NCPA - National Center for Policy Analysis


November 1, 2004

For years companies have tried to reduce health costs by offering employees incentives to change their lifestyles. Now, some employers are taking a tougher approach.

Jack Scanlon, senior vice president of First Health Group, a Downers Grove, Ill., managed care company, says that just 11.5 percent of the population accounts for 80 percent of health costs among the company's large-employer database, with the chronically ill accounting for much of that spending.

  • An employee who is significantly overweight can have a benefit expense more than 20 percent higher than a person who is not.
  • A tobacco user can have medical expenses almost 15 percent higher than a non-smoker.
  • An employee with depression may have health-related expenses as much as 70 percent higher than other employees.
  • Individuals with chronic diseases such as diabetes, heart disease, arthritis and cancer cost three to five times as much as others.

So, rather than distribute these costs to all employees equally, more employers are deciding to target the people who cost the most.

  • Union Pacific Corp. recently stopped hiring smokers in seven states as a pilot program to weed out potential high-cost workers.
  • General Mills, Inc. imposes a $20 a month "smoker's surcharge" on health premiums for those who inhale.
  • One Midwestern manufacturing giant has plans to cut short term disability benefits for smokers by giving disabled non-smokers 90 percent of their regular pay while smokers only receive 60 percent.

Source: Bernard Wysocki Jr., "Companies Get Tough with Smokers, Obese to Trim Costs," Wall Street Journal, October 12, 2004.

For WSJ text (subscription required),,SB109753059428942297-search,00.html


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