Too Rich? Not Thin Enough?

Two apparently disparate issues in the news caught my eye recently.  Here in Massachusetts, unprecedented beach erosion is causing homes, many of them quite expensive, to tumble into the sea or come perilously close to doing so.  Just across the border, Rhode Island’s CVS Pharmacies have announced that overweight employees will have to pay $50 a month more for their health insurance.  Both events have caused outcries from those affected.  The homeowners want to be allowed to protect their homes by seawalls or any other means they can afford, and employees and other advocates are angry at CVS’s intrusion into their personal lives.

            Very different issues it seems: in one case, the government is preventing people from doing something costly that they want to do; in the other a business is requiring employees to pay unless they take an action.

            But both in some ways amount to the same thing: the belief that individual rights always trump those of the group.  Both ideas are very popular in the U.S., but both have serious limitations that often go unacknowledged.

            In the case of homeowners, it might be useful to apply the “right to swing my fist ends at my neighbor’s nose” principle.  There are many things I can’t do with my property because they affect my neighbor adversely: raise roosters or pigs in a crowded suburb, put up a windmill that is overly loud around his house, perhaps let trees grow so they block the view that made his house desirable, etc.  Since seawalls shift water’s action, they can easily cause greater erosion in their near neighborhood.  So the homeowner who has the funds to protect his property may be hastening the loss of his neighbor’s. 

One solution is the “no man is an island” model.  If you do indeed own an island, maybe you can protect it by a 360-degree seawall. Otherwise, you and all your neighbors will have to bear the mutual risks of nature, not additional risks imposed by one another.  There is an adage, after all, “Oceanfront property is God’s way of telling you you have too much money.”

            As for health insurance, the case is actually simpler.  If you want your employer to pay for your health insurance, as we unfortunately have decided to do in America, can your employer expect responsible action from you to hold down costs? Take the analogy of expense accounts.  A company may provide expense accounts, but put numerous restrictions on their use: caps on meals, travel rules, overnight stays, etc. If you buy life insurance, the company may restrict dangerous activities for which it will not pay.  Sports teams likewise place contract restrictions on physically hazardous activities of their players. If your habits raise the cost of health insurance for the whole company, should you be exempt from paying for those habits? 

            Certainly there’s a slippery slope argument.  But where both the health risks and the costs to society of smoking and obesity are so well documented and the prevalence of the activities is so widespread, selecting these and only these for intervention makes sense, while, say, charging anyone who skydives or bungee jumps has minimal payoff for society as a whole.

            The best reason for intervening is that its opposite is socially unthinkable.  No one, I imagine, is ready to say “If you smoke or are obese we won’t give you care for the subsequent illnesses.”  (There’s an interesting analogy: nine states so far bill people for the costs of being rescued, say from mountaineering. Is that different from billing people ahead of time for the insurance coverage they will statistically need because of their risky behavior?)

            I do see one error in CVS’s approach.  As it has been designed, it’s an individual punishment, or at least that’s what it feels like.  Why not reverse it?  All employees will pay $600 a year more for their health insurance.  But if you weigh in and are less than 10% over an accepted weight, you get the $600 back.  Anyone who doesn’t want to be intruded on just pays the $600.  (Thanks to Richard Thaler and Cass Sunstein’s Nudge for alerting me to the benefits of this kind of approach.)