Reducing Healthcare Costs for Employees with Unhealthy Habits

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Reducing Healthcare Costs for Employees with Unhealthy Habits by Using Wellness Programs AMBA 600, MBA Fundamentals, Section 9084
Chris D’Mello
March 23, 2008

Executive Summary

In light of the staggering increases in the cost of health care in recent years, several companies are realizing that an unusually large percentage of medical expenses are the result of chronic illnesses that are largely preventable. The costs of medical care for those employees who maintain an unhealthy lifestyle are increasing the burden for employers as well as for those employees who do not partake in these unhealthy habits. This results in higher premiums that are being absorbed by employees who maintain healthy lifestyle habits as well as increases the costs for employers providing health care coverage. Many employers would like to take an approach of increasing the health care premiums to those employees whose habit related conditions account for the highest amount of medical spending. However, this approach may raise ethical and legal issues. Can employers target those employees who cost the most based on their lifestyle? Will doing so discriminate against them based on health conditions? Companies have to tread lightly in trying to recoup the skyrocketing costs of health care by targeting smokers and the obese. Federal regulations, such as the Health Insurance Portability and Accountability Act of 1996 (HIPAA) or the American with Disabilities Act (ADA), prohibit employers from discriminating on the basis of health status in setting health care premiums. What methods can employers find to curb the disproportionally higher health care costs for employees with unhealthy habits, such as smoking, overeating, and failing to exercise, without infringing on privacy or discriminating against those employees? The following paper discusses ways that companies can save on the rising cost of health care by using wellness programs to improve employee health without running afoul of federal regulations.

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Rising Costs of Health Care for Employees with Unhealthy Habits Many chronic illnesses are the result of behavioral lifestyles and are preventable. Smoking, obesity, and lack of physical activity can contribute to cancer, diabetes, and cardiovascular disease and are a driving factor for the staggering increases of health care costs. A report by the Nutrition in Clinical Care stated that the Centers for Disease Control and Prevention (CDC) indicated that chronic diseases were accountable for “7 of every 10” deaths and were attributable for over 50% of the medical care costs. (Nutr Clin Care, 2003). This report also indicated that these illnesses were preventable largely by adopting a healthier lifestyle. Barry Hall illustrated that reducing risk factors associated with unhealthy habits and promoting healthier lifestyle choices substantially lowered medical costs (Hall, 2006). Many companies are desperate to control the increasing costs of healthcare and are targeting those employees who are considered to have unhealthy habits. Some employers were considering increasing the premiums for employees who smoked or were obese in order control the increasing costs for maintaining health care for those individuals. However, they ran the risk of discrimination and invasion of privacy. Federal regulations such as the Health Insurance Portability and Accountability Act (HIPAA) and the Americans with Disabilities Act (ADA) contain strict guidelines that prevent discrimination based on health related factors in setting health care premiums. As smoking and obesity related diseases continue to rise, employers are looking to creative ways to manage the soaring costs of health care and are implementing wellness programs as a cost cutting strategy. As Bernard Wysocki Jr. of The Wall Street Journal has noted, companies are looking for ways around the HIPAA and ADA restrictions to create wellness programs that try to reduce smoking and...
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