The Social Contract

Posted by Laura Otten, Ph.D., Director on May 4th, 2015 in Thoughts & Commentary

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It’s not often that I have good things to say about large health insurers, but today, I have to give Aetna its due.

Apparently, I’m late to this party and am only now learning about Aetna’s January decision to raise the minimum wage of its lowest paid employees to $16/hour.  So, yes, Aetna jumped on a bandwagon—and then surpassed it.  It saw and raised other major corporations that have been announcing since the end of last year that they would be increasing their starting minimum wages.  Aetna took the minimum wage up to $16, an 11%-33% raise for workers, and next year will provide a lower cost health care option for employees with household incomes below a certain amount.  Bravo, Aetna.

Sure, Aetna’s decision is one that goes along with the crowd:  it is now an “industry trend” to be willing to pay for talent at the entry-level positions.  Seems the health insurance business is changing and going forward, it needs to be a much more consumer-oriented business.  (I am not making this up; it seems this industry has just gotten wind of the fact that even consumers of insurance like good customer service.  Who knew?)  And, it has concluded, in order to meet this new and growing demand, those front line staff have to be more knowledgeable, which in the world of for-profits translates into better pay.

But, in this case, paying more should be a better bottom line decision. The cost of these two new programs—improved wages and health care costs—is no chump change:  $14 million this year, $25.5 million next year.  But, Aetna is also projecting $62 billion in income for FY 2015, with $2.4 billion in profit.   Maybe investors will get smaller dividends—but they support these moves.

Aetna CEO Mark Bertolini  says that Aetna hopes that these changes will reduce turnover and get better-qualified, higher caliber employees, who will become loyal, long-time employees.  And, at current turnover costs of $120 million a year, Aetna’s bottom line will benefit, too.  Seems like a no-brainer:  spend $39.5 million to significantly reduce turnover costs of three times that much.  Maybe dividends won’t decline, after all.

So, what’s so great about this?  It is just smart business.  Because Bertolini’s motivation isn’t just about money and smart business decisions.  It’s about the social compact—or, as most people are introduced to it in a political theory or social philosophy class, the social contract.  No kidding.  The Wall Street Journal quotes Bertolini:  “It’s not just about paying people, it’s about the whole social compact,” Mr. Bertolini said, adding, “Why can’t private industry step forward and make the innovative decisions on how to do this?”  His inspiration for this is viewpoint is Thomas Piketty’s book, Capital in the Twenty-First Century, the seminal work that has uncovered the cause of economic inequality.  Apparently, it is required reading for all of his senior leaders and he hands it out wherever he goes, having become, seemingly, quite the proselytizer.

As a long-standing fan of social contract theorists, I love it that there is a head of a Fortune 100 company espousing social contract ideals.  And while social contract theory recognizes that we give up some freedoms in order to gain the benefits of society, such as laws, order (you can read that as government, if you want) and safety, to mention some biggies, Bertolini is making it clear that we did not give up the right to a decent quality of life.

Why doesn’t every nonprofit – those organizations who, as I have said so many times before, is viewed as the sector that works to improve the quality of life for all – embrace the social contract?  Why do so many nonprofits still pay their entry-level workers so poorly that they, too, suffer from high costs of dealing with the high rates of turnover?  Why do so many nonprofits still think it is okay to pay any or all of their employees pittances?  How can any nonprofit board live with itself and operate in all good conscience to help improve the quality of the lives of their clients while their employees must supplement their salaries with government or charitable assistance or work a second job or rent out a room in their home?

How in this one area of business operations – caring for the very people who make all of our mission work possible – can we be bested by a Fortune 100 company?  We have failed our collective mission.



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