The Obesity Battle

Weighing the Obesity Exposure

Obesity's classification as a disease raises a host of new risk management challenges.
By: and | November 1, 2013 • 8 min read

The recent action by the American Medical Association to reclassify obesity as a disease has generated a great deal of discussion about its potential impact on workers’ compensation.

Notably, in August, the California Workers Compensation Institute (CWCI) issued a report suggesting that the reclassification could spark a rise in the number of work injury claims involving obesity.

This should raise some new red flags for risk managers, who may view this as a signal to revisit their workers’ compensation and employee wellness initiatives.

Not surprisingly, CWCI found that in workers’ compensation, obesity historically has been a comorbidity — a condition coincidental to, but independent of, an injury or other illness. Thus, medical providers might include an obesity comorbidity code on their bills when they believed the condition needed to be addressed so the work-related injury could be treated and the worker could recover and return to work.

An earlier CWCI survey (conducted in 2011) found that, while 28 percent of injured workers reported that they were obese, fewer than 1 percent of job injury claims from those workers included an obesity comorbidity diagnostic code.

So, at that point, obesity infrequently was found to be a condition that had to be addressed in order to treat most work injuries and illnesses.

Now, however, according to CWCI, that may change: “… if medical providers feel a greater responsibility to counsel obese patients about their weight and to treat the condition, especially if there is a greater likelihood that they will be paid for doing so. That could prompt an influx of claims that include obesity as a comorbidity, as well as an increase in cases in which obesity is claimed as a compensable consequence of injury (e.g., when an injured worker gains weight due to lack of exercise or a medication prescribed to them during recovery).”

The Cost of Obesity

By latest estimates, about two-thirds of American adults are overweight or obese. And the difference in medical costs is more than five times higher in severely obese workers than those with a normal Body Mass Index (BMI). Citing the Duke Health and Safety Internal Medicine Archives, NCCI described how workers’ compensation claims rose in step with workers’ BMI.

Consider the following medical claims costs per 100 workers:

*Normal BMI: $7,500

*Overweight: More than $13,300

*Mildly Obese: More than $19,000

*Moderately Obese: More than $23,300

*Severely Obese: More than $51,000

Indeed, when obesity is a comorbidity in workers’ compensation, its impact on medical costs is substantial.

With respect to indemnity costs, an NCCI study in 2012 found that claims involving obesity have five times the indemnity costs of those where obesity is not a comorbidity. The multiple jumps to six when permanent partial disability claims are included.

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The NCCI study follows a Duke University study, which pointed to substantially higher odds of injury for workers in the highest obesity category.

That study tallied workers’ compensation claims for Duke University and Duke University Health System employees over an eight-year window, and classified the employees according to six BMI categories ranging from underweight, to recommended weight, to overweight and three classes of obese.

The Duke study found that medical costs for morbidly obese employees were 6.8 times higher than for recommended-weight employees. Morbidly obese employees were also twice as likely to have a claim, and missed almost 13 times more days of work.

Beyond the studies, AMA’s classification of obesity as a disease adds a new wrinkle — and that’s whether workers might claim their disease stems from the forced sedentary lifestyle of the work environment.

Obesity and Modeling

In workers’ compensation management, the use of predictive modeling is rapidly gaining momentum. When identified early, obesity is an absolute driver in predicting the size and complexity of the loss. Obesity is one of the most effective “predictors” of serious injury.

Tracking the overall health of the workforce will allow risk managers to design proactive solutions to obesity and related conditions before a claim occurs.

However, after the claim occurs, risk managers will need to determine early on what solutions are available for changing the “predicted direction” of that claim, if the claimant is obese.

Here, the value in predictive modeling is if the claim is likely to be a large loss, then it is important to devise intervention strategies as soon as possible to change the claim’s trajectory.

The workers’ compensation industry has a wealth of data on obesity. Employer claims data with payment detail is rife with employer-specific information on comorbidities and costs.

To address the impact of obesity on the organization, it is necessary to tackle the data.

As the CWCI research found, diagnostic coding isn’t isolated around comorbidities consistently. That is a critical data element in prediction, intervention and return on investment tracking.

If it is difficult to gather program data, remediating that situation should be a top priority. Require vendors to make information readily available. Obesity is often voluntarily reported to doctors and available in diagnostic codes as claims begin creeping upward. TPA adjusters should be able to share that information with an employer’s defense attorneys. And the organization’s RMIS can be used to conduct a multivariate analysis.

Many employers have difficulty putting their fingers on their specific experience and losses. Try to fix that now. Scrub the current open claims. Extract the obesity information so it can be readily correlated with other information in reports.

With the help of the organization’s HR department, work with HR consulting firms — independent consultants or those associated with brokers — to seek out integrated claim and human resource analysis.

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In addition, the CDC’s Obesity Cost Calculator, available through the CDC website, can help employers estimate obesity-related costs to the organization, as well as compare the costs and benefits of obesity prevention programs.

For example, risk managers can develop the following estimates for their organizations:

*Total costs attributable to high BMI;

*Total annual medical costs attributable to high BMI;

*Total annual work loss costs attributable to high BMI;

*Number of employees with high BMI;

*Average attributable cost per high-BMI employee;

*Expected costs of interventions to reduce obesity;

*Potential reductions in medical costs and work loss resulting from interventions; and

*The number of years before a break-even period is reached.

Once there is a baseline, risk managers can see how obesity is driving the organization’s experience.

And when the actual costs associated with obesity (not assumptions or broad industry numbers) are known, employers can begin evaluating intervention options.

In workers’ compensation, the longer a claim is open, the more issues arise — and the higher the costs.

Teaming With Human Resources

Given the increasing costs and potential exposures associated with obesity, the time is right for risk managers to collaborate with their HR counterparts and educate senior management about obesity, workers’ comp and related issues.

With the AMA classification, employees might claim their new disease is a compensable consequence of injury, acquired through free meals or poor snack choices available in meetings and break rooms, and long work hours that reduce time available for exercise.

As risk managers initiate internal dialogues on obesity, the time is ripe for employers to revisit or establish policies that reduce exposure and strengthen wellness. They can improve available food options or eliminate them altogether.

Consider workplace interventions on obesity, including wellness programs. The Wellness Council of America estimates the annual cost per employee of $100 to $150 for a wellness program generates a return of $300 to $450. And several studies show wellness programs generally pay for themselves. Harvard health economist Katherine Baicker led a 2010 study considered the “gold standard” in measuring return on investment: It found that “medical costs fall about $3.27 for every dollar spent on wellness programs, and absentee day costs fall by about $2.73 for every dollar spent.”

In January 2014, wellness measures under the Affordable Care Act take effect. Some may help expand corporate wellness programs and improve their effectiveness in reducing obesity, including:

*Larger employer incentives. Starting in 2014, employers will be able to boost incentives for employee participation in health promotion and wellness programs by 20 percent to 30 percent.

*More robust wellness benchmarking. Federal workforce wellness programs will be evaluated and reported to Congress by the Department of Health and Human Services (HHS). Under the law’s Section 4402, the evaluations will include employee absenteeism, productivity, workplace injury rates, and “medical costs incurred by employees, and health conditions, including workplace fitness, healthy food and beverages and incentives.”

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*Long-term measurement. Surveys will be conducted nationwide on worksite health policies and programs, and assessed by HHS. Subsequently, surveys will be conducted periodically to measure the effectiveness of the programs. The surveys are outlined in Section 399 MM-1 of the bill.

*Funding assistance. Small business tax credits and grant money will be available for implementing wellness programs.

Incentives Don’t Guarantee Success

In addressing obesity, wellness programs to date haven’t been a panacea. Nearly three in four (74 percent) U.S. employers already offer some sort of incentive or wellness program, but many have had modest effects due to low employee participation.

Be aware that incentives alone don’t guarantee success. Experts at WELCOA (Wellness Councils of America) point to seven benchmarks of successful, results-oriented employer wellness programs:

*Capture CEO support.

*Create cohesive wellness teams.

*Collect data to drive health efforts.

*Craft an operating plan.

*Choose appropriate interventions.

*Create a supportive environment.

*Carefully evaluate outcomes.

So if the organization’s wellness program has limited participation, it may warrant revisiting it.

As cost issues associated with obesity gain more attention, risk managers recognize they cannot solve these challenges exclusively with traditional approaches. Consider intervention options. Understand the costs. And do the necessary analysis to be able to justify the investment in necessary risk management resources to stakeholders.

Misty Price is director of analytics for Adelson, Testan, Brundo, Novell & Jimenez. Mariah Baesel is director of wellness for Adelson, Testan, Brundo, Novell & Jimenez. They can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]