Category Archives: Economy and Meltdown

These Charts Better Not Reflect The True State Of The US Economy

Lately, when it comes to obtaining an accurate sense of the true state of the US economy, it is as difficult if not more than analyzing the openly-manipulated Chinese data. On one hand, the Fed-juiced market, which has lost its discounting powers, no longer reflects the current or future economic (or corporate) fundamentals, on the other, massive seasonal aberrations, whether purposeful or accidental, have made a mockery of any data series, be it jobs, manufacturing, retail sales, or housing. On the other, the administration – still stuck in the worst economic “recovery” since the Great Depression – is desperate to telegraph an improving economy, most evident in the months leading up to the presidential election, which makes taking any data at face value problematic and naive at best. Yet even the openly-contradicting Chinese data manipulation has its Achilles heel in the form of monthly electricity consumption (and to a lesser extent, production) updates.

So what is the US equivalent of Chinese electricity consumption data? We believe it may be the little-tracked, and thus not nearly as “adjusted” weekly updates from the Energy Information Administration, whose data on barrels of US product supplied of both total petroleum products and just gasoline are as indicative of the true state of the energy-hungry beating heart of the US economy as any other data set, and is likely a far more accurate representation of what is really going on between the lines.

Sadly, if that is indeed the case, then the disconnect between propaganda myth and reality is about as big as can be, since on a blended 52-week average basis, the total product supplied of motor gasoline is back to 2003 levels (black line on chart below). However, where it gets really scary is looking at the total product supplied category, which includes gasoline and all other product such as heating oil, propane, and kerosene. As the chart below shows, the US economy, whose GDP we are led to believe has never been higher, now has the same total consumption of all petroleum products (red line) as it did… back in 1997!

Source: Weekly US Product of Finished Motor Gasoline (EIA), and Total Petroleum Product (EIA).

The same disturbing story is revealed when looking at various other EIA charts of sales, and thus demand, such as this one showing that 52 week average sales and deliveries of gasoline by prime supplier in the US has also tumbled to levels last seen in the late 90’s.

Source: Total Gasoline All Sales/Deliveries by Prime Supplier (EIA)

But maybe it is just the usage of more efficient modes of transportation, and a higher MPG as more Americans shift to electric cars and some such. Sure, maybe. Of course, that would not explain why the total miles driven has hardly budged for the last decade, and is far off the all time high recorded when the economy was indeed humming on all fours, if moments before it imploded in 2007…

Source: Moving 12-Month Total Vehicle Miles Traveled (St. Louis Fed FRED)

… but the biggest question we have is just how did the biggest boost in energy and engine efficiency occurred at two key junctions: Just after the Lehman Failure, and just after the US downgrade and the first debt ceiling crisis, when the total sales of gasoline by US retailers literally went off the charts, and which data series is now languishing at levels not seen since the 1970s (unfortunately we can only estimate: not even the EIA’s data set goes back that far).

Source: US Total Gasoline Retail Sales by Refiners (EIA)

Perhaps, just perhaps, Occam’s razor applies in this situation as well, and the collapse in energy demand in the US has little to do with MPG efficiency, higher productivity, and throughput mysteriously achieved just when the entire economy was imploding in the months after the Lehman failure, and despite the re-emerging proliferation of cheap Fed debt funded SUVs and small trucks (discussed here), and everything to do with the US consumer being slowly but surely tapped out?

Of course, if that is the case, than the US economy is far, far weaker than even we could have surmised, although it certainly would explain the desperation with which the Fed is doing everything in its power to preserve the levitation of the S&P, i.e., the confidence that all is well despite all signs to the contrary. Because should the market finally be allowed to reflect the underlying economy – not the administration represented economy, but the real one – then everything that has transpired in the past five years will be child’s play compared to what’s coming.


The Knockout Blow People Will Not See Coming

Submitted by Simon Black of Sovereign Man blog,

Have you ever done something really stupid, just because you were in love? Something you look back on and cringe, thinking “why on earth did I do that?”

Of course. Who hasn’t?

Fear. Love. Panic. Exuberance. Jealousy. Desire. These emotions have tremendous influence over human behavior. And when they kick in, they skew our judgment and cause us to do things that can only be characterized as highly irrational.

In the world of economics and finance, they call this ‘sentiment’. Consumer confidence, business confidence, investor confidence… these are basically emotional readings. Screw the numbers. To hell with the truth. It’s all about how people feel.

It seems crazy, but it’s true. Right now, for example, ‘sentiment’ is telling us that the euro crisis is over. It’s telling us that the debt ceiling is pretty much resolved. And, after taking five years to reach pre-crash levels, it’s telling us that the stock market is once again safe for the average investor.

Yet the numbers tell a completely different story.

In the US, politicians are celebrating their accomplishments that the US unemployment rate has declined to 7.6%.

Of course, the real figures show that the labor force participation rate (effectively the percentage of society that they consider to be in the work force) has just hit a 30-year low. And the economy is failing to create new jobs.

Perhaps most of all, the US debt level this year will hit the danger zone that Greece was in just a few years ago when the European debt crisis kicked off in earnest.

In Europe, the situation is so bad that even the government figures are dismal. Italy is officially in a deep recession. Spain is posting a public deficit over 10% of GDP. The Greek economy shrank (officially) nearly 6% last year. Etc.

Bottom line, the numbers don’t match up with sentiment at all. And this makes for precarious investment conditions.

Over the first quarter of this year, US stock mutual funds reported $52 billion in retail investment inflows, according to market data firm TrimTabs. This is the highest inflow in a decade.

In January of this year, retail investors poured a record $77.4 billion into the stock market. To put this in perspective, the prior record, set in February 2000, was $23.7 billion.

You can probably guess how that turned out. This whoosh of money into stocks happened mere months before the crash.

It certainly seems strange when you stack it all together: on one hand, record high deficits, record high debts, record low labor force participation. On the other hand, record high stock market, record high mutual fund inflows.

Something just doesn’t add up.

Investors are throwing caution to the wind right now… ignoring the basic fundamentals and focusing exclusively on euphoric sentiment. (Or central bank policy).

Some of you may know that I was a competitive fighter for a number of years. I can personally attest, and any boxer will tell you, that it’s the punch that you don’t see coming which knocks you out.


Endangered Species: An Entrepreneur In France

Wolf Richter

“I need to hire more people, but the government won’t let me,” said my friend, an internet entrepreneur in France, one of the intrepid figures still slugging it out over there—in a country whose relentlessly deteriorating unemployment problem is gnawing at the very fabric of society.

We spent an hour and a half on Skype, talking about topics that were a bit, let’s say, delicate under the current regime in France. So he and his company, both well known, will remain unnamed. He has been successful in the startup sense: his company has had two solid rounds of funding from venture capital investors. VCs are another phenomenon that hasn’t gone extinct in France yet, testimony to the mind-boggling human capacity to adapt and survive no matter how hostile the environment.

The public got an inkling of it last October. The government was jacking up taxes left and right to rein in the deficit for 2013. So the capital gains tax would be raised to the same astronomical level as the tax on earned income. But an explosive editorial by the exasperated head of an internet VC fund resonated with entrepreneurs, investors, artisans, and mom-and-pop business owners. Their anger flooded the social media and eventually even prime-time TV and turned into a successful revolt [read A Capitalist Revolt in Socialist France].

Early on, he’d hired an expensive law firm to draft the required labor contract for his future employees. When the document was finished, they tried to get it approved by the administration, the catch-all word for any of the thousands of governmental entities that impact every part of life in France, sometimes in a Kafkaesque manner. “When you go there, they treat you like a criminal,” he said. And they turned it down. When he asked for suggestions, they refused to help. It would be up to him to come up with an acceptable document.

Which they eventually did—after considerable time and expense. Now 15 people work in his company, and he’d like to hire more, but he is afraid of the administration, and particularly the labor code, that unwieldy, impenetrable monster of thousands of pages, plus innumerable texts, decrees, and orders that drown every little detail of the employer-employee relationship in a sea of inscrutable complexity. “I have to violate some of these terms,” he said. It’s not like he has a legal staff on board.

And if it didn’t work out and he needed to let someone go, the employee would drag him before the prud’hommes (elected industrial tribunal) where 80% of the cases were decided in favor of the employee, “because even they don’t understand the labor code,” he said. That would get expensive. So he doesn’t hire anymore and uses free-lancers as much as possible.

Why not incorporate the business, like so many French entrepreneurs, in a more hospitable country? “I’m too French for that,” he laughed.

France needed to be reformed, he said, but instead of fundamental reform, for example of the labor code, they just tweak it by adding amendments, which make it even more complex and contradictory. “They need to throw it out and start over,” he said. “It needs to be simple, like in Switzerland.”

Sarkozy tried to push through reforms, he said, but when he told the top functionaries of the administration what he wanted, they told him, “Yes, Monsieur le Président, but we can’t do that.” They’re all énarques, graduates from the École Nationale d’Administration, an elite university where the kids of the elite learn how to run the country. They all know each other, they know the CAC-40 CEOs who they went to school with and who get recycled as ministers. “They all think alike,” he said. They need each other to progress in their careers, so they stick together. Sarkozy, who wasn’t an énarque and didn’t think like them, didn’t have a chance. “They just stonewalled him,” he said.

Over the last few days, the media have talked about nothing but the tax fraud debacle of ex-budget minister Jérôme Cahuzac, but the French don’t care if politicians lie about taxes, he said. What they care about are jobs. “And no one is talking about jobs, not the way they should,” he said. “People like me want to create jobs, but the administration makes it impossible.”

So the mood has become dark and has turned away from politics, he said. People always expressed their hatred for certain politicians, but now they express their hatred for the system. The comments online were getting more violent. They’re looking for a strong voice that can pull them out. “When the Fourth Republic collapsed, we had de Gaulle,” he said. “Now we have no one.” And then he wondered, “What if the wrong person came along?”

The French media might not even notice if the Eurozone fell apart—that’s how tangled up they are in the Cahuzac fiasco that blew up with phenomenal effect. Former Presidents Chirac and Sarkozy were dogged by investigations and trials that laid bare misdeeds they personally had been involved in. By contrast, the Cahuzac fiasco doesn’t implicate President Hollande. Not yet. But it’s tearing up his government. Read…. The French Government Spirals Elegantly Into Self-Destruction


Guest Post: Is Tunisia the New Hot Spot for Energy Investors?

[ZH: Yet another example of the slow re-colonization of the African continent – a topic we have been discussing for months now – most recently here]

Submitted by James Stafford of,

Until recently Tunisia was considered to be a minor league and relatively underexplored venue in Africa’s rapidly expanding oil & gas scene. This situation has quickly changed with new bid rounds and forced relinquishments creating an opportunity for new companies to come in.

Major American E & P companies like Shell have jumped at the opportunity to acquire ground that had been dominated for decades with little to no work conducted, mostly by European State oil & gas companies in this former French protectorate.  For the first time major spending has been committed to test Tunisian basins which are arguably equally prolific as those in neighbouring environments with more work performed, such as Libya.

Tunisia is now in focus for investors because exploration is increasing within the producing Pelagian Basin, which leads us to ask the following questions:

Should Tunisia now be on energy investors watch list?

Is Shell just the start of “big oil” making inroads into the country? And which are the plays that people should be watching?

To help us look at the developing situation in the region we managed to speak with oil industry veteran John Nelson.

John Nelson is CEO of Canadian-listed Africa Hydrocarbons Inc. (#0000ff;”>NFK). A veteran geologist, Nelson spent much of his career in East and Central Africa—much of it for Mobil Oil–studying regional and mapping rift basins at a time when no one else was shopping around in Africa’s interior. Over his 27 years in the industry, Nelson has also had junior E & P experience, recently serving as CEO for Lion Energy Corp., which was bought out by Africa Oil Corp ‘AOI’ in 2011 as a way for AOI to gain access to their impressive Kenyan land package that John had put together.

#0000ff;”>Africa Hydrocarbons Inc has a 47.5% interest in the Bouhajla Block, located onshore Tunisia and surrounded by major Shell Oil.

In an exclusive interview with, Nelson discusses:

•    What makes Tunisia a great game for the juniors
•    How Tunisia’s geology compares to the East African Rift
•    What’s hot in Tunisia: conventional or unconventional plays?
•    Why security isn’t as grave a concern as one would think
•    What some of the next great exploration areas will be for juniors
•    Why it’s a lack of capital, not venues that is holding new entrants back
•    How to mitigate risk in Somalia
•    Why Ethiopia may be about to see its first major discovery
•    Why things are moving—but slowly—in Eritrea
•    How close we are to commercial viability in Kenya

James Stafford: Is Tunisia right now a venue for the juniors or majors, and what makes Tunisia a good venue for small companies?

John Nelson: There is a good cross-section of different sized oil companies exploring and operating in Tunisia. Some of the majors are present such as ENI, Total, CNOOC and Shell; however, most of the activity is with the smaller companies.

Junior companies can be very successful on projects that may not meet the economic threshold of the majors, but can propel juniors quickly to mid-tier producers. This makes Tunisia a good place for smaller companies to explore.

The basins in Tunisia are well established and understood. Services for seismic and drilling are available. There is a capable work force and French rule of law. Infrastructure in the way of roads and pipelines can be found across the country. Fiscal terms are good and the government is stable and reasonable to deal with. There are a number of smaller Canadian companies already there.

James Stafford: Can you tell us a bit about Tunisia’s potential. What is the biggest field and what are the best exploration prospects?

John Nelson: There is a lot of geological diversity in Tunisia which creates a number of different play types to explore for. The biggest onshore oil field is the Sidi el Kilani field in north central Tunisia. This field has produced over 50 Million barrels of light sweet crude from a small number of wells. In fact it is the similarities in Africa Hydrocarbon’s targets to Sidi el Kilani that got me interested enough in the “home run” size of the first drillable target, to decide to come and run this company.

James Stafford: How does the geology compare to East Africa and the East Africa Rift System?

John Nelson: The geology of Tunisia is not exactly like that of the great Tertiary rift system of east Africa. There are of course some geological similarities on a smaller scale where extension has caused the formation of horst and graben structures in some areas of Tunisia. In general what we are looking for is actually arguably more straight forward.

James Stafford: What’s the business atmosphere right now in Tunisia?

John Nelson: Business as usual. We have not seen any significant risks or changes in business practices since we have been involved there. In terms of North Africa, Tunisia is probably at the top as a jurisdiction in which to do business, and stability of the politics, etc. The economy seems to be doing well. There is construction going on in many of the cities. The country has not suffered at the same level from debt and poor fiscal mgmt like some of the Eurozone countries on the northern Mediterranean side. The country, like many countries these days, has unemployment issues especially with the younger generation.

James Stafford: So if Big Oil is not looking in Tunisia, how does that help NFK?

John Nelson: It is hard to compete against majors when it comes to acquiring sizeable acreage and making commitments. It allows smaller companies to cost effectively get positioned and undertake exploration initiatives. However, if a significant discovery is made then Big Oil may appear back on the scene to partner with or acquire small companies like NFK. Shell Oil surrounds our Block now but we were there first and were able to position ourselves with over 130,000 acres.

James Stafford: Africa Hydrocarbons has a nice piece of contiguous acreage in Tunisia. Can you tell us a bit about the two blocks in question and where you are right now in the exploration process?

John Nelson: We have a 47.5% interest in two adjoining concessions, the Bouhajla and Ktititir blocks, located in north central Tunisia and only 25 kms west of the Sidi el Kilani oil field. The blocks were acquired approximately 3 years ago when the govt made them available for bidding after being off the market for over 25 years. Our local partners were there first, and that is the opportunity.

James Stafford: What are you chasing here? Conventional or unconventional plays? What do you think you’ll hit with drilling?

John Nelson: We have several conventional type prospects and leads on our blocks and that is what we will be targeting initially. Our first well will be testing a fractured carbonate chalk reservoir, which is very similar to what is found producing at Sidi el Kilani. Last year, Shell acquired a large land position around us and have committed to spending over $150MM on their blocks. We have heard that Shell and others have an interest in testing shale (also called “unconventional”) plays within the region. The possibility for an unconventional play type also exists on our acreage but we have chosen what we believe is the “low hanging fruit” to target first.

James Stafford: You’ve mentioned before the ability to “de-risk” exploration and development in Tunisia. Can you take us through the math here and demonstrate the economic feasibility of operating in Tunisia?

John Nelson: Our situation is somewhat unique compared to many others in Tunisia or exploring in other remote parts of Africa. Only 25 kms from our block is the facility and pipeline for the Sidi el Kilani oil field. The facility was built to handle up to 25,000 bbls/d but now is only handling 1000 bbls/d. So there is much excess capacity in this nearby facility. There is also a pipeline in place from the field all the way to the port facility on the coast that is also under-utilized.

That means it won’t take much time or money to get any future production on stream. As a result, we can still be profitable in the event of a smaller discovery size due to the infrastructure already being in place. It also allows the option to truck oil to the facility to obtain some cash flow while onsite facilities and a short pipeline are built to Sidi el Kilani if we make a discovery.

In other words if we are successful on our first well next month, we should be able to start cash flowing very very quickly.

James Stafford: Do you need a major operator in there like Tullow with Africa Oil in Kenya? What happens if you make a discovery? Can you develop it cost-effectively?

John Nelson: In our situation we do not need the expertise or deep pockets of a large partner. In the event of a discovery we would be able to adequately finance a development project. We anticipate that fewer than five wells would be needed to optimize drainage of our first target area, which is substantially larger than the area of production of 50 million barrels at Sidi el Kilani

James Stafford: How does the cost of drilling wells compare in Tunisia, Kenya, Somalia …?

John Nelson: Our costs to drill a 2500m well is in the area of $7 million. The cost seems excessive compared to drilling costs in North America, but on an international scale it is reasonable. This actually isn’t very deep, and given the size of the target, not very expensive. We also have easy terrain and a network of roads in our area of Tunisia. Access is pretty easy and services are relatively close if needed.

In more remote projects such as in Puntland, Kenya, Ethiopia or other areas far from infrastructure, the drilling cost of a similar well may be well over $50MM.

James Stafford: Outside of Tunisia, where should smaller companies be looking? Can you rank the prospects for us here in terms of junior capabilities and potential?

John Nelson: Juniors provide a valuable service to the industry by often being the first entrants into a new area or applying new technology to older areas. There are niches in most parts of the world. Myanmar is opening up. New opportunities may now come up in Venezuela. The rift basins of Niger, Chad and Sudan are attracting new investment. The new discoveries off of Israel are opening up a lot of new exploration initiatives there that look quite attractive. There is not so much a shortage of ideas and opportunities as there is a shortage of capital to pursue them.

James Stafford: We understand that you have experience in Somalia—specifically in Puntland. Can you debunk any myths about working in Somalia and take us through the challenges?

John Nelson: There were a lot of concerns about security issues both onshore Puntland as well as piracy in the offshore. It took a lot of careful planning to mitigate much of the risk. Local communities were engaged, informed and employed. Our security people worked with the govt and contractors to remove any possible threats along transportation routes. The airstrip and drilling camp were well protected. In the end, all the people and equipment were mobilized and the drilling took place without incident.

James Stafford: What about Ethiopia and Eritrea? Eritrea seems open for business now after preferring to focus on its mineral resources for so long–and thanks to the new technology on the scene–and it’s got Red Sea territory that is virtually unexplored.

John Nelson: Eritrea has been slow to open up to oil and gas exploration despite a fairly high level of interest. New laws and policy changes move slowly in many parts of Africa. Eritrea has been explored in the past and there are known oil seeps there. No major discoveries have been made yet.

James Stafford: How do you view prospects in Ethiopia, as a possible extension of finds in Kenya?

John Nelson: Ethiopia has a variety of play types throughout the country that are soon to be drilled. Africa Oil is currently drilling in SW Ethiopia along the Tertiary rift trend that extends north of Kenya. They may make the first significant oil discovery for Ethiopia in that area.

James Stafford: How close are we to commercial viability in Kenya, and what do you think the next year to year and a half will show?

John Nelson: Tullow and Africa Oil are close to determining commerciality. The recent testing suggests the rates and accumulations may be sufficient. Some additional drilling success in some of the other sub-basins on their acreage in blocks 10BA and 10BB as well as in Ethiopia will help initiate further development decisions. There is a lot of drilling and testing to be done over the next couple years. I am pretty sure the results will lead to major infrastructure plans for the area. It will take time–years–due to the remoteness and current lack of infrastructure in the area as well as political involvement of neighbouring countries.

James Stafford: So what can we expect by the end of the year from Africa Hydrocarbons? What do potential investors need to know?

John Nelson: We anticipate drilling our first well in April and should know the results in May. In over 27 years, I haven’t seen many wells with this kind of risk-reward—a $7 million well that is geologically so similar to a proven field only 25 km away where one well produced more than 20 million barrels.

We have worked up the target with 2-D and 3-D seismic that are remarkably clear, and that give us what we call in the business a “play chance” that is much much higher than your typical International exploration well. Usually with a target this size you are looking at a 10%-15% chance of success – we have heard our chances rated by third parties between 28% and into the low 30% chance of success. This is actually a geometric difference in probabilities – really an order of magnitude.

With success on our first well, we would look to start production from Bouhajla North, and follow in that area by preparing to penetrate the reservoir again with new wells. We would also establish a reserve and resource calculation to highlight the size of the produceable reservoir in that area.

Concurrently we would develop an inventory of prospects all over our acreage which we would develop with additional seismic programs.

Real success just on our first well would turn us from an explorer into an intermediate producer immediately.

James Stafford: What happens if you hit—what kind of NPV do we get compared to current market cap.

John Nelson: Well James, if we don’t hit we are backstopped by cash in the treasury as well as our land position and additional targets which we would then set our sights on.

But with a discovery similar to a Sidi el Kilani well, our NPV10 based on our 47.5% working interest would be close to $100MM, which is about 10 times the current market capitalization of the company of $9 million – we will know within 8 weeks. .

James Stafford: Thanks for taking the time to speak with us John.


No Country For Rich, Fat Men

Given the increasing weight of taxation on the middle- and upper-incomes in this country and the first step towards savings ‘wealth’ taxation, it is perhaps no surprise that the nation’s employers have decided enough is enough with another implicit tax – healthcare. As the WSJ reports, cost-conscious companies (such as spare tire manufacturer Michelin North America) are passing on the additional costs of healthcare to their obese workers. Are you a man with a waist measuring 40 inches or more? Have high blood pressure? Starting next year, your unhealthiness will cost you.

Employees who hit baseline requirements in three or more categories (blood pressure, glucose, cholesterol, triglycerides, and waist size) will receive up to $1,000 to reduce their annual deductibles. Those who don’t qualify must sign up for a health-coaching program in order to earn a smaller credit.

But, 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, and 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. Increasingly companies have flipped from the incentive scheme (to be healthy) to a penalty or ‘fat tax’.

Typically 20% of a company’s workforce drives 80% of health-care costs, and with companies unable to grow top-lines, the search for ever more cost-cutting means the balance of carrot and stick seems to be tilting increasingly to the stick.

So the people got their pro-equality Obamacare but if you are an 80/20 risk factor – you will be less equal than others.

Via WSJ,

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, penalties may soon be the new norm.



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 nonprofit 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.”


Companies may say they have tried softer approaches, but many haven’t exhausted their options, …



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 Hewitt. A separate study by the National Business Group on Health and Towers Watson found that the share of employers who plan to impose penalties is likely to double 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. …



“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.” …



Honeywell International Inc. HON recently introduced a $1,000 penalty—deducted from health-savings accounts—for workers who elect to get certain procedures such as knee and hip replacement and back surgery without seeking more input. The company had offered $500 for participating in a program that provides access 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%.



Typically, 20% of a company’s workforce drives 80% of health-care costs, 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.


A 2011 Gallup survey estimated obese or overweight full-time U.S. workers miss an additional 450 million days of work each year, compared with healthy workers, resulting in more than $153 billion in lost productivity.