Adumbration

There are only a couple more days projected in the current contract negotiation cycle, and the SPEEA tech vote is projected to pass the updated contract terms.  With that little bit of currency remaining, I wanted to capture some other thoughts on compensation practices.

I wrote previously about the response from SPEEA to my suggestion they negotiate for a benefits smorgasbord.   My purpose here is to elaborate on the smorgasbord suggestion and address some arguments I have encountered against it, and the more general suggestion of substituting cash for the non-wage health insurance benefits that are typical of employment contracts.

The main reason I like the smorgasbord option: it makes more alternatives available to match compensation to individual interests and circumstances.  While we share many broad goals and objectives, the choices we make from day to day demonstrate the even greater variety of purposes and interests - when we look at the details of those choices.  A large difference arises simply in the scope of desired insurance coverage between people who are single and those who are married with children; another relates to one's risk tolerance, or personal savings, which bears on the total coverage and deductible portions of an insurance contract.

I pointed out here the tax advantaged status of non-wage benefits.  However, if the non-wage benefits were not changed in magnitude, only in the ability of individual employees to direct where they are applied, then there is no such tax-differential effect.  A benefits smorgasbord could be like that, but there is not one fixed way that the benefits smorgasbord could be arranged; one approach is for a fixed value that can be allocated among the benefit elements.  If the benefit smorgasbord is managed by a third party like other insurance schemes, then there is no change to company administrative costs.   Even a smorgasbord scheme that does include company administration - e.g. to adjust the rate of vacation accrual that might be in exchange for lower dental benefits - are fully in scope of what the company currently manages.  To extend that example,the different rates of accrual we now have are based on years of service, but that does not preclude other conditions in the equation.

What about administration costs?  The company already considers the effects of benefits administration, but even a difference in such costs is not a deal breaker.  But if we grant that the company has some threshold of total outlays, then any options being considered would necessarily have the same NPV, or close enough to be in the noise of administrative costs.  These are the same sorts of comparisons that are done when deciding to offer the current set of alternatives.  Consider the company position to be wanting some total compensation C equaling straight wages W plus benefits B plus administration A,  so that C = W + B + A.  So long as C remains under some threshold they are satisfied.  The current approach with multiple benefit schemes has some administrative costs, while the new approach has some other administrative costs A' and corresponding benefits cost B'.  For fixed W, then A + B = A' + B'.  In the case where we get straight wages W, C = W and we save those administrative costs A.  The math isn't difficult, but opening people up to the alternative is more so.  

What about how people benefit from group rates in the current scheme?  There's nothing keeping people from grouping together in other forms (e.g. I regularly receive group insurance promotion offers through other organizations).  But there is also reason to think those groupings may not necessarily be more efficient economically.  The economic benefits of such grouping, taking advantage of large numbers of people to spread the risk, is exactly what insurance companies are doing when they sell you an individual policy.  For example, consider the home and auto insurance markets; the "grouping" that takes place in those markets is simply the result of insurers looking at the overall risk of their entire customer base and offering individual terms that reflect that risk.  One can always choose between Allstate and GEICO and State Farm and untold other insurance providers for your car, home, and health insurance needs.  If one doesn't suit, for cost or any other reason, you can go elsewhere; the companies know that very well, which drives them in a competitive environment to offer terms that are close to their actuarial costs.  Your ability to go elsewhere for that policy is what drives them to lower rates.  We don't have to rely on the union to provide such services.

What about the medical service providers?  Converting the payment scheme from group to individual does not by itself reduce the service demands.  However, once people start thinking about costs again they will start making health care decisions with that in mind.  That change will start to effect the bottom line and business will have to become more competitive.  They start to offer lower prices to the individuals, or they go out of business and someone else comes in who can provide the services people want at prices that represent value.  By comparison, we have markets in so many other goods and services that work perfectly well in terms of individual interactions, that all manage to let people balance the costs and benefits.

What about pre-existing conditions?  If your house was on fire, would you expect any home insurance company to sell you a fire protection policy?  If it was in a flood plain and the rivers were rising, would you expect to obtain flood insurance?  Of course these answers are no, aside from the government-subsidized flood insurance which is completely irrational.  This is the same logic that says buying health insurance for a pre-existing condition is non-sensical.   Many of the problems with coverage of pre-exisiting conditions stem from the lack of portability of our health insurance plans; since so many of us receive health insurance as part of our employment compensation, we are at the mercy of that employer to continue the coverage as our circumstances change.  If the general model were to be personal control of insurance decisions, then the policies we contract for would be independent of change in employment status.    Not including insurance policies in the union contract would not preclude buying insurance separately, which most of us would do to protect against catastrophic conditions.    However, I would probably not buy insurance for eyeglasses or teeth cleaning or orthodontia or ED or breast pumps, nor a host of other provisions that are either routine expenses or have no significance to me.