Not the Safest Way

Today's WSJ has an op-ed from the CEO of supermarket chain Safeway.  He brags about how Safeway has managed to contain the cost of its healthcare program while improving the health of its employees.  The article is not badly written, and you can go check it out yourself, but a picture is worth a thousand words in this case.  The idea, in brief, is to charge unhealthy people more for healthcare. 

In a sense, this is perfectly coherent.  The most straightforward way to get a healthier society is to give people a monetary incentive to be healthier.  Tax the fat.  One wonders a bit at the surface contradiction lurking in this guy's faith in "market based solutions", on the one hand, and his desire to engineer society on the other, but it is likely that only the paleo-conservative brain of WSJ op-ed writers would burst at that thought. 

Unfortunately, that's not the real problem with the argument.  The idea of using risk-based healthcare costs to encourage better health (similarly to auto insurance) makes sense for Safeway in isolation, or any other subsegment of the economy that can push off the cost of treating the really sick to someone else.  The problem is that in the end, regardless of what premium the fat smoker paid before he got sick, we aren't, as a society, just going to let him die (at least in the US).  Add to this the fact that a lot of fat people are pretty poor, and that many would not be able to afford a correspondingly higher premium, and you can see the effect of a scheme like this at a nationwide level would be to push all those people out of the system completely, and to push the cost of treating them directly onto ... well ... onto the hospitals who are required to treat them right now.  Does anybody think those hospitals might pass on the increased cost to the people who are still paying?

So this scheme works fine if it works, that is if it actually encourages people to get healthier, and it works terribly if it doesn't, because we are still ultimately going to treat people who don't stay healthy, but now only after bleeding them dry and then not treating them until they completely keel over from poverty and diabetes.  A full-fledged market is only going to work here if we have the dispassion to not to provide healthcare for poor sick people -- normally, in a market people who don't pay for the product don't get to use it.  The fact that the best way to improve healtcare over the long run is to have a healthier population does present a tricky question, but taxing the fat is clearly no solution, unless you're willing to tax them out of existence in whatever way they choose to go.