Finding Success with Progress-Based Health Incentives

Progress-based incentives reward employees for making meaningful progress toward health goals

By Jerry Noyce, Health Enhancement Research Organization December 22, 2011

There is broad acceptance and understanding among employers that the health of their workforce can have an impact on the productivity and performance of the organization. That's why allowing higher financial incentives to promote employee health earned a prime spot in the landmark Patient Protection and Affordable Care Act (PPACA). While this visibility is good for efforts to improve the health of employees, the specifics of what practices are allowable and the types of incentives that work best merit further discussion.

Leading companies in the worksite wellness industry and nonprofits such as the Health Enhancement Research Organization (HERO), of which the author is president and CEO, have raised questions about how the PPACA might influence employee wellness programs. Here’s why.

Upping the Ante

The PPACA acknowledges that improving employee health is essential to changing the health status of American workers and improving workforce productivity. The legislation shows that Congress recognizes that financial incentives can increase participation in employee health management programs.

Before passage of the PPACA, regulations under the Health Insurance Portability and Accountability Act (HIPAA) permitted employers to offer financial incentives to encourage participation in wellness programs. Employees who met a health standard—such as not using tobacco and maintaining a healthy body weight—could receive financial incentives as high as 20 percent of the cost of health plan coverage. The PPACA raised the limit on financial incentives tied to a health standard to 30 percent of the cost of health plan coverage, effective in 2014 (with the future potential to increase this limit to 50 percent at the government's discretion), and provides statutory authority to the previous HIPAA rules.

In recent years, incentives have increasingly taken the form of a health insurance premium reduction for employees who meet incentive requirements. However, employers that offer wellness incentives must comply with regulations intended to protect employees from excessive cost-shifting and must offer reasonable alternatives for employees who have certain medical conditions.

The PPACA's endorsement has increased greatly employer interest in tying financial incentives to achieving specific health outcomes, and this practice is growing rapidly. But employers have raised questions about what type of incentives work best to encourage employees to improve their health status, reduce health care costs and enhance productivity.

Incentive Strategies at a Glance

Incentive strategies generally fall into three categories: participation-based incentives, outcomes-based incentives and a newly suggested approach, progress-based incentives.

Participation-based incentivesreward employees with a financial incentive for completing a task or participating at some level in a health management program. One of the most common forms is a cash incentive or premium reduction for completion of an annual health risk assessment or biometric screening. Participation-based incentives are an effective way to get people engaged initially in a health program. However, these incentives aren’t designed to deliver long-term behavior change, which requires sustained commitment.

Outcomes-based incentives reward employees for achieving a health standard based on specific health outcomes. For instance, employees might receive a premium reduction for achieving and maintaining target ranges for their body mass index (BMI), blood pressure and cholesterol levels. Outcomes-based incentives are the focus of the PPACA's guidelines, but they must be designed thoughtfully or they have the potential to be discriminatory. It is not yet known if outcomes-based incentives will help drive higher levels of behavior change or primarily shift costs from employees who achieve the health standard to those who don’t.

Progress-based incentivesrepresent a new approach to incentive design; they reward employees for making meaningful progress toward specific health goals. An example would be setting a weight-loss goal of 10 percent of body weight for an employee with a BMI of 40, for whom achieving a BMI of 25 within a year would be unrealistic and discouraging. In this way, a progress-based incentive model offers every employee an opportunity to earn the incentive by achieving tailored health goalsregardless of their current health status.

Significantly, all of these approaches must create allowances for employees with health conditions or disabilities that might prohibit them from participating in these programs or achieving health goals.

Why Do Incentives Matter?

Research suggests that incentives can play a valuable role in a comprehensive employee health management program. Appropriately designed incentives with reasonable financial rewards have been shown to increase employee participation in completing health assessments, attending biometric screening events and enrolling in health improvement programs. Employer responses to the HERO Employee Health Management Best Practice Scorecard show a link between large financial incentives and high employee participation in wellness programs. As of year-end 2011, more than 600 companies have completed the free online scorecard.

When considering this information alone, it might seem that giving employers more leeway to incent program participation is a good thing. But, as with most good things, it’s not that clear-cut.

The health management industry has demonstrated that incentives can increase program participation, but we don’t yet fully understand the impact of financial incentives on long-term behavior change. While research indicates that financial incentives can be effective for encouraging simple, discrete, time-limited actions, promoting significant, sustainable health behavior change is much more complex.

There is well-established behavioral science research suggesting that external rewards can reduce internal motivation, incenting behavior toward the narrow achievement of rewarded goals rather than to an overall healthier lifestyle. This is a primary reason behavior change experts have concerns about the increased use of incentives in general and outcomes-based incentives in particular.

These concerns about incentives are what led HERO to form a study committee to address incentive strategies and to develop guidance for employers that offer workplace health management programs that include incentives. In 2012, the HERO Study Committee on Incentives will review research related to the use of incentives, discuss in detail the potential impact of the PPACA on workplace health programs and industry concerns about outcomes-based incentives, and develop guidance for employers and health management firms on the use of incentives.

In addition, HERO is hosting, via LinkedIn, an open-group discussion on wellness incentives with the aim of developing guiding principles for their use, and it encourages readers to add their voices to this ongoing dialogue.

Jerry Noyce is president and CEO of the not-for-profit Health Enhancement Research Organization (HERO) and a leader in the employee health management industry.

Another View of Incentives and Penalties

Companies are continuing to expand their use of financial rewards to engage employees and their spouses to manage their health better, according to the 2012 Employer Survey on Purchasing value in Health Careby consultancy Towers Watson and the National Business Group on Health.

The 17th annual survey, completed by U.S. employers with at least 1,000 employees in December 2011 and January 2012, found that 68 percent of employers offered cash, premium credits and account contributions to their employees to encourage participation in healthy lifestyle activities in 2012—up from 58 percent in 2011. For the typical company that offered incentives, the maximum amount of cash employees can earn for meeting health targets is $300.

Among companies that provided incentives, 53 percent offered them to spouses and dependents in 2012, up from 46 percent in 2011 and 39 percent in 2010. The highest cash award that can be earned for meeting health targets by an employee and family combined increased by $100 over each of the last three years to $700 in 2012.

Respondents also indicated that they had become more willing to use penalties, such as increased premiums and deductibles for those not completing required health management programs or activities. Penalties were used by 20 percent of respondents in 2012, roughly double the number of companies that used penalties in 2009.

Achievement-Based Standards

Some (10 percent) of companies had adopted achievement standards for incentive awards, and achievement standards will likely continue to grow in use as companies increasingly hold employees accountable for unhealthy life choices. Nearly all companies with an achievement-based program said they included weight goals as a requirement under the program, and three-quarters of companies included blood pressure, cholesterol and tobacco use as metrics

- SHRM Online


Job Finder

Find an HR Job Near You
Search Jobs
Post a Job


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect