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More Employers to Penalize Workers for Unhealthy Behaviors

Incentives, penalties used to improve outcomes, reduce costs

While U.S. companies continue to use financial incentives as a way to increase employee participation in health and wellness programs, a new survey by consultancy Hewitt Associates shows that employers’ appetite for penalizing workers for unhealthy behaviors is also on the rise. This shift in strategy suggests that companies increasingly are challenging employees and their dependents to be accountable for the decisions they make regarding their health.

That trend might be accelerated by the 2010 health care reform law, which will give employers more leeway in incentivizing healthy behavior. See SHRM's Health Care Reform Resource Page.

Hewitt’s annual health care trends survey of nearly 600 large U.S. employers—representing more than 10 million employees—shows that nearly one-half (47 percent) use or plan to use financial penalties over the next three to five years for workers who do not participate in certain health improvement programs.

Those using or planning to use penalties say they will do so through:

Higher benefit premiums (81 percent).

Increasing deductibles and out-of-pocket expenses (17 percent).

Companies are imposing penalties for unhealthy behaviors and nonparticipation in health-improvement programs

Percentage of companies that impose or plan to impose penalties

Smoker surcharge


Require participation with disease management/lifestyle behavior programs or pay a penalty


Require biometric screening or pay a penalty


Require participation with a health coach or pay a penalty


Require biometric improvements or pay a penalty (e.g., lower blood pressure, lower BMI)


Source: Hewitt Associates

“The economy and continued escalation of health care costs have driven many employers to be a little more bold and demanding of their employees, making disincentives an increasingly attractive option,” says Cathy Tripp, a principal in Hewitt’s health management practice. “As companies learn more about their workforce, they’re realizing that some people may be more motivated to take action if they risk losing $100 vs. gaining $100. The key for each employer is to find the right mix of strategies and plan designs that will motivate employees to be healthier, but not go so far as to drive the wrong behaviors.”

Incentive Use on the Rise

Employer use of financial incentives is also growing, according to Hewitt’s survey. More than half (58 percent) offer employees incentives for participating in health and wellness programs. Of those, almost a quarter (24 percent) extends these incentives to spouses and/or family members.

Companies are offering cash incentives for participating in:

For participation in 2009

For participation in 2010

Health risk questionnaire



Health improvement/wellness programs



Disease management programs



Source: Hewitt Associates

Promoting Employee Accountability

Employers’ increased focus on incentives and penalties stems from a concern about rising health care costs. Hewitt’s research shows that total health care costs per employee have more than doubled in nine years—from $4,793 in 2001 to $11,058 in 2010—and are expected to continue increasing over the next 10 years. (Total health insurance costs include employer cost, employee payroll contributions and employee out-of-pocket expenses.)

Ninety-five percent of U.S. employers say cost is a top business issue, while 70 percent indicate that “promoting employee accountability” is a key component of their health care strategy (see Employers Weigh Health Care Strategies).

“Incentives and penalties are not aimed at punishing those who are sick,” says Craig Dolezal, Hewitt principal and senior health management consultant. “Employers may reward a diabetic who manages her condition well, with appropriate prevention, weight management and nutrition. In contrast, they may hold an employee who does little to address the behaviors that may lead him to become a diabetic accountable for those behaviors.”

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Employers Weigh Health Care Strategies, SHRM Online Benefits Discipline, March 2010

Employers Change Health Benefits to Cut Costs, AlterBehavior, SHRM Online Benefits Discipline, March 2010

Size and Scope of Wellness Incentives Grow Larger, SHRM Online Benefits Discipline, August 2009

Wellness: To Promote Health, 'Carrots' vs. 'Sticks,' SHRM Online Benefits Discipline, August 2007

Financial Incentives for Wellness: Tips for an Effective Program, SHRM Online Benefits Discipline May 2007

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