Economics‎ > ‎

Should employers pay for health insurance of their employees?

posted Mar 18, 2013, 12:30 AM by Simon Nguyen
At a first glance, the idea employers should pay for health insurance (at least a major portion of it) seems like a reasonable thing to do. If you treat your employees well, they will be motivated to work hard for you. In the long run, the benefits outweigh the costs.

Here is the dilemma (in the heartless perspective of an economist.) Let say you buy health insurance for your employees but a number of them leave the company soon after. You won’t be able to recoup the costs you spent on their insurance coverage from their expected output. Even if all your employees are loyal, one or more of your workers may fall seriously ill. You obviously won’t be able to recoup what you spent on this person’s health insurance, and may have to chip in to pay for his long-term care.

These scenarios clearly would cause employers to have second thoughts about buying health insurance for their employees. After all, a business is not a charitable organization. To the employer, the health of the business always takes precedence over the health of the workers.

What could be a solution for this dilemma, such that it would be beneficial for employers to pay for health insurance regardless of circumstances? The employers and their workers could come to an implicit agreement, wherein the employees (as a group and not as individuals) agree to voluntarily increase their productivity (such as working longer hours without overtime pay or accepting a longer wait for a pay raise) in exchange for health insurance for every employee. The "volunteer" aspect is important due to labor laws. The employers will then be able to recoup the health insurance costs, spent on those who abruptly leave the company and on those who are currently inactive. 

There have been similar examples of this informal "agreement". During previous recessions, some businesses and schools opted to reduce the number of (weekly) work days from five to four instead of laying off employees. In many cases, this move was negotiated and agreed upon by the employees themselves who obviously did not want to lose their jobs.

The proposed solution has an obvious obstacle. Economists like me believe people are inherently selfish. Will they make personal sacrifices for the good of their fellow workers and the company? We have seen an abundance of examples of employees stealing things from work, shirking, faking injuries and sabotaging other workers. On the other hand, we have also had instances of employers exploiting and abusing their workers. Any agreement between the two sides that would result in employers paying for health insurance will be met with weary eyes.

Simon Nguyen, M.A. Economics