Umbrella Corporation
Memo
To: C. E. O’Reilly, Chief Executive Officer
From: Dan Markwell, Vice President of Human Resources
Sent: April 24th, 2018
Subject: Health Insurance Cost Reduction Proposal
Over the last four years, health-care and worker’s compensation costs have risen dramatically. In 2014
per employee costs were $5,675 per year while this past year costs reached $11,560 per employee per
year. While this increase is dramatic, it follows a nationwide trend of increasing health-care costs, which
is expected to continue. Limiting the rate at which these costs grow will be vitally important to Umbrella
Corp, as we currently pay approximately 70% of the costs of employee insurance, equating to
approximately $8,092 per employee and an annual total of $2,071,552 for our 256 eligible employees.
A 2016 Lancet study, reexamining 2012 survey results, discovered that those who engaged in at least 30
minutes of walking, 5 days a week paid $2,500 less in annual healthcare expenses; however, the study
assumed a near even cost-sharing relationship between employee and employer (Dr Ding D, 2016)
. This means we could expect a substantially higher cost savings per employee, less the savings on co-
pays, prescriptions and other services not provided by our employee coverage.
Conservatively estimating a $1,000 per employee per year, the annual savings of daily exercise would
exceed a quarter of a million dollars and decrease our overall insurance costs by over 12 percent without
any changes to coverage or eligibility. If savings were to reach $2,500 per employee, our costs would be
cut by a quarter annually. Such significant cost savings demonstrates a clear need for Umbrella Corp to
implement a wellness program for our employees.
To address the need for routine exercise, Umbrella corporation has several avenues available to us: or
offer or encourage the use of personal devices, such as Fitbit, establish a partnership with a local gym or
fitness center and offer or encourage employee membership, or construct an on-site gymnasium for
employee use.
The promotion of personal devices to encourage exercise is the first available option to Umbrella Corp.
While this option is the cheapest, requiring an upfront cost of purchasing the units or offering employees
assistance purchasing them, but with little to no continuing costs. This option is also the most difficult to
enforce as simply purchasing the devices will not ensure their use, and their use will not necessarily
ensure the user achieves the daily recommended amounts of activity.
Establish a partnership with a local business to provide memberships to our employees offers Umbrella
the flexibility to control our burden of the cost, and provides an additional economic incentive for
employees to participate. This option also has an issue with compliance, as employees may be less likely
to purchase a membership they may not want to use. However, Umbrella Corporation paying for
companywide memberships that employees may not use is also a concern with this option. This option,
unlike the others, has a much lower upfront cost, but will require continuing payments for service
Constructing a fitness center within one of our existing facilities is our third option. This option, like the
personal devices, has a significant upfront cost with diminished continuous costs. While construction and
equipment will be a significant investment, this option gives us the ability to offer all services available
from a gym membership to our employees at a more convenient location, and free of charge. While this
would increase the overhead cost of maintenance within the facility it is located, the overall costs
increases would be marginal on an annual basis.
Given the costs and benefits of the various options available to Umbrella Corp, it is the recommendation
of the Department of Human Resources that Umbrella Corporation construct an on-site facility for
employee fitness. This option offers us the greatest flexibility in the services offered to our employees, to
ensure physical wellbeing and fitness; additionally the convenience will help drive enrollment, and the
cost-savings on health insurance would ensure lasting returns on the investment. A full-length formal
report from DHR will follow shortly, please feel free to contact me with any questions you may have.
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References
Dr. Ding, D. (2016). The economic burden of physical inactivity: A global analysis of major non-
communicable diseases.
The Lancet, 866(10051), 1311-1324. doi: [Link]
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