Stinging from yet another year of rising health care costs, some employers are forcing high-risk employees to pay more—in some cases, a lot more—for their health care coverage in 2010.
While smoking surcharges remain the most popular added premium assessment used, the size has grown significantly from a nominal fee when such surcharges were introduced several years ago to what many consider “real money,” especially during a recession.
A few intrepid employers have gone a step further, relegating employees who decline to take better care of themselves to health plans that provide less coverage.
Some benefits law experts are concerned these employers may be pushing the envelope a bit too far, but legislation passed last week by the Senate Finance Committee appears to reinforce employers’ aggressive efforts to rein in health care costs through the use of incentives.
More than half of employers plan to introduce or expand an existing wellness program next year to lower health care costs, according to the 2009 Benefits & Talent Survey by Aon Consulting, a unit of Chicago-based Aon Corp. Of those, 34 percent plan to either introduce or increase financial incentives for their wellness programs in 2010.
The incentives, the value of which averages about $400 per employee per year, include gift cards, merchandise, premium discounts, co-payment or deductible credits, and contributions to health savings accounts or health reimbursement arrangements, according to IncentOne, a Lyndhurst, New Jersey, company that tracks employer-provided wellness incentives.
At Black & Decker Corp., for example, employees and dependents who certify in an honor system that they have been tobacco-free for at least six months will pay $75 less per month for their medical and dental coverage in 2010.
That discount, now in its third year, grew from $30 per month in 2008 to $55 this year, said Raymond Brusca, vice president of benefits at the Towson, Maryland-based tool manufacturer.
While sizable, Black & Decker’s incentive still is less than 20 percent of the cost of employee-only coverage, a cap set by the Treasury, Health and Human Services, and Labor Departments under regulations implementing the Health Insurance Portability and Accountability Act, Brusca said.
Whether those applied by the Illinois division of the American Federation of State, County and Municipal Employees are within allowable limits, though, is subject to debate.
For the past two years, the union’s 170-member Chicago-based staff has had a choice between two health plans: a “health-improvement plan” that provides 90 percent of coverage for in-network services above a $250 deductible for individuals and $500 for families, and 80 percent out-of-network coverage above a $500 individual and $1,000 family deductible; or a “standard plan” that provides 80 percent in-network coverage and 70 percent out-of-network coverage above deductibles that are double the health-improvement plan’s.
In addition, the standard plan’s out-of-pocket maximum is twice that of the health-improvement plan, with a lifetime limit that is half the health-improvement plan’s.
To qualify for the richer plan, employees and dependents must agree to annual biometric screening, complete a health risk assessment and meet with a nurse-coach to address any identified health risks.
Employees who qualify for the health-improvement plan pay nothing for coverage for themselves and 1.5 percent of salary for dependent coverage. Healthy employees and those who wish to improve their health also qualify for this option.
However, if those covered decline biometric testing, refuse to give up smoking or address other health risks, they must enroll in the standard plan, for which they pay 1.5 percent of salary for themselves and an additional 3 percent of salary for dependent coverage.
Although annual enrollment takes place each fall, individuals who violate the health-improvement plan rules during the year are demoted to the standard plan.
Bob Gorsky, president and senior consultant at HPN Worldwide Inc. in Elmhurst, Illinois, which manages the AFSCME plan, said that even though the incentives can be more than 20 percent of individual coverage, this dual-plan approach is permissible under federal law.
The Employee Retirement Income Security Act “already has precedent set where people are paying more than 20 percent [more] if they don’t comply with plan rules, such as by going out of network or not getting pre-certification when required. This could be applied for noncompliance with expected actions, such as screenings,” Gorsky said.
Hank Scheff, director of employee benefits for the Illinois division of AFSCME, said the plan is not subject to HIPAA’s 20 percent threshold because “we do not require plan members to achieve a certain outcome.” For example, if an individual is having a hard time quitting smoking, they need only to participate in a smoking cessation program, he said.
“It is aggressive at the point of enrollment,” he said. “But once we get people into the system, we’re trying to help them. If they fail, we don’t whack them. We ask them to try again.”
On the other hand, “if they sign up for a smoking cessation program and they don’t attend, they get moved” to the standard plan, Scheff said.
“To say this program only requires a person to participate in a smoking cessation program and therefore is merely participation-based misses the mark,” said Edward Fensholt, senior vice president and director of compliance services at Lockton Cos. in Kansas City, Missouri.
“The person is being targeted for disparate treatment at the outset due to tobacco usage. The key is that if he doesn’t want to participate, he’ll pay the higher premium cost. This makes the program subject to the 20 percent rule, in my view, and it makes it different from a voluntary biometric screen for which the employer awards incentives simply for participation,” Fensholt said.
Sharon Cohen, group and health care benefits counsel at Watson Wyatt Worldwide in Arlington, Virginia, suggested such an aggressive approach could violate ERISA because certain employees can be seen as being denied benefits.