Bussiness Ethics Assignment

MANAGEMENT \ Updated April 5, 2013, 10'.20 p.m. ET

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By LESLIE KWOH

Bloomberg News

Michelin North America workers with high blood pressure or large waisllines may have to pay higher health-care premiums starting next year.

Are you a man with a waist measuring 40 inches or more? If you want to work

at Michelin North America Inc., that spare tire could cost you,

Employees at the tire maker who have high blood pressure or certain size

waistlines may have to pay as much as $1,000 more for health-care coverage

starting next year.

As they fight rising health-care costs and poor results from voluntary wellness

programs, companies across America are penalizing workers for a range of

conditions, including high blood pressure and thick waistlines. They are also

demanding that employees share personal-health information, such as body- mass index, weight and blood-sugar level, or face higher premiums or deductibles.

Corporate leaders say they can't

lower health-care costs without

changing workers' habits, and they

cite the findings of behavioral

economists showing that people

respond more effectively to potential

losses, such as penalties, than

expected gains, such as rewards.

With corporate spending on health care expected to reach an average of

$12,136 per employee this year,

according to a study by the consulting firm Towers Watson, fTW +o26o/~1

penalties may soon be the new norm.

With companies facing ever higher heatth care costs, employers are now using real money, and sometimes penalties, to make sure their employees are taking responsibility of their own health. MarketWatch's Jim Jeller reports. (Photo: Getty Images)

Employers may argue that tough-love

measures, such as punishing

workers who evade health

screenings, benefit their staff and

lower health-care costs. But such steps also portend a murky future in which a

chronic condition, such as hypertension, could cost workers jobs or

promotions-or prevent them from being hired in the first place. ~-----

More When a Job Can Go Up in Smoke At Work: Are Health Penalties Fair?

Until recently, Michelin awarded workers automatic $600 credits toward deductibles, along with extra money for completing health-assessment surveys

or participating in a nonbinding "action plan" for wellness. It adopted its stricter

policy after its health costs spiked in 2012.

Now, the company will reward only those workers who meet healthy standards

for blood pressure, glucose, cholesterol, triglycerides and waist size-under 35

inches for women and 40 inches for men. Employees who hit baseline requirements in three or more categories will receive up to $1,000 to reduce their annual deductibles. Those who don't qualify must sign up for a heallh-

coaching program in order to earn a smaller credit.

Vote Employee-rights advocates say the

penalties are akin to "legal

discrimination." While companies are

calling them wellness incentives, the

penalties are essentially salary cuts

by a different name, says Lew

Maltby, president of Princeton, N.J.-

based National Workrights Institute, a

nonprofrt advocacy group for employee rights in the workplace. "No one ever

calls a bad thing what it really is," he says. "It means millions of people are

getting their pay cut for no legitimate reason."

View Results»

Should employees wlw don't meet health and lifestyle standm'ds llUue to pay more/or 1lealth insurance?

Yes

No

Companies may say they have tried softer approaches, but many haven't

exhausted their options, like putting healthier food in their cafeterias, building a

fitness center or subsidizing gym memberships, he adds. "At best, these

programs are giving employers an enormous amount of control over our

private lives."

Michelin denies any discrimination and says the policy is voluntary. Not

participating means employees won't get the incentives. Wayne Culbertson,

Michelin's chief human resources officer, says the old incentive programs

didn't lead to meaningful change. For example, an employee could pledge to

start walking daily, he says, but never have to prove it. "It was sort offree, you

know? You got $600 just for being a good employee."

Six in 10 employers say they plan to impose penalties in the next few years on employees who don't take action to improve their health, according to a recent study of 800 mid- to large-size firms by human-resources consultancy Aon

Audio ! AON -4 13% Hewitt A separate study Leslie Kwoh talks more about companies by the National Business Group on getting tougher on employee health with The Health and Towers Watson found Wall Street Joumal This Moming. that the share of employers who plan

00:001 to impose penalties is likely to double 00:00

to 36% in 2014.

Current law permits companies to

use health-related rewards or penalties as long as the amount doesn't exceed

20% of the cost of the employee's health coverage. John Hancock, a veteran labor and employment attorney at Butzel Long, a Detroit-based law firm, says

that while companies can't legally dock a worker's pay for a health issue, they can tie an employee's health-care bill to whether the worker meets or misses

health goals. As long as employers offer exemptions for workers with

conditions that prevent them from meeting health goals, the firms are in the clear.

The situation is less clear if, for example, a company ends up singling out

obese employees by charging them more for health coverage. If the obesity is

linked to an underlying condition, the employer may be liable for discrimination, Mr. Hancock says.

Currently, most companies tie between 5% and 10% of employee premium

costs to incentives, but that will likely go up, says Charlie Smith, chief medical

officer for national accounts at insurer Cigna Corp. I CI -2.65% r

Phannacy chain CVS Caremark I CVS -2.06% (sparked outrage among employees and workers-rights advocates last month by asking staff members

to report personal health metrics, including their body fat, blood sugar, blood

pressure and cholesterol levels, to the company's insurer by Mayor pay a

$600 penalty.

Health Costs How your shape can weigh on your wallet.

$652 Additional amount that General Electric employees who self-identify as smokers must pay for health care each year.

$1,000

Penalty that Honeywell is adding for workers who get certain types of surgery without seeking more input.

$600

Annual penalty CVS employees must pay if they fail to report their weight, body fat and cholesterol levels to the company's benefits firm.

$100

Monthly penalty that Mohawk Industries charges employees who don't participate in a health-risk assessment. I

$1,000

Maximum additional amount Michelin employees with high blood pressure or large waistlines could pay for health dare.

Few workers can afford to refuse, but

some aren't happy. "It opens a Pandora's box," says a full-time CVS

employee who works at a distribution

center in Florida. "It's none of their

business." While the 26-year-old

describes himself as healthy, he says

he is worried about disclosing health

infonnation that could be shared

without his knowledge. He says he

plans to cancel his health plan, which

also covers his wife and child, and

will start looking for work elsewhere.

CVS, which maintains that the

change is intended to make workers

aware of their health risks, says it doesn't have access to workers'

screening results.

Mohawk Industries, ! MHK -1.92% la Calhoun, Ga.-based flooring

company, says participation in its company's health-risk assessment process

shot up to 97% after the cbmpany imposed a $100 monthly penalty on

nonparticipants. The company had previously offered rewards for participating

in the assessment, but enrOllment rates were low, says Phil Brown, senior vice president of human r",_"nllr".,'"'' HQneywelllntemstiGnal I~G. ! Clml 1.2~%lrecently intrQQllceQ a $1,000 penalty-<leducted from health-savings accounts-for workers who elect to get

certain procedures such ~s knee and hip replacement and back surgery without seeking more inp~t. The company had offered $500 for participating in

a program that provides ,ccess to data and additional opinions for workers

considering surgery, but less than 20% of the staff joined up. Since it flipped the incentive to a penalty, the company says, enrollment has been above 90%.

There are no new data 01 surgeries, but the change is projected to save at least $3 million annually, says Brian Marcotte, Honeywell'S vice president of

. I compensation and benefits, who presented the plan at the Conference Board's

Employee Health Care Conference last month. .

Typically, 20% of a complny's workforce drives 80% of health-care costs, I

according to Cigna's Mr. Smith, and roughly 70% of health-care costs are

related to chronic conditions brought on by lifestyle choices, such as

overeating or sedentary behavior. But when employers target those conditions,

employees themselves may feel targeted, especially when it comes to their

weight. While companies can't say it outright, many of their measures-such

as high cholesterol and high blood pressure-are proxies for obesity.

I A 2011 Gallup survey estimated obese or overweight full-time U.S. workers

I miss an additional 450 million days of work each year, compared with healthy workers, resulting in morJ than $153 billion in lost productivity.

Worse. chronic conditions could someday harm workers' chances of getting

hired, says Deborah Peel, a psychiatrist and founder of the Austin, Texas- based nonprofit Patient Privacy Rights. Patient information sometimes gets

leaked, sold or stolen, she warns, noting that she has fielded complaints from

job seekers claiming that employers requested health records before extending

an offer. "It's incredibly unfair," she says. "It should be about our track record"

dOing our jobs.

For now, employers are trying to balance the carrot and the stick. Plenty of

companies will be watching to see if inflicting a little financial pain leads to change in the long run. 'What are the right pain points?" asks Paul Keckley,

executive director of Deloitte LLP's health-care research arm, the Center for

Health Solutions. "Ultimately, you have to make behavior change automatic.

We've got to make this like brushing your teeth."

-Lauren Weber contributed to this article.

Write to Leslie Kwoh at [email protected]

Ii version of this article appeared April 6. 2013. on page Al in the U.S. edition of The Wall Street Journal ..with the headline: Shape Up or Pay Up: Firms Put in New Health Penalties.