RSM Resources

When rising health-care costs don’t add up to something affordable,most U.S. businesses turn to subtraction. Company officials look at the sum of their health-plan premiums, claims and reserves; project how expenses and employee use likely will grow; and then whittle down benefits offerings to reach a more manageable number.

But what if you changed the formula? What if you started with healthier employees who used their benefits less intensely, and added programs to help workers and their families improve their health? That’s the two-pronged remedy many midsized employers are taking to control health-care costs and enhance workplace productivity.

Hiring healthier employees
Expenses related to bad health habits are staggering.

• According to the Centers for Disease Control and Prevention, smokers cost the American economy nearly $94 billion annually in lost productivity.
• U.S. medical expenditures attributable to obesity-related conditions reached $75 billion in 2003.
• The National Business Group on Health estimates the cost of obesity to U.S.companies at $13 billion per year and reports that obese people have 30percent to 50 percent more chronic medical problems than those who smoke or drink heavily.

It’s no wonder, then, that U.S.employers are examining ways to control the expense of providing health benefits to high-risk employees. Wal-Mart made international headlines last fall when a leaked internal memo revealed that the nation’s largest retailer was considering how to discourage unhealthy people from applying for jobs. Wal-Mart’s approach caused a media uproar. Yet,for decades, employers legitimately have screened out potential employees because of lifestyle conditions such as obesity that can trigger high health-care costs.

The federal employment laws that protect against disability, age and race discrimination do not protect anyone from discrimination on the basis of lifestyle characteristics. Employers can weigh lifestyle factors if they operate in the 29 U.S.states with "at-will" employment regulations. For example, more than6,000 American employers refuse to hire smokers, and many of those companies consider smoking to be grounds for dismissal, according to MSN Money. Alaska Airlines’ no-smoking policy for employees has been in place for 20 years, and the company makes no apology for turning down applicants who use nicotine products. Union Pacific Railroad also refuses to hire smokers, and several colleges and universities across the country have stopped hiring smokers for full-time positions.

"More and more employers are expressing a desire to address unhealthy habits like overeating and, especially, smoking," says Heather Gatley, general counsel for Alpha Staff Group, at the human resources Web site Workindex.com. "They’re showing a willingness to use the employment process itself to purge the workplace of high-risk health problems.Terminating employees or denying employment based on personal behaviors or lifestyle choices is not always illegal, but it is always somewhat risky." Employers should be very cautious, and HR professionals should definitely consider seeking outside support to confirm that state laws allow companies to consider lifestyle in hiring and firing decisions,she says.

Companies wanting to ban high-risk behaviors should communicate any new policies early, often and consistently, emphasizing that they will apply employment rules equally and at all levels of the organization.

"When we decided to expand our policy to prohibit smoking on any company property, we began communicating with management almost 18 months in advance and informed all employees almost a year in advance," says Barb Schaefer, Union Pacific’s senior vice president of human resources. "We also ensured that behavior modification programs are available for employees who choose to quit smoking. We have found that early communication has helped employees adapt to the new policy and determine how they will handle complying with it."

Improving productivity and well-being
Given how employees’ health-care needs change and grow throughout their lives, on-the-job wellness programs can help employees stay healthy and control their health-care costs. Companies of every type and size can benefit from promoting wellness in the workplace, and examples clearly show how these efforts directly affect the bottom line.

LincolnPlating Co., a Nebraska metal fabricating firm with 450 employees,counts employee wellness as a key component of its business strategy.Lincoln Plating’s program kicked into high gear in 2002, when the company hired a full-time wellness manager and went tobacco-free. Since then, the company has required quarterly health screenings for all employees, including full blood screens and analyses for strength,conditioning, body weight and body composition. Employees createpersonal wellness goals from their test results, and those goals link to company bonuses as part of incentives built in to the employee benefit plan.

"It’s been a journey, but a very worthwhile endeavor," says Dan Krick, vice president of human resources at LincolnPlating. Compared with the $8,000 annual health-care bill that most American companies pay per employee, Lincoln Plating’s costs run about $3,750 for each worker, and the company has not reduced benefits or passed on extra costs to employees.

Fairview Health Services, a system of hospitals and clinics based in Minneapolis, has a 10-year track record of providing wellness programs for its 13,000benefit-eligible staffers and serves as a model for organizations of all sizes. Barbara Eischen, Fairview’s director of health and benefits services, shared the organization’s results with CFO.com:

• In1996, Fairview employees averaged four health risks each, such as smoking, arthritis or obesity. That number dropped to 3.1 by 2003.
• These improvements equal an average cost savings of $464 per Fairview employee — $282 in medical-plan expenses, $75 in reduced absenteeism and $107 in workers’ compensation.
• While health-care premiums increased an average of 10.9 percent at other Minneapolis-area companies over the past three years, premiums at Fairview have risen just less than 6 percent.
• Fairview has saved $5.6 million through its wellness programs.

National efforts are under way to give employers even more incentives to promote good health habits. In 2005, for example, U.S. Sen. Tom Harkin, D-Iowa,introduced the Healthy Workforce Act, which would give companies a 50percent tax credit of up to $200 per employee for sponsoring comprehensive health-promotion programs.

"The obesity and diabetes epidemics have put a face on this situation for policy makers,and legislative advocacy efforts have given federal and state governments the mechanisms they need to incorporate health promotioninto policy," says Michael O’Donnell, president of the American Journal of Health Promotion. "If we fail to do any of these things, we will miss a huge opportunity."