Case Study
Controlling Health Care Costs: Employers Turn to ‘Carrots and Sticks’
If you are a man with waist size 40 inches or more or a woman with waist size 35 inches or more, that “spare tire” will cost you some money this year if you work at tire-maker Michelin North America Inc. Employees may have to pay as much as an extra $1,000 in health insurance if their blood pressure, blood sugar, cholesterol or waist size exceeds targets. As part of the plan to control increasing health care costs, companies are penalizing employees for not meeting health targets; and companies may also penalize employees if they decline to share personal health-related information like that discussed above (e.g., weight, blood pressure). Companies say health-care costs cannot be controlled without changing workers’ health-related lifestyles and habits. Large employers now pay an average of over $11,000 per worker per year in health care premiums. A Gallup survey and study estimated that overweight U.S. workers miss 450 million more days of work each year than other workers and that the lost productivity could exceed $153 million per year. Employers like Michelin are using wellness plans and/or adding monetary consequences in hopes of more successfully getting employees to make healthier choices. Although framing the incentives in terms of rewards might seem like a more positive approach, it may be that framing them as penalties (instead of rewards) is more consistent with research from behavioral economics, which shows that people react more strongly to monetary losses than to monetary gains of the same dollar amount. This approach gives rise to concerns among employee-rights advocates. Are such penalties for poor health a form of “legal discrimination”? Will workers with chronic conditions such as high blood pressure lose out on jobs? Are the penalties for those having costly health conditions anything other than lower pay for people with such conditions? Under current law, companies can use health-contingent rewards or penalties, but they cannot exceed 20 percent of the cost of the employee’s health coverage. Current law also requires employers to exempt employees from such penalties if they have conditions that make it impossible for them to meet the health care goals. Honeywell International Inc. is another company that penalizes workers for some health care choices. The company used to provide an incentive to workers who got a second opinion before undergoing (expensive) elective surgeries such as knee replacement, hip replacement, and/or back surgery; but it looked at effectiveness data of using incentives in such cases and decided to re-frame the program as a penalty (of $1,000) that workers must pay if they do not follow these steps. It reports that compliance with these steps went from under 20 percent to more than 90 percent as a result and that it is saving it at least $3 million more annually.
Questions:
1) Why do employers offer benefits? Is it because the law requires it, because it makes good business sense, or because it is the right thing to do? How much responsibility should employers have for the health and well-being of their employees? Take the perspective of both a shareholder and an employee in answering this question. (1 page)
2) If you were advising a new company on how to design its health care plan, what would you recommend? (1 page)
3) The strengths and weaknesses of the company and relevant stakeholders (where relevant) and their relevance. (1 page)
4) The major opportunities for the Company (in the current environment) and the extent to which the company has already capitalised on the available opportunities. (1 page)
5) The major AND minor problems in the case study and their relevance. (1 page)
6) Effective alternative strategies which the company could implement in order to address each of the problems outlined above. (1 page)
