The Granularity of Employer Provided Health Benefits

After writing last week about Pitney Bowes’ experience in creating positive financial returns by providing quality health benefits for their employees, I attended a panel of alumni and faculty from the Yale School of Management that discussed the topic “Do Consumers Make Rational Healthcare Decisions?” (I’m told a video podcast will be available soon.)  While their consensus on this question was no, their discussion and Q&A included employer provided health benefits.

Professor Fiona Scott Morton noted that the value employers get from providing health benefits depends upon their industry – specifically whether the company retains employees or has a high turn-over rate.  This makes sense, since it would take time for employers to have a positive return on investing in employees’ health.  Professor Scott Morton also pointed me to a very interesting research article by professors at Duke and NYU that looked at this issue by analyzing data bases that included individuals’ occupations.*  By comparing workers in high and low turn-over industries they found several interesting things, including:

  • Employers in low turn-over industries provide better health benefits
  • Employees in low turn-over industries use more health care services while working
  • Employees in high turn-over industries use more health care services when retired

This paper had many other interesting conclusions, and I’ll confess to not being able to fully assess all its conclusions because of some of the mathematical modeling used and the manner in which they presented their quantitative findings.  However, from what they said, I do wonder if much of the effect they observed could be due to higher wages in the lower turn-over industries.  This makes simple economic sense to me, because the researchers used average vocational preparation for the employees in the industry as a proxy for turnover (see footnote), and companies that depend on higher skilled workers would likely pay them more – which would also lead these companies to retaining their employees.   In addition, companies with lower skilled workers might also be less likely to provide paid sick leave as an additional form of compensation – which could account for the lower rate of doctor visits and preventive care the researchers found for the employees in the high turn-over industries.

What this means for health reform – and the future of employer-based insurance in the US – is that for some employers and employees the current situation works well, and seems to benefit society overall since retirees from higher skilled/low-turnover companies are less of a financial burden on Medicare.  However, for employees and employers in industries with high turn-over rates, the  employer-based insurance situation in its current form may not be working so well – although I’m still concerned about how much of the researchers conclusions are related to income –  either directly or as a proxy for less generous health benefits.  In any case, the findings from their paper point out some of the areas where our health system is working and others where it needs some fixing.  Hopefully reform initiatives in the coming months and years will address those realities.

* The researchers used the average Specific Vocational Preparation (SVP) – a Department of Labor categorization system used in the databases –  for each industry as a proxy for employee turn-over since other researchers have found an inverse relationship between average SVP and employee turn-over.

One thought on “The Granularity of Employer Provided Health Benefits

  1. The findings, as you describe them, are not surprising to anyone familiar with health benefits.

    Companies who keep their employees are more willing to spend money on those employees as they believe they will get a payback of some kind over the long term. Companies with shorter-term employees (retail, food come to mind) spend less because they don’t expect to see a payback.

    The situation becomes more complicated as the lower wage, shorter-term employee industries also frequently have higher premium and out of pocket costs than do longer-term employee industries. Is that related to wages? To the profit potential of the companies? Maybe the causes aren’t separable.

    Again, not having read the actual research, I don’t know how the research treated the presence or absence of Taft-Hartley Trusts as the actual provider of benefits rather than the company itself. In these cases, the companies pay a fixed amount per hour of work to the trust, which actually administers the benefits. This is also a common feature in the grocery industry (low wage/high turnover).

    In any approach to health reform, there will be those who will be better off and those who are worse off (or at least equal). Will the “haves” be willing to give something up for the greater good to fix a system that is breaking apart?

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