Reducing Healthcare Costs for Employees with Unhealthy Habits
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
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
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