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Simulon is a publicly-owned defense manufacturer headquartered in Nashville, TN,
with approximately 20,000 employees, 10,000 of whom are unionized. The company is
structured functionally and has divisions such as finance, manufacturing, marketing,
human resources, etc. The company has a CEO, six vice-presidents, and thirteen
directors. All are considered “executives.” The average employee wage is $60,000 per
year. Executive pay ranges from $350,000 per year for some directors to $750,000 per
year for the CEO. Company revenue last year was approximately $1.6 billion. The
stock is currently selling at about $50 per share, and profits are about 8% of revenue.
Half of the workforce is unionized. The hourly workforce has a major medical plan
negotiated by the union. Salaried, exempt employees are covered under a separate
health plan self-insured by the company.
Recently the Company’s Board of Directors was presented with a request from the CEO
to implement an executive health evaluation at the Duke University Medical Center in
Durham, NC, to ensure the good health of company executives who are crucial to the
company’s continued success. The comprehensive evaluation, which would be
available to executives annually, would consist of a medical history review, complete
cardio-pulmonary evaluation, comprehensive lab analysis and blood profile, nutritional
and lifestyle assessment, fitness assessment, and a personalized report and review
with a personal executive health physician. Full-body imaging services would also be
available if desired. While costs cannot always be determined in advance and will vary
based on age, gender, personal and family history, symptoms, and high-risk factors, it is
estimated that the cost of the two-day physical would be around $4,000 per executive,
excluding the costs for travel, lodging, and food. Because this more-comprehensive
health evaluation plan is intended only for executives, it cannot be covered by the
company’s major medical plan for salaried, exempt employees as it would be
considered discriminatory. These benefits could not be offered to all employees under
the major medical plan because the cost would be prohibitive.
A member of the Board asked how the cost of the program would be covered. The CEO
responded that the total annual cost for the health evaluation itself would be only
$80,000 and could easily be recovered by increasing medical premiums for all hourly
employees by only $10 per year. Including travel, the costs might double. In his words,
“Such an increase would be imperceptible to employees.” He went on, “However, we
can’t do that because of the union agreement. We would have to negotiate the increase
and update the union contract, and they would never agree to it. Therefore, I propose
that we change the current cost-sharing ratio and increase the premiums for the
salaried employees under the company’s major medical plan. The cost would be the
same — an increase in their medical premiums of less than $20 per year if we wanted to
cover all costs. This would be in addition to the annual increase resulting from increases
in healthcare costs.”
The board said they would take the CEO’s recommendation under consideration.
Questions:

  1. Are annual executive health evaluations of this type a good idea for protecting
    a company’s executive talent?
  2. What legislation governs employee healthcare plans? How does it impact this
    situation?
  3. Who are the primary and secondary stakeholders in this decision? Distinguish
    between the two.
  4. What are the potential consequences or outcomes for each primary
    stakeholder in this situation? Be specific!
  5. Are there any ethical issues involved in this situation? If so, what are they?
  6. Should the Board approve the CEO’s proposal as presented? Why or why
    not?
  7. Which ethical approach guided your decision (utilitarian, rights, justice,
    common good, duty, virtue)? Explain how the approach guided your decision.
  8. What other options could be considered for funding the CEO’s proposal?
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Sample Answer

 

 

 

 

Let’s analyze this case study of Simulon’s proposed executive health evaluations.

1. Are annual executive health evaluations a good idea?

Yes, in principle. Executive health is crucial for a company’s success. These evaluations can:

  • Early Detection: Catch potential health issues early, leading to better treatment outcomes and potentially preventing long absences.
  • Improved Performance: Healthy executives are likely to be more productive and make better decisions.
  • Retention: Demonstrating care for executive well-being can improve retention.
  • Succession Planning: Knowing the health status of key executives is important for succession planning.

However, the specific proposal and its funding mechanism raise several concerns, as we’ll discuss.

2. Legislation Governing Employee Healthcare Plans:

The primary legislation is the Employee Retirement Income Security Act (ERISA). ERISA sets standards for most private-sector employee benefit plans, including health plans. It mandates certain disclosures, fiduciary responsibilities, and provides remedies for participants. The Affordable Care Act (ACA) also impacts health plans, particularly regarding coverage

Full Answer Section

 

 

 

 

equirements and pre-existing conditions. The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives employees the right to temporarily continue their health insurance coverage at their own expense if their employment terminates. The Americans with Disabilities Act (ADA) prohibits discrimination based on disability, which includes benefits and requires equal access to healthcare benefits.

  • Impact on Simulon: The proposed executive health plan, if considered a “welfare benefit plan” under ERISA, would be subject to its regulations. The ACA’s non-discrimination rules regarding benefits could also be relevant. The proposal to fund the plan by increasing premiums for salaried employees raises potential concerns, as discussed below.

3. Primary and Secondary Stakeholders:

  • Primary Stakeholders (directly affected):
    • Executives: Their health is directly impacted, and they receive the benefit.
    • Salaried Employees: Their premiums would increase to fund the program.
    • Hourly (Unionized) Employees: Although their premiums aren’t directly affected, they might perceive unfair treatment.
    • Shareholders: The program’s cost and its potential impact on the company’s financial performance are relevant to shareholder interests.
  • Secondary Stakeholders (indirectly affected):
    • Board of Directors: They are responsible for oversight and approving the plan.
    • CEO: The plan is his proposal, and its implementation reflects on his leadership.
    • Union: They represent the hourly employees and may have concerns about perceived inequities.
    • Customers: The company’s performance, influenced by executive health, could indirectly affect customers.
    • Community: The company’s reputation and its relationship with the community could be impacted.

4. Potential Consequences for Primary Stakeholders:

  • Executives:
    • Positive: Improved health, early detection of issues, increased sense of value.
    • Negative: Potential privacy concerns, time commitment for evaluations.
  • Salaried Employees:
    • Negative: Increased premiums, potential resentment towards executives.
  • Hourly Employees:
    • Negative: Perception of unfairness, potential morale issues, could affect future contract negotiations.
  • Shareholders:
    • Positive: Healthier executives, potentially leading to better company performance.
    • Negative: Increased costs, potential negative publicity if the funding method is seen as unfair.

5. Ethical Issues:

  • Equity/Fairness: Funding an exclusive benefit for executives by increasing premiums for other employees raises concerns about fairness. Why are salaried employees bearing the burden, while hourly employees are not?
  • Transparency: How the funding mechanism is presented to salaried employees is crucial. Lack of transparency could lead to mistrust.
  • Discrimination (Potential): While not necessarily illegal, providing a benefit only to executives could be perceived as discriminatory.

6. Should the Board Approve the CEO’s Proposal?

No, not as presented. The funding mechanism is problematic. While the idea of executive health evaluations is sound, the proposed funding method creates ethical and potential morale issues.

7. Ethical Approach:

A justice approach is most relevant here. This approach emphasizes fairness and equitable distribution of benefits and burdens. The CEO’s proposal violates principles of justice by placing the financial burden solely on one group of employees (salaried) while excluding another (hourly) from both the benefit and the cost.

8. Other Options for Funding:

  • Company Profits: The company could absorb the cost of the program from its profits. Given the company’s revenue and profit margin, this is a feasible option.
  • Executive Compensation: A portion of executive compensation could be allocated to fund the program.
  • Combination: A combination of company profits and a small increase in executive compensation could be used.
  • Negotiation with Union: While the CEO believes the union won’t agree, it’s worth exploring options with the union, perhaps as part of a broader negotiation package. This demonstrates good faith and could lead to a mutually agreeable solution. Perhaps the union would agree if a similar, though less extensive, wellness benefit was offered to the union workforce.

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