Companies examining health care incentives to cut costs
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Carrots are nice. But sticks are pretty popular these days, too, at least in the realm of employer-sponsored health plans, which are increasingly punishing employees financially if they don't take their own health more seriously.
But which, if either, is more effective? Or are employers so desperate to curb health care costs that they'll try anything -- gas cards, cash, punitive premium rates -- in order to get employees to live healthier?
The answer to that latter question is "yes." As to the former, experts are learning more about what works and what doesn't through the field of health behavior economics. But it's a relatively nascent field of research, and employers can't afford to wait until all the research comes in: They want to cut costs immediately.
In 2012, according to a survey of large employers by the National Business Group on Health, 80 percent of companies plan to offer financial rewards to employees who participate in certain health initiatives, up from 54 percent in 2011.
Those rewards might include a gift card for those who make a wellness plan or have their cholesterol tested.
But also increasing is the number of companies "penalizing workers over health measures or lack of participation in wellness plans."
That share, according to the survey, is set to double this year, to 38 percent. Most penalties involve a higher insurance premium than they'd otherwise pay, but in other cases employers are refusing to hire nicotine users altogether, as a way to create a healthier workplace with, presumably, lower medical costs.
Other surveys confirm this trend: According to Mercer, a national benefits consulting firm, 24 percent of the largest companies (those with 20,000 or more employees) will charge higher health insurance premiums to smokers. And 12 percent of firms with more than 500 employees are doing the same, according to the 2011 survey.
Government-run health plans are contemplating it, too. Arizona, for example, had proposed extra fees on Medicaid patients who smoke and are obese (that plan has been nixed). Largely, the movement is now being driven by insurers and employers in the private sector: Home Depot, PepsiCo, Safeway and others are asking for higher premiums from workers who smoke.
Wal-Mart, the country's largest private employer, charges about $2,000 more a year in premiums for smokers who enroll in the company's most generous health plans (or, from another perspective, nonsmokers are getting a $2,000 discount, while smokers pay the "full" rate).
And starting next month, the mid-state's Geisinger Health System will be requiring nicotine tests for job applicants.
Those who fail -- whether they smoke cigarettes, cigars or even use smokeless tobacco -- simply won't get hired.
It's the ultimate stick.
Critics say this is a slippery slope: Testing for nicotine use today could lead to alcohol testing tomorrow. Employers could refuse to hire people if they don't like their diet or their family's history of heart disease.
Employers say fair is fair, and smokers, as a group, have demonstrably higher health care costs than nonsmokers. Geisinger defends its decision, noting such hiring testing policies are legal in Pennsylvania (though in 30 other states, it's illegal to discriminate against smokers via restrictive hiring or more expensive health coverage).
"Geisinger is joining dozens of hospitals and medical organizations across the country that are encouraging healthier living," said Richard Merkle, chief human resources officer, in an emailed statement.
"Non-nicotine hiring policies are legal in 20 states, including Pennsylvania."
If you fail the nicotine test, the hospital system says, you are welcome to reapply in six months, after you've quit smoking. Current employees aren't affected by the new policy, and Geisinger notes that Cleveland Clinic has had the same policy in effect for five years.
Employers have reached the breaking point, said Lorin M. Lacy, a principal with Buck Consultant's health and productivity division, and they've gotten so desperate that they will pay workers money to stop smoking or drop a few pounds.
"The big issue, of course, is getting people engaged," Mr. Lacy said. "But incentives don't always drive that behavior."
To date, it's mostly smokers who have been on the receiving end of the stick -- and have the most to gain from the incentives. For years, insurers have been giving better prices on underwritten policies to people who don't smoke. And it's not just health insurers -- life insurance carriers offer better rates to non-smokers, and the same is sometimes true of property insurers (on the theory that you are less likely to burn down your house if you don't smoke cigarettes).
But the fact that these pricing tools have moved out of the individual insurance market and into the workplace shows that employers are getting more serious about -- and, some would argue, too involved in -- how employees treat their bodies.
Getting serious is one thing. Figuring out what works is another.
How big does a penalty, or incentive, have to be before it influences employee behavior? Would employees be more likely to lose weight if they got a guaranteed payment (say, a $150 gas card), or if they were entered into a lottery where they might win a much larger sum? Will a simple written reminder get more people to sign up for a flu shot?
At the University of Pennsylvania, the Center for Health Incentives and Behavioral Economics is studying those issues.
One study carried out by the center in collaboration with General Electric Corp. showed that employees were 3.28 times as likely to quit smoking if they were given $750 in incentives, compared to those who were merely encouraged to quit but offered no cash.
"This is where the story gets interesting," said Harald Schmidt, research associate at the Center for Health Incentives.
When GE tried to install that very incentive platform -- $750, in three stages, for those who quit -- across its 152,000-person U.S. workforce, the company got some push-back from its nonsmoking employees. Their argument: Why should smokers be eligible for cash, or breaks on their premiums, when those who don't smoke get bupkis?
So GE reversed course and re-engineered the incentives, making them punitive rather than a reward. What was instead installed was a $650 penalty for those who smoked.
But there was no empirical evidence that such a program, with such a dollar figure, would work, said Mr. Schmidt.
Finding out what works and what doesn't is paramount, especially as the federal government is giving employers more latitude when it comes to tinkering with premiums for those who quit smoking, lose weight or otherwise try to improve their health.
While there is no limit on how much cash a company may dole out for "participatory" programs -- that is, if you complete the body-mass-index exam, you get $50, no matter the result -- there are limits on how much money can be tied up in "outcomes" programs.
Those are the types of programs that reward, or punish, only if you lose the weight or quit smoking or reduce your cholesterol. The cap on such penalties and rewards is 20 percent of the total premium.
With the new federal health care reform bill, that limit is raised to 30 percent of the total premium and, in some cases, as much as 50 percent, starting in 2014. In other words, for a family with a $12,000 health plan, $3,600 of that total could be tied up in outcomes-based discounts.
One potential problem, Mr. Schmidt said, is that such programs could be viewed as punitive toward certain classes of people: Poor people generally have a tougher time quitting smoking and have higher smoking rates to begin with, meaning premiums are being raised on the class of people who can least afford it.
The same could be said of Geisinger's no-hiring policy: The simple math of nicotine addiction means that lower-income applicants are far more likely to be weeded out of the job pool than those from middle-class backgrounds.
"The problem with this is that we don't all start from a level playing field" in terms of personal health and socioeconomic background, Mr. Schmidt said. "You help people more by employing effective, evidence-based incentive programs," not refusing to hire them outright, he said.
He also said some of his research shows that when it comes to "participatory" programs, the programs are likely to have higher participation rates among people who are healthier to begin with.
That is, people who are already skinny don't mind having their BMI checked or their blood work done. Those in poorer health don't always like to be reminded of it.
There is some "self-selection" at play here, he said.
First Published January 27, 2012 12:00 am
