Wellness Rewards

Employers are linking healthy employee behaviors with lower health care premiums.

February 1, 2012 | Susan J. Wells

As corporate wellness strategies rapidly evolve, more employers are turning to health insurance premium discounts as a key incentive to boost participation and produce healthy results.

HR and benefits leaders say they're counting on this stronger link between premium reductions and wellness plans to help build employees' accountability for personal health and to sustain healthy behavior changes.

"It used to be an 'if you build it, they will come' approach to wellness," says Shelly Wolff, senior health care consultant at Towers Watson. That has changed. Now, "Creating a line of sight between wellness and the health plan is much more commonplace."

Of 1,248 organizations surveyed in 2010 by Buck Consultants LLC, almost three-quarters of the respondents said they offered or planned to offer such discounts.

Five years ago, the most common incentive for completing a health risk assessment was either a token gift or cash, according to a Mercer survey of 2,844 public and private employers conducted last summer. This year, a lower employee premium contribution is the most common incentive. The median reduction in the annual contribution required for employee-only coverage is $240.

"Premium discounts are becoming a real mainstay incentive," notes Beth Umland, director of research for health and benefits at Mercer LLC in New York City, and the amount of premium discounts is growing.

Big Shift

After years of offering a wellness benefit with incentives ranging from free health screenings to cash and paid time off, executives at the 570-employee Spencer Hospital in Spencer, Iowa, are revamping their wellness strategy.

In 2011, Spencer offered a $350 annual total wellness incentive. For 2012, however, its 460 benefits-eligible employees can earn either $1,200 in annual premium discounts for family or employee-plus-spouse coverage or $600 in annual savings for individual participants.

"We are shifting our focus to more directly correlating wellness to our health insurance and premiums," says Candace Daniels, PHR, HR generalist and employee benefits/wellness coordinator at Spencer Hospital. "We were having some good success stories from our prior efforts, but ultimately our claims trend was not following suit. As our health insurance costs continued to rise, we determined it necessary to draw that line."

To earn discounts, participating employees and spouses must:

Complete a wellness screening with full-panel blood work.
Participate in a 10-week Naturally Slim course if three or more metabolic syndrome factors are identified in the screening.
Attend four smoking-cessation classes if they use tobacco.

The hospital's new premium discount program remains in its early stages, but participation in wellness screening is high, with 95 percent of employees completing the tests. "We're taking the right step toward trying to curb our continually rising health care costs," Daniels says.

Employees who choose not to participate in the hospital's health insurance plan still have an array of free wellness opportunities, including gym memberships for spouses, cardiac screenings and $100 toward the cost of Weight Watchers at Work.

Similarly, at Domino's Pizza LLC, the Ann Arbor, Mich.-based pizza restaurant group, wellness incentives continue to change and grow.

Biweekly incentives to complete a health risk assessment and clinical lab tests rose from $15 for individuals and $30 for families in 2007 to $40 and $80, respectively, in 2008. Annually, workers with employee-only coverage can save up to $1,040 and employees with family coverage can save up to $2,080. To receive the discounts in 2011, employees had to pledge either that they were tobacco-free or would try to quit using tobacco during the year, had to pledge to do 20 minutes of physical activity three times a week, and had to identify a primary care physician—in addition to completing the health risk assessment and undergoing lab testing.

For 2012, the Domino's wellness discount is divided: employees receive 50 percent of the discount for completing the health risk assessment and tests and 50 percent for testing tobacco-free, says Jennifer Balliett, SPHR, benefits manager at the company. For 2013, additional criteria may be added, she says, and the wellness plan may be tweaked further.

"We're moving to less reward for just participation and more for results," Balliett says.

Personal Responsibility

"We've seen a definite increase in the use of benefits-integrated wellness incentives," says David Anderson, senior vice president and chief health officer with StayWell Health Management LLC, a St. Paul, Minn.-based health management company. He says about half of his clients have integrated incentives into health benefits plans.

Anderson sees this approach benefiting employers in two ways:

First, "the employer is making a clear statement about its commitment to improving the health of its workforce and about employees' personal responsibility for their own health," he says.

In addition, an employer can implement a benefits-integrated approach without allocating additional dollars to fund incentives. "It's a zero-sum investment," he says, "with employees who become actively involved in improving their health paying less and those who do not paying more."

Premium rates and discounts are typically based on actuarial and probability measures that take into account past participation and likelihood of future participation in wellness programs. Premium reductions are more common for some components of wellness programs than others, according to a 2011 survey by Towers Watson and the National Business Group on Health conducted from November 2010 to January 2011. Premium discounts were most often offered to nonsmokers, with 43 percent of 600 employers reporting that they use this strategy. Premium discounts for completing a health risk appraisal were offered by 30 percent. In contrast, only 5 percent reported offering premium discounts for participation in a disease management program.

Questions of Equity

The Health Insurance Portability and Accountability Act prohibits employers' group health plans from discriminating against employees on the basis of health factors by varying premiums. But the statute allows employers to offer wellness programs, and wellness incentives are allowed so long as they don't exceed 20 percent of the total cost of coverage, which includes the employer's and the employee's contributions.

Beginning in 2014, the Patient Protection and Affordable Care Act will allow employers to bump up that wellness incentive to at least 30 percent and potentially up to 50 percent of the premium.

More organizations are using such incentives, moving away from simply communicating and supporting wellness programs, says Melissa Van Dyke, president of The Incentive Research Foundation, a St. Louis-based nonprofit.

But are they equitable? Some health and benefits experts worry that programs billed as incentives for wellness—particularly those that offer discounted health insurance—can become punitive for employees who for legitimate reasons can't fully participate.

The American Heart Association and the American Cancer Society were among advocacy groups that warned federal officials about giving employers too much latitude. The groups argued in March 2011 comments to regulators that the leeway afforded to employers could provide a back door to policies that discriminate against unhealthy employees.

Sabrina Corlette, a research professor at the Health Policy Institute at Georgetown University in Washington, D.C., fears that premium-tied incentives may end up being particularly hard on vulnerable populations, such as lower-income or disadvantaged workers, those prone to certain health conditions, or those living in poor or rural areas without access to health and fitness amenities.

"For low-income women who are heads of households, for example, with no local gym or safe place to walk, it's just much more challenging for them to meet a health standard," Corlette says. "Consider the many reasons an employee may not be able to meet a health target and keep in mind that not all those reasons are within the employee's control."

To address this concern, employers should always offer individual alternatives to meeting stated health targets tied to earning incentives—and should consider rewarding progress, not just attainment, experts advise.

One approach could involve having the employee's physician and perhaps health coaches help develop tailored and reasonable alternative health standards. For instance, an employee at risk for obesity could earn a discount for participating in nutrition programs and physical activity rather than achieving a specific body mass index.

Spencer Hospital, for example, has a reasonable accommodation clause in its wellness materials for employees who find it medically difficult to complete the program criteria, Daniels says.

For many years, the hospital held a monitored one-mile Rockport Walk Test as part of its wellness program. "Since we have our own gym and certified strength and conditioning specialists on staff, we have been able to facilitate alternate testing with the use of stationary exercise bikes, recumbent bikes and/or an arm ergo meter," she says. The type of test is determined by the employee's treating physician.

A Legal Perspective

Wellness programs are at the crossroads of many laws—the Health Insurance Portability and Accountability Act, the Genetic Information Nondiscrimination Act and the Americans with Disabilities Act (ADA) among them. But, so far, there have been few reported legal cases challenging compliance, says Penny Wofford, an employment law and employee benefits attorney with the Greenville, S.C., office of Ogletree Deakins.

"It's the topic du jour," she says, "but there are some open questions and mixed messages."

A recent decision by the U.S. District Court for the Southern District of Florida, for example, held that an employer-sponsored wellness program that penalized employees who refused to complete a health risk assessment did not violate the ADA because the program was based on principles of insurance and risk management.

The court's decision in Seff v. Broward County, 778 F. Supp. 2d 1370 (S.D. Fla. 2011), is noteworthy because employers have been unsure whether the ADA's requirement that participation be voluntary permits employers to impose penalties for noncompliance.

In the case, the employer's wellness program imposed a $20-per-paycheck health plan premium surcharge on employees who failed to complete a health questionnaire and undergo biometric screening. The screening included a blood test to measure glucose and cholesterol levels. A former employee filed a class-action complaint alleging that the wellness program violated the ADA because it imposed a penalty for failure to submit to a medical examination and respond to medical inquiries.

The court dismissed the complaint, holding that the wellness program fell under the ADA's safe harbor provision that permits an employer to develop "bona fide benefit plan[s] that are based on underwriting risks, classifying risks, or administering such risks." The court reasoned that the wellness program, which generates only aggregate data, was designed to help the employer develop and administer "economically sound" present and future benefits plans.

Because the program encouraged employees to get involved in their own health care, the court reasoned that screenings would lead to a healthier population that was less costly to insure.

Wofford notes that the court failed to address whether the $20 surcharge rendered the program involuntary under U.S. Equal Employment Opportunity Commission guidelines—another potential avenue for compliance questions and future litigation.

And although this decision may still be appealed, the case indicates that at least some level of financial penalty may be permissible in employer-sponsored wellness plans.

—Susan J. Wells

"This progress-based approach has the potential to engage the many who deem the health standard unattainable, as well as others for whom it's not medically appropriate," StayWell's Anderson says. "You're nudging employees toward the health standard by setting a series of annual individual goals."

The author, a contributing editor ofHR Magazine, is a business journalist based in the Washington, D.C., area.