, shows health insurance premiums growing four times faster than workers’ earnings from 2001 to 2007 (78 percent compared to 19 percent, respectively). No wonder workers and employers are paying increasing attention to health care costs.

Not only are increasing healthcare costs serving to stunt wage increases, they are decreasing the amount of non-health care benefits employers provide. As the chart below shows, non-health benefits increased as a share of total compensation from the 1960s to the 1980s, but have fallen modestly since. While at the same time, employer payments for health benefits have increased as a share of total compensation in every decade, reaching 7.2 percent of compensation in 2006.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 1960-2006, Tables 1.1.5, 2.1, 6.11B, 6.11C, & 6.11D.
Note: Percentages shown are averages of annual shares for each time period.

While the debate continues to focus primarily on reaching some state of universal coverage, we hear very little in this arena about addresses these cost increases. It seems that no matter who is doing the paying – individuals through mandates, employers, or individuals through taxes – the problem will not be solved until a solution is found to the raising cost of health care.

It seems to me that personal responsibility can be the quickest way to right the ship. This means sharing some in the up-front costs of healthcare, but it also means employers providing and employees participating in wellness programs.

Thanks largely to employers banning smoking in the workplace, smoking rates have dropped to the lowest level since 1951, and the nation’s per capita consumption of tobacco have fallen to levels not seen since the early 1930s.[1]

If we can attack a health risk like smoking, why not go after the next items on the list: obesity, inactivity, diabetes and high blood pressure?

It is certainly easier said than done as benefits managers at Clarian Health in Indianapolis learned when they tried to implement a program to encourage wellness with increases in health insurance premiums tied to missed health goals, reports the Chicago Tribune.

A post on the Wall Street Journal’s Health Blog http://blogs.wsj.com/health/2008/02/11/fines-for-bad-health-set-off-employee-backlash/ said:

Clarian set minimum standards for tobacco use, body mass index, blood pressure, blood glucose and cholesterol, the Tribune reports. Employees who didn’t meet the targets and weren’t working toward them would wind up paying as much as $30 more per paycheck for health insurance, the newspaper said.

The reaction from some of the health system’s 13,000 employees was less than positive. “Some of them quite frankly didn’t get the essence of what we were trying to do,” Sheriee Ladd, Clarian’s vice president of human resources, told the Tribune.

So Clarian changed the plan, offering extra money in paychecks of employees who meet the health standards or are following a plan to improve.

That seemed to mollify most everyone. The revised program drawing 95% participation during this past fall’s enrollment period.

There you have it. Once again it is proven that the carrot works better than the stick. We just need more carrot farmers.


[1] Smoking In U.S. Declines Sharply, Washington Post, Thursday, March 9, 2006; Page A01

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