By George B. Delta, General Counsel, The Incentive Foundation Inc.
According to various studies, including one from the School of Public Health at Johns Hopkins and another from Duke University, approximately three in four Americans will be overweight by 2015 and that number will increase steadily over time. The medical costs of these individuals can be up to 10 times higher and their worker’s compensation claims twice the rate of those who are not overweight. Currently, approximately 72 million Americans are classified as obese. As a result, health care costs are expected to increase dramatically over the next decade.
As bad as the current situation appears to be, the health of American workers is declining and is expected to be worse. Approximately one in three suffers from some symptoms of depression, one in four smokes, one in five experiences difficulty sleeping, one in five is treated for high blood pressure, one in seven has high levels of cholesterol, and nearly half have not exercised in more than a month. All of these health risks make employees less productive and have helped cause health insurance premiums to double since 1999. Quite clearly, it is in everyone’s interest for to change their lives and live healthier.One possible means of achieving a healthier and more productive life is to participate in wellness programs.
A well-designed wellness program should have many components to it. The program could cover: disease management, fitness programs, diets, screenings and preventive care, weight loss, cessation of smoking, helping employees change their health profiles, and so on. The program should start with a baseline analysis of each employee’s health profile, so it can measure improvement over time.
A properly designed wellness program can lead to multiple benefits, such as reduced accidents, fewer absences due to sickness, higher productivity, lower health care costs, and overall better health. All of these benefits, when added together, inevitably lead to improved employee morale and ultimately better company performance.
However, even with these proven benefits, employers still find it difficult to convince employees to participate in wellness programs. There may be several reasons for this fact.a) Employees may be hesitant to provide sensitive health information to their employers for fear of reprisal and discrimination.
Indeed, management participation in and proselytizing for a wellness program can be very helpful in getting employees to take part. Finally, employees may see wellness programs as just another employer event, and an intrusive one at that.
Although the benefits of a wellness program should be fairly obvious, we do not always do what is best for ourselves without some nudging. Thus, the key to getting employees to participate may be to provide them with incentives.
There are multiple approaches to providing such incentives. The approach Congress and the president have taken in the Patient Protection and Affordable Care Act of 2010 (PPACA) is to permit employers to offer cash incentives to employees for participating in wellness programs and reaching certain targets. Current law limits the value of wellness incentives to 20 percent of the total health care premium spent per worker. When the new rules of the PPACA go into effect in 2014, limits will go up to 30 percent and may rise to as high as 50 percent.
Safeway has been at the forefront of such cash incentives to improve health. Safeway’s chief executive officer, Steven A. Burd, has been an outspoken proponent of company health care plans that reward healthy behaviors. Like most workers, Safeway employees pay a portion of their health care costs through premiums, copays, and deductibles.
Safeway has instituted a program that has substantial differences in premiums, depending on levels of healthiness. The company’s health care plan also has differing premiums, based on various factors such as smoking, weight, blood pressure, and cholesterol levels. It has employees screened for those four items, and they receive a discount off a base level premium for each test they pass or standard they meet.
In order to encourage employees to provide such information, Safeway uses outside parties to collect the data, and those parties are not permitted to share the collected information with company management. The confidentiality of such data is very important.
On the surface, the attractiveness of Safeway’s approach is obvious. If one requires workers to pay higher premiums if they flunk tests for measures such as smoking, weight, blood pressure and cholesterol, they will want to become healthier to reduce their costs.When they do so, the employer gets a fitter and healthier workforce and reduces medical expenses. Employees benefit in the form of lower deductibles and premiums.
However, Safeway type insurance plans are not without critics. According to an article by David Hilzenrath in The Washington Post on Jan. 17, 2010, in practice, the cost savings for Safeway employees have been somewhat elusive. The critical question is how large must the financial incentives be to change behavior, and if behavior is not changed significantly enough, do such incentives simply shift costs from employer to employee? In other words, if an employee fails one A properly designed wellness program can lead to multiple benefits, such as reduced accidents, fewer absences due to sickness, higher productivity, lower health care costs, and overall better health. 41 or two of Safeway’s benchmark tests, his premiums and deductibles would increase considerably. The employee would then have an opportunity to reduce the inflated premiums by losing weight or quitting smoking, for example, but the punitive nature of Safeway’s program can be troubling. Ultimately, more data are necessary before anyone can make a determination with respect to the efficacy of premium reduction incentives.
Another, better tested, and more efficacious type of incentive employers can use to drive employee behavior, with respect to health and wellness, is awards of tangible personal property, for example, merchandise. In order to motivate employees to participate in a wellness program, employers would be best served by offering incentives to join the program and recognition and awards when employees reach significant plateaus and meet goals or targets.
A properly designed wellness program requires an assessment of the general health and well-being of employees to provide baseline information before starting a program in order to be able to measure its relative success.
Because employees are reluctant to provide personal information and need to see an immediate tangible benefit for their efforts, incentives, awards, and recognition would provide them a compelling reason to participate in the wellness programs that the PPACA envisions. It is logical to assume employees may need to see an immediate and tangible benefit for their efforts. Employers can offer noncash incentives to entice employees to enroll in a wellness program and to reward them when they reach significant plateaus and meet significant goals. The incentives can range from health-related merchandise to gift cards redeemable for only merchandise.
According to a white paper by Barb Hendrickson and Stacie Pinnavaia, a long-term study by Johnson & Johnson, conducted by MED-STAT (a health information company in Ann Arbor, Mich.), showed that health care costs were $225 less for each employee who participated in a wellness program during a period spanning four years. The study also confirmed the value of awards and incentives.
Voluntary participation by employees increased from 26 to 90 percent when non-cash incentives were offered. This stands to reason, as premium reduction discounts can be viewed as just another small bonus, while merchandise has trophy value and is more meaningful to the recipient.
Incentives and recognition would be most beneficial if they also conferred a tax benefit. Namely, Congress should enact qualified wellness awards for eligible employees who participate in a qualified wellness program. Under such a law, the awards would be nontaxable to the employee and deductible by the employer, as long as they do
not exceed $400 per recipient.
Qualified wellness awards would thus motivate employees to participate in an employer’s qualified wellness program by giving them an incentive for doing so. As the Johnson & Johnson study showed, such awards and incentives have a long and proven track record of influencing good employee behavior and would be a powerful tool in ensuring the success of the wellness programs championed by the PPACA. To ensure qualified wellness awards are not disguised compensation, the awards would be in the form of tangible personal property and not cash or cash equivalents.
In addition to reducing the likelihood of disguised compensation, awards in the form of tangible property have the added benefit of having “trophy” value by serving as a continuous reminder of an employee’s achievement in the area of health and wellness. Appropriately designed qualified wellness awardswould serve as a valuable tool to ensure the success of an employer’s qualified wellness program.
As this article indicates, the PPACA currently encourages the Safeway approach of premium reduction, based on the use of wellness plans and the attainment of certain measurable health goals and results. While this approach is laudable in certain respects, its track record is currently unproven, and it is unclear whether the cost savings will materialize for employees.
In contrast, non-cash incentives have a proven track record of success in a variety of areas. Accordingly, a qualified wellness award, that is nontaxable to the employee and deductible by the employer, could be used separately or in conjunction with premium reduction programs to motivate employees to participate in wellness plans, to improve their health and lifestyles, and improved productivity and morale.
Using non-cash incentives to encourage participation in wellness programs and to drive healthier behavior once employees begin to participate is an essential means for employers to make wellness programs more effective and American workers safer, happier, more engaged, and more productive.
George B. Delta is counsel to the Incentive Federation Inc., Incentive Legislative Campaign Trust, Recognition Professionals International, IMA Educational Fund, Inc., and various other clients in the incentive, premium, rewards and recognition marketplace.
I have spent most of my professional life in and around public policy. The last 24 years have been in health care – not just American health and health care but globally – and I have witnessed first-hand the various delivery models, cultural norms and practices.
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