Although this punitive approach by Indianapolis-based Clarian Health is a departure from the methods used by most employers, it is permitted under the final rules the federal government issued in December 2006 to ensure that wellness programs comply with the nondiscrimination provisions of the Health Insurance Portability and Accountability Act of 1996, benefit experts say. The rules became effective July 1, 2007.

    As the cost of health care continues to rise, more employers are expected to follow Clarian’s lead.

    Sixty-two percent of 135 top executives responding to PricewaterhouseCoopers’ May 1 Management Barometer survey said that their companies should require employees who exhibit unhealthy behaviors such as smoking or obesity to pay a greater share of their health benefit costs. This compares with 48 percent who expressed such a view in PwC’s last such survey in 2005.

    Clarian’s decision to impose fees came after several years of operating a comprehensive wellness program, according to Steven Wantz, senior vice president for administration and human resources at Clarian, which has 13,000 employees working at five hospitals in the Indianapolis metropolitan area.

    "We didn’t just decide this. We have five years of wellness program history that included health risk appraisals, health coaching and other resources to help people reduce their risk factors," he says.

    But even with the wellness initiatives, Clarian’s annual health benefit costs continued to climb, growing 12.9 percent in 2006 and 15.7 percent in 2007.

    So when the U.S. departments of Labor, Health and Human Services and Treasury released final rules to ensure that wellness programs comply with HIPAA, "it was our window of opportunity," Wantz says.

    "We believe that by using this premium charge approach, where it shows up in employees’ paychecks every two weeks, it will keep [costs] in front of the person, and we think it will be more effective at creating behavior change," he says. "It seems that a charge gets people’s attention more readily than an incentive."

    The program will assess $5 per-paycheck fees on employees who do not meet minimum standards for body mass index, cholesterol, blood glucose, blood pressure and nonuse of tobacco. Although it will not be fully implemented until 2009, the effort was announced this year to give employees plenty of warning, Wantz says.

    However, this year employees will be required to complete a health risk appraisal to enroll in their benefits for 2008, he says. In addition, those who cannot claim nonuse of tobacco for at least six months will be assessed a surcharge of $5 per paycheck in 2008, Wantz adds. Following the annual assessment, employees who can later prove they have made changes to meet the standards can appeal to have the fees dropped.

    Clarian Health sought legal review to ensure that the program meets HIPAA requirements.

    "We didn’t want to get in a situation where we were out of compliance," Wantz says.

    For example, the program’s total possible assessment is limited to $25 per paycheck for an employee who fails to meet all five standards—less than 20 percent of the cost of coverage, he says. In addition, if employees have a medical condition that prevents them from meeting certain standards, they can obtain an exemption by providing a doctor’s note.

    While Clarian Health’s punitive approach may be an anomaly now, benefit experts predict it is the way wellness programs are headed.

    "This kind of plan is not as unusual as it would have been five years ago. I’ve heard of employers considering getting more aggressive," says Sharon Cohen, group and health care benefits counsel at Watson Wyatt Worldwide in Washington. "I think more and more employers, now that there are final rules, want to take the next step. If they’re not implementing this type of arrangement, it’s on the table and they’re discussing it."

    Stuart Slutzky, vice president of product development at Destiny Health, a Chicago-based consumer-driven health care company, maintains incentives are a better way for employers to go. He says that in the last year, he has begun to see employers use both the carrot and the stick.

    "Incentives are better received in the workforce," Slutzky says. "Ultimately, what you’re trying to do is improve camaraderie. That’s not to say you can’t combine a penalty with incentives. That works very well. But applying just penalties is perceived to be negative and less impactful."

    Howard Weyers, president of Okemos, Michigan-based benefits administrator Weyco Inc., who in recent years received considerable attention when he announced he would fire any employee who used tobacco, hailed Clarian’s move.

    "I’m very supportive of consequences," he says. "Everybody’s talking about health improvement. People need to be held accountable, be rewarded for good behavior and suffer consequences for bad behavior. That’s the way we do it here.