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Financial Incentives Can Boost Wellness Program Participation

April 1, 2008
Related Topics: Benefit Design and Communication, Health and Wellness, Featured Article
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Whether through a discount on premium contributions or cold hard cash, employers increasingly are using financial incentives to encourage employees to adopt healthier lifestyles.

Such incentives are governed by the Health Insurance Portability and Accountability Act and other federal and state anti-discrimination laws, which determine how generous offerings may be, among other factors.

Approximately two-thirds of the employers currently offering wellness programs are using financial incentives to encourage participation, according to a recent survey of members of the ERISA Industry Council and the National Association of Manufacturers.

The most common incentive is health insurance premium reductions, which are offered by 40 percent of employers that responded to the survey. Cash or bonuses were a strong second, offered by 29 percent of the companies surveyed.

"We think money is definitely going to encourage better participation," says Mark Cauthen, benefits manager for the city of Colorado Springs, Colorado. Under the city's wellness program, dubbed "Reach Your Peak," participants earn credits for engaging in certain activities, such as health screenings, stopping tobacco use or losing weight. The credits are then redeemed for cash.

"Originally we had quarterly prizes," such as T-shirts and journals, Cauthen says. "But administratively, it was a nightmare. Now, instead, they get a $250 taxable check."

Because company officials were disappointed in some of the participation rates, Marysville, Ohio-based Scotts Miracle-Gro Co. decided to get more aggressive with its incentive program.

In 2004, the company offered $120 in cash to employees who completed a health risk appraisal, but there was only a 70 percent participation rate.

The next year, those who didn't take a health risk appraisal upon enrolling in the health plan were required to pay an additional $40 per month in premium contributions. That change resulted in 90 percent participation.

Then, in 2006, employees identified as moderate- to high-risk in the appraisal were assigned health coaches, and if they didn't use them, they were required to pay an additional $67 per month the next calendar year. This resulted in 88 percent participation in the first year.

"It's kind of a tough-love program, but we've eliminated all of the barriers and we've made upfront investments (in wellness programs), so we don't want to make it difficult for people to seek care from a financial perspective," says Pam Kuryla, vice president of global total rewards for Scotts.

While such a punitive approach may seem harsh, it's legal, according to Alison Earls, CEO of Atlanta-based ACE Ideas. Earls is a benefit consultant and attorney who recently conducted an analysis of federal and state laws affecting health promotion programs for the Washington-based National Business Group on Health.

"Although there's still lack of clarity about the [Americans With Disabilities Act] and there are some things that the [Equal Employment Opportunity Commission] has not clarified, I think there's a lot of good and fair guidance" from the HIPAA nondiscrimination rule, she says.

"You can really design incentives in conjunction with your health plan for healthy behavior and even health improvement, and if you follow the five-part exception to the HIPAA nondiscrimination rule, you can provide incentives for not only education and learning about health, but actually for changing your blood pressure, your weight, your cholesterol, getting certain kinds of treatment," Earls says.

The lingering uncertainty, though, has caused some employers, such as Indianapolis-based Clarian Health, to back off from imposing more stringent penalties on their employees.

After it received negative publicity and flak from employees, Clarian Health abandoned its plan to fine workers for unhealthy behavior, a company spokesman says.

Clarian Health announced in August that it wasn't going to charge employees an extra $5 per paycheck fee on employees who did not meet minimum standards for nonuse of tobacco, body mass index, cholesterol, blood glucose and blood pressure.

"Although much of the plan had been presented as final, we have maintained in our communications that the final details of the plan were not fully developed," the company said in an August 31 statement.

Rather than assessing penalties, "we will now offer employees incentives on their health insurance premiums for meeting parameters for known health risks including smoking, high body mass index, elevated blood pressure, and other factors," the company statement said.

Pitney Bowes Corp. a few years ago implemented a non-smoking incentive program but later rescinded it, according to Dr. Jack Mahoney, director of strategic health initiatives at the Stamford, Connecticut-based office equipment manufacturer.

"We used to have a nonsmoking discount [on premiums], but it was eliminated after the Department of Labor" ruling, he says.

Under the Department of Labor's clarification of the nondiscrimination rules under HIPAA, tobacco use is considered a health status rather than a behavior, making any wellness plan incentives or penalties subject to the five-part exception to the rules, Earls says.

Wellness program rules

Here are the Health Insurance Portability and Accountability Act nondiscrimination rules that govern wellness program incentives:
u The incentive or penalty cannot exceed 20 percent of the cost of employee-only health care coverage.
u The program must give eligible individuals the opportunity to qualify at least once a year.
u There must be a reasonable alternative standard to obtain the reward for any individual for whom it is unreasonably difficult due to a medical condition, or medically inadvisable, to satisfy the standard.
u The plan must disclose program terms and conditions in all printed or online materials.

Although most employers cite "legal compliance" as the reasoning behind their various wellness program incentive or penalty decisions, the real motive is that "employers don't want to make employees mad," which could cause their efforts to backfire, according to Marianne Fazen, executive director of the Dallas-Fort Worth Business Group on Health.

That's precisely what happened to Scotts when it banned smoking by employees both at work and on their own time as part of the company's wellness initiatives.

A Scotts employee, Scott Rodrigues, filed a lawsuit in U.S. District Court in Massachusetts in January 2007, claiming that the company's anti-smoking policy "violates the Employee Retirement Income Security Act because it discriminates against participants in the corporation's health benefits plans for the purpose of interfering with their receipt of medical benefits."

Scotts executives declined to comment because the litigation is pending. The company's lawyers have filed a motion to dismiss on which the court has yet to rule.

However, Howard Weyers, former president of Lansing, Michigan-based Weyco Inc., which was sold to Meritain Health in August, says his former company will continue to enforce its policy banning tobacco use. Weyco in 2005 made tobacco use grounds for termination and instituted mandatory testing.

"I think there should be a consequence. If employees are doing something that has a negative effect on the company and the other employees, the company should do something about it," he says.

Workforce Management Online, April 2008 -- Register Now!  

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