I saw this article on CNN Money. I can't decide if I like this or if I don't. I don't smoke and I'm only a little overweight. But how this would impact me is not the part that I'm curious about.
Generally speaking, I like the idea. It creates incentives for employees to consider the economic consequences of their lifestyle. By matching the incentives with the employees, the employees are the ones who can decide whether it's worth the cost. Some will lose weight and others won't. Those who don't will either have to pay more or find a new job. Either way it imposes the burden for the additional cost of their lifestyle directly on the employee instead of indirectly through the employer.
The problem with this idea isn't the incentives. It's how this guy's going to deal with labor. If the Angry Economist is right then we already have a high demand for labor, which is evidenced by the increasing cost of labor over time. If this guy is cutting off most of that labor supply, he's going to create an even greater demand for his specialized labor. In other words, he's restricting his supply beyond what's effective for doing the job. I suspect the result of this will be that he won't be able to find people to hire at his current costs. He's already cut off anyone who smokes. Exacerbating this problem could be his definition of "overweight". If he expects people to match their weight to something like Body Mass Index, then average Michigander probably isn't going to fit that bill. I'm assuming that the average Michigander - like the average American - is overweight. If true, this means that he's cutting down again on the number of people who are capable of working for him.
I suspect that the amount that he saves in health care costs, will have to be paid right back out in additional labor costs, since he's incredibly selective about his workforce. The smaller the supply, the higher the cost. This worked for smoking, because most American's don't smoke, while most American's are overweight.
But I hope I'm wrong. I think this is a cool idea. I'm glad he's experimenting with it. It may work out for him. I wonder how well it would work out if used more generally.