Wednesday, January 05, 2011

Coca-Colanomics and health care

An economics lesson...

-My company (of eight employees) generously supplies non-alcoholic beverages at no cost to employees.

-Our office is evenly divided between Diet Coke drinkers and sugary beverage drinkers. Bottled water consumption is evenly distributed.

- Our office consumes far more Diet Coke than any other beverage.

The reason is complex, but revealing.

All beverages come at an equal monetary cost (specifically, $0.00) to employees. However, sugary beverages have a lot of calories. Consequently, there is a cost built-in to consumption; one not endemic to bottled water or Diet Coke.

Diet Coke has one notable benefit that bottled water does not. Namely, caffeine. Sugary soda has this as well, but has the built-in cost. As such, Diet Coke hits a sort of sweet spot (no pun intended) in terms of consumption.

For the company, there is an inherent benefit to providing free beverages. In addition to promoting morale, it keeps us from going to the store, thereby decreasing productivity. It also extracts a nominal cost on employees. After all, if money is spent on soda, it can't be spent on compensation.

Our present system, though, stocks soda based on the evenly distributed preferences of our employees. As such, we are always running out of Diet Coke, and the company is spending a lot of money on same. Further, it encourages the consumption of Diet Coke, almost certainly beyond that which employees would choose to consume on their own.

For a small company, of course, this is not big deal. It is much appreciated by employees, of course, but the productivity at our billing rate offsets the cost of soda very quickly.

But consider a larger company, one with 100 employees. Replenishing soda supplies requires a dedicated staff member, since simply throwing a few cans in the fridge is futile in the face of the beverage needs of 100 employees. Devoted refrigerator space becomes the least labor intensive solution.

So larger companies are faced with the prospect of purchasing more refrigeration units, or running out of space. In the latter scenario, what happens?

Well, it stands to reason the soda gets cold. 100 employees aren't going to drink warm pop without organizing a revolt. Refrigerator space available to individual employees is almost certainly compromised.

But remember, the system is designed to stock soda in accordance with the evenly distributed preferences of employees. The dedicated employee calls in an order that does not change from month to month. Inevitably, the Diet Coke supply will vanish. But so, too, has the fridge space devoted to individual employee needs.

What happens to the diet soda drinkers? Well, they buy their own, which is fine. Soda is a privilege, not a right. But they don't have anywhere to put it, because the fridge is full of raspberry-garlic ginger ale once requested by the eccentric accountant who got fired for looking at porn on his work computer eight months ago. The rest of the space is devoted to critical items, like lunch.

The simple solution would be to change the monthly order to reflect the increased Diet Coke consumption. Alas, Janie, the chubby admin in charge of ordering beverages, happens to like sugary soda, doesn't understand why the Diet Soda runs out first, and isn't going to let anyone else wrest her one opportunity to feel powerful.

So employees, many of whom were content bringing their own cans of pop from home, are forced to buy it cold soda from the store, at a heavy mark up. Meanwhile, they still incur the cost of the company's "free soda" perk.

Now imagine government subsidized health care. It sounds good, in theory. Everyone can get care whenever they want it.

But what happens? Absent any monetary cost, users will gravitate to services that have no built-in cost and lot's of built-in benefit. Think sore backs and Percocet vs. colonoscopies and mammograms.

Those who have genuinely hurting backs, and are willing to pay to have them checked (and who are also diligent about getting other, less convenient parts checked) will have to pay a premium, thanks to the Vicodin addicts. As an added bonus, they will be on the hook for the major long-term care that becomes necessary when those who avoided affordable-but-uncomfortable procedures are finally whisked to the hospital. At least the Diet Coke drinkers don't have to pay for the Mountain Dew drinkers' diabetes shots.

Reasonable tweaks to the system will become impossible, as powerful new administrators lobby on behalf of their union-inflated compensation package and undeserved power.

Of course, unlike soda, health care will eat up a sizable portion of our income. That amount will continue to grow until someone realizes that, in a company of 300,000,000 people, it's a lot more reasonable to have people bring their own soda to work.

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