Jobs and Health Insurance - Two Great Things That Don't Work So Great Strictly Tied Together

Even in a good economy, a lot of people really fear losing their job. A loss of your job is typically accompanied by other losses such as:

* Income
* Self-esteem / self-confidence
* Self-identity
* A sense of belonging
* A venue for productive achievement
* Health insurance

Health insurance? This is basically crazy. In most cases, a person would probably not willingly bundle their income and their health insurance coverage in this way – it’s too risky. Of course, I would also expect that in most cases, a person would not choose to invest any meaningful amount of money into shares of the company they work for, but people do that a fair bit (I’m not referring to stock options here but people actually purchasing company stock outright using their own money). So maybe what I really mean is that it a bad idea and clearly not optimal for most people to have their income and insurance both dependent on their specific current job.

The development of COBRA, which allows a terminated worker to keep their health insurance coverage for 18-36 months, helps somewhat with the last of these problems because it allows you to purchase insurance at a reduced group rate rather than paying for new insurance at the individual rate. However, insurance through COBRA is still amazingly expensive because you pay the full cost of your insurance (which your employer probably has been subsizing previously) and a 2% administrative fee.

For example, the “free to me” health insurance coverage I had at my previous job would cost $365 per month under COBRA. Family coverage would cost $1067 per month instead of $344. (Note: as you can see from this fee schedule, the “state pays” subsidy for individuals is $361 per month, while the figure for families is $705 per month.) So at the same time that your income has gone down drastically with the loss of your job (in Texas, the maximum weekly unemployment benefit is $392, or about $20,000 per year, no matter what your prior income was), you undergo a new major expense.

And while it’s possible to argue that what is often called “health insurance” is really as much “access to health care, including medication and treatment for ongoing medical problems, at lower rates negotiated by the insurance company” as it is insurance against unknown future risks, people derive a lot of benefit from the negotiated rates that is lost if they don’t have insurance. But many people do worry in the absence of insurance about the economic consequences of a medical catastrophe hitting someone in their family. (Of course, the financial disaster attendant to major medical problems is bad even with insurance coverage.)

For instance, it is common knowledge that a large proportion of bankruptcies are caused by medical expenses. Even though this “fact” is disputable (how many people would have been able to pay for their medical care if they weren’t already living at the edge of or beyond their means such that any unexpected, unavoidable expense led to financial ruin? As this article points out, “all debts are fungible”), this belief contributes to the sense of fear that makes people feel hugely dependent on their current job to protect them from economic ruin.

It’s not good for people to feel so dependent on their job for a lot of obvious reasons, including sticking with a job they should leave, being too afraid to ask for changes to their job (a raise, educational opportunities, etc.) or rock the boat in any way, becoming depressed and/or resentful about being trapped, and overgeneralizing unhappiness in a single job such that they believe they hate all possible jobs or all possible lines of work.

But it also can easily lead to increased populist demands for job “stability” or “protection” that may sound really beneficial and practical but ultimately could undermine the flexibility of the market. People are not very thoughtful about this even in good times, but when you’re afraid of losing your job and unemployment has gone up, it’s hard to see that change is a good and necessary part of a functioning market. Creative destruction just looks threatening. So much more appealing is something like the Dave idea that the president can just guarantee a job for every American who wants one (perhaps especially when espoused by the charming Kevin Kline).

I think the American labor market is already too inflexible. While it is naïve to assume that everything you learned in your undergraduate microeconomics course about how people elect to work the number of hours where the continuous supply and demand curves meet, it does strike me as unnecessarily screwed-up the way that there is this categorical divide between full-time (frequently defined as 40 hours+ per week) and part-time work.

Particularly when you look at the market for professionals / white collar / office workers (I don't have enough familiarity with what things are like for people in manufacturing, retail, etc.), people have a limited choice in the number of hours they work. Robert makes a good point that to a certain extent, people can choose their work hours within the range of 40 and up. Different careers, industries, and employers have different cultures/requirements about work hours. (Of course, this provides only very broad flexibility and assumes that your interests in work hours and type of work line up well.)

However, if you are interested in a workweek that falls below the 40 hour mark, you probably will need to content yourself with lower-level, lower-pay jobs (generally without insurance benefits). And even if you were willing to take the economic hit (which a lot of people aren’t), if you are a knowledge worker, it can be difficult to find part-time work that makes use of your abilities. So there seems to be a bit of a double-whammy in that a skilled person may easily find herself in a part-time job that both pays relatively poorly compared to the comparable full-time job and that is below her skill level. For instance, a market researcher might not be able to find a job doing survey design and analysis but instead may get hired as a part-time interviewer. Nobody benefits from this.

Obviously, there are other forms of fixed costs / overhead associated with having two people working 30 hour weeks versus one person working 60 hour weeks and efficiencies that can potentially be gained from having a smaller number of workers to coordinate (though at what point does an individual’s inability to continue working at high productivity with the physical exhaustion of working more hours and mental exhaustion of keeping so many different projects afloat kick in?). But it seems to me that the current system, with a large amount of compensation going into benefits such as health insurance, provides further incentives for employers to get as much work out of as few people as possible and shuts people who do not want or cannot commit to working 40+ hours per week out of jobs that meet their skill level and they could excel in.

Is this all to say that I support nationalized health care? Not exactly. But I do think that there are serious potential gains from decoupling people’s jobs and health insurance coverage.