The Free Market

A Galtian CEO of a private hospital, Cleveland Clinic, decided to cut costs by giving his employees monetary incentives to become more healthy. Ordinarily Megan McArdle would be first in line to support the rights of a CEO to make more money without interference, but this time there's a slight hitch to her libertarian giddy-up.

Perhaps unsurprisingly, I'm pretty skeptical. Let's start by asking what the selection bias was. Cleveland fired two high-profile doctors who wouldn't quit smoking. One imagines that employees who do not want their employer nannying them about their gym time and alcohol consumption probably decline to work at the Clinic.

Since the point was to get rid of expensive employees, it's strange that McArdle would bring up selection bias as a negative, since it is very much a positive in this situation. Argument fail.

Selection bias will produce good results for the selecting organization, but you cannot replicate its results on a nationwide scale; fat, smoky people have to work somewhere (or go on welfare). If this became common, you'd see legislative pushback in the form of discrimination lawsuits and legislation. I'm betting there are more obese workers/voters than there are people who hit the gym five days a week.

Why should Cleveland Clinic care if others can't copy their methods due to a shortage of doctors? Not that McArdle has proven a shortage would happen. Let's look at some--now what do they call them again? Oh, yeah, facts.

In the past month Drs Derek Smith and Peter Leggat published a comprehensive international review of tobacco smoking in the medical profession from 1974-2004. The study showed that in countries like the United States, UK, Canada, Australia and New Zealand, smoking rates have dropped dramatically among doctors, from 15-20% in the 1970’s to around 5% at the end of the 20th century. However, such low smoking rates are not uniform among doctors across the world.

So it seems that it might be quite easy to find doctors who don't smoke. Since the hospital's employees are losing weight and becoming more healthy, it doesn't seem that exercise is a deal breaker either. The doctors who refuse to quit smoking or eating excessively can just go to work for themselves or another company. In a free market economy there are always jobs available, ensuring that any corporation that makes up onerous rules will be punished when people refuse to work for them.

There's also the question of lifetime cost profile. Cleveland mostly isn't covering people in that expensive last year of life; that honor tends to go to Medicare and Medicaid. Cleveland saves money if its workers have fewer smoking-related problems, but if that keeps them alive long enough to get Alzheimer's, their lifetime health cost may go up.

Again, irrelevant. The hospital is concerned about its health care costs and bottom line, not the government's.

Now, you can certainly argue that it's still a net gain--people live longer, healthier lives. And I agree that longer and healthier lives are a worthy goal. But from a cost perspective, I suspect that there's less to the Cleveland model than meets the eye.

The journalist did not bring up one fact and used two irrelevant arguments to bolster her claim, and her gut feeling is not an adequate replacement for facts and reason. It certainly is easy to be the business editor for The Atlantic.

The only question is why McArdle would take up arms against one of the holy CEOs. Perhaps she is worried that The Atlantic will copy the Clevland Clinic and force her to quit smoking, drink less and exercise more. If it does, McArdle can just teach it a good free market lesson by quitting and getting another one of those plentiful journalist jobs that pays six figures a year.