3 min read

The Cost Of Unhealthy Employees

Oct 22, 2014 6:30:00 AM

cost_of_unhealthy_employeeIn March 2013, CVS announced a new corporate wellness program which posed a choice to employees participating in their health plan: complete a free health screening and wellness review OR pay $600 in additional health insurance premiums each year.

This type of incentive strategy is not uncommon. Many employers offer premium discounts or other incentives to employees who participate in wellness programs. However, CVS’s plan was publicly criticized with concerns over patient privacy. Allegations of corporate coercion dominated the media limelight. Though the plan was offered as a voluntary incentive, public perception viewed the $600 as a penalty rather than a reward.

Controversy aside, one key takeaway remains: employers are serious about cracking down on health costs and they are engaging employees for answers.

Employers’ concerns over health costs are not without cause. According to the Kaiser Family Foundation’s 2013 Employee Health Benefits Survey, average annual premiums for employer-sponsored family coverage have increased by 80% since 2003. This equals a compounded annual growth rate of approximately 6%. These increases outpace income growth and national inflationary trend. Increased cost-sharing with employees has provided short-term reprieve for employers protecting their bottom line, but many are turning to more sustainable solutions to attack the root cause of rising health costs.

There are many factors that contribute to increasing health care costs across the board. Aging populations require more health services. Hospital consolidations create greater pricing power for providers. New medical technologies engender more high-cost services. Wasteful utilization attributed to the fee-for-service model. Many of these factors are outside employers’ control. So they are reaching out to employees via wellness programs to encourage healthier lifestyles and develop a consumerist approach to health care.

The Center for Disease Control (CDC) estimates that $3 of every $4 dollars employers spend on health costs are used to treat chronic conditions such as obesity, hypertension, diabetes, asthma, and depression. A Gallup study suggests that these same conditions create workforce absenteeism costs amounting to $153 billion of lost productivity for U.S. businesses each year. Many of these same conditions are preventable as they are driven by behaviors such as:

  • Poor nutrition – Coronary heart disease, hypertension, diabetes, and obesity are conditions most commonly attributed to poor dietary patterns. A SHRM study estimates that 76% of U.S. workers consume insufficient levels of fruits and vegetables, 63% are overweight or obese, and 38% have high cholesterol levels. The study also approximates that these behaviors cost $650 - $1400 in excess annual medical costs for high-risk adults.
  • Smoking – The United Health Foundation estimates that 1 in 5 Americans smoke despite the fact that smoking is the most preventable cause of death in the United States. The CDC estimates smoking amounts to $96 billion in health costs each year while the Wellness Councils of America (WELCOA) assigns $40 of additional health costs to every pack of cigarettes tobacco users smoke.
  • Physical inactivity – WELCOA estimates that 70-80% of the U.S. population are physically inactive, or achieve less than 30 minutes of moderately intensive daily exercise. Furthermore, 15% of health claims are attributed to sedentary lifestyles. SHRM approximates over $900 in excess annual medical costs for physically inactive adults.

Together these risk factors make up 75% of the health costs It makes sense that companies are looking for ways to influence their employees to adopt healthier behaviors. CVS claims to be “committed to helping people on their path to better health” which includes 200,000 nationwide employees.

Their hope is this choice will help employees become more active in their personal health care management, thereby increasing the overall health of their workforce and reducing the likelihood of high-cost health claims. Something every employer wants.

The Affordable Care Act currently allows employers to allocate 20% of employee premiums to wellness programs. Though it is left to be seen how effectively wellness programs and incentives can influence employee behaviors, one thing is certain: An unhealthy workforce is a cost that employers cannot ignore. What is your company doing to address the risk of unhealthy behaviors?

Controlling Cost of Health Care Spending


Written by Gibson

Gibson is a team of risk management and employee benefits professionals with a passion for helping leaders look beyond what others see and get to the proactive side of insurance. As an employee-owned company, Gibson is driven by close relationships with their clients, employees, and the communities they serve. The first Gibson office opened in 1933 in Northern Indiana, and as the company’s reach grew, so did their team. Today, Gibson serves clients across the country from offices in Arizona, Illinois, Indiana, Michigan, and Utah.