With health plan costs a huge, and growing, part of companies’ compensation expense, employers increasing are looking at the impact that employees’ lifestyles and health habits have on health care spending — and considering doing something about it. Employees who smoke, are overweight, don’t exercise or have a chronic untreated health condition simply are likely to cost more — they’re apt to have higher health plan expenses, if not now then down the road, and also are at greater risk for more frequent absences and lower productivity. Consequently, employers have started to use an array of pocketbook-oriented “carrots” or “sticks” to motivate employees to get these health issues under control.
Basically, the message these employers are sending to employees is this: Lead a healthy lifestyle, and we’ll ask you to contribute less to your health plan premium. Continue with habits that are shown to lead to medical problems, and we’ll ask you to pay more.
“Carrots” loosely translate to incentives or rewards, while “sticks” take the form or surcharges or penalties:
- Employees who smoke pay higher premiums for health care coverage. If they participate in a smoking cessation program, they don’t have to pay the surcharge.
- Employees who register a body mass index (BMI) reading in the normal range receive a credit to apply to their health care premium. Those with a BMI outside of normal range pay a higher premium, but they can receive a credit to offset the increase by participating in nutrition counseling.
- Employees who “pass” each in a series of health screenings (blood pressure, cholesterol, blood sugar, etc.) receive a discount on their health plan premium contribution for each screening passed.
- Employees with a chronic condition such as asthma, diabetes or hypertension receive a cash incentive for participating in a disease management program.
What are the considerations in implementing any of these approaches? First, there are the potential legal issues. Guidance from the Department of Labor allows wellness programs that offer rewards, and considers them to not discriminate under the Health Insurance Portability and Accountability Act (HIPAA) based on health status, so long as certain requirements are met. In part, these requirements mandate that any reward provided must not exceed 20% of the cost of plan coverage, and the plan must offer a reasonable alternative for attaining the reward to people who, for reasons beyond their control, cannot meet the established health standards. Another discrimination issue could arise under the Americans With Disabilities Act (ADA), which in part limits medical inquiries of employees regarding any disability, unless job-related and for a business necessity.
Since the use of rewards and surcharges is a relatively new development, there is not much case law or legal precedent that employers can use to guide their design of these programs. In deciding how far to go in penalizing employees who pose a higher risk of incurring extensive health care costs, then, the second factor to consider is your company’s philosophy toward “pushing the envelope” when it comes to this type of issue. After consulting with legal counsel, would you feel comfortable in implementing a type of program that few companies, to date, have tried? Although an increasing number of employers are offering incentives for voluntary employee participation in health risk assessments or other programs that can enhance health, fewer have imposed outright penalties for lifestyle-related behaviors or failure to meet health standards such as BMI, cholesterol level, etc.
Next, look at your most recent health care cost and claims data, and at your employee population overall. You might be able to identify certain areas for which a voluntary wellness program could have an impact, and this could be a step to try before turning to penalties, which employees tend to perceive more negatively than incentives. Finally, assess how employees are likely to react to being penalized — or to seeing their co-workers penalized — for health-related factors, and how implementing a cutting-edge program could affect your recruitment and retention efforts. Our benefits specialists are here to help — please contact us for more information.
