Burdened with ever-rising costs of health care, American employers are increasingly requiring their employees to make lifestyle changes or pay extra for them. In the instance of one Indiana firm, for instance, a smoker is required to pay an additional $5.00 per pay period to cover the extra healthcare costs of smoking-related illness, while someone whose blood-cholesterol count is above a specified level must similarly pay more for health care than a colleague with a cholesterol count at or below that level. High blood pressure, obesity, alcoholism, and other conditions, that Indiana firm says, will be charged on the same à la carte basis.

Some workers and unions have objected that employers have no business regulating employees’ off-hours behavior. Other commentators, however, insist that it is in the employers’ interest to have a healthy workforce, and that it is within the rights of those employers and society at large to use the market to discourage bad habits.

Knowing of your background in economics, your employer has asked you to write a white paper addressed to her in which you advise her what position the company should take. Should the company establish a policy of differential premiums for lifestyle-related risks to health? Should it adopt a hands-off policy on an employee’s private behavior and charge all employees the same premium?

Your employer also asks you to consider this question: Would you have a different position if the costs of health insurance were borne by the state, and not by the company?