"Smokers gasp at insurance"

Georgia State Smokers Workers who smoke will have to pay an additional $40 per month for health insurance. (AJC)  Most insurance economists who have thought about this have said that people should either pay  higher insurance premiums or get lower wages if they smoke.  The idea is that in a competitive labor market where wages equal marginal productivity, workers with higher health care costs would bear the burden of those costs in terms of lower money wages.  On average, health insurance benefits are greater for smokers if they are sicker than the average non-smoker.  In perfect competition, we would then see smokers willing to take a lower wage because they receive more benefits from health insurance than a healthy person.   This presumes that workers really bear the total cost of their health coverage which is a controversial (but potentially correct) assumption.

Finding empirical evidence of this behavior has been difficult.  However, one of the papers at last weekend’s risk theory conference looked at weather obese people (who arguably have similar types of issues with regard to health insurance claims) have lower wages. The authors Jay Bhattacharya and Kate Bundhof, both at Stanford University found that obese women (but not not obese men) have lower wages which can be attributed to higher health care costs.  This is especially interesting because in jobs without health insurance we don’t see the lower wages for obese women.  If this was gender discrimination or just obesity discrimination we would see it in both the insurance covered and non-covered jobs.