Special Report on Health Benefits Butting In

Navistar Inc. executives turned up the heat on smokers five years ago as part of a pioneering move to improve employee health and rein in medical costs.

Smoking employees are now required to disclose their habit during the open enrollment period for health insurance or, if they fail to truthfully answer, risk violating the company’s ethical business policy. As long as Navistar employees continue to light up, they pay higher premiums—$50 more monthly. The policy applies only to nonunion workers, slightly more than half of Navistar’s 11,000 U.S. employees; union health benefits fall under a separate contract. Navistar realized the smoking surcharge could be controversial. “We were a little hesitant that we were setting ourselves up for some employee complaints,” says Dawn Weddle, wellness and behavioral health manager at Warrenville, Illinois-based Navistar, which makes trucks, RVs and other vehicles. Feedback was generally positive, with some “rumblings” but no formal complaints, Weddle says. “You have to remember: The majority of employees don’t smoke.”

The insurance premium penalty is helping to reduce the number of smokers even more. The percentage of employees reporting that they smoke has declined from 10.3 percent in 2005 to 8.6 percent in late 2009.

Some critics consider it intrusive and discriminatory to penalize unhealthy behaviors like smoking and reward people for taking positive actions such as losing weight. Nevertheless, other employers—fed up with rising obesity rates and related health costs—are following Navistar’s lead. Nearly two-thirds of large employers either have a smoking penalty or plan to impose one during the next three to five years, according to a 2010 Hewitt Associates Inc. survey of nearly 600 employers.

Corporate wellness strategies that affect employees’ pocketbooks are expanding beyond smoking. What’s more, the money involved might be a positive incentive or a penalty and it might be linked to participation, such as joining a weight-loss program, or to specific results such as reducing one’s body mass index. According to the same Hewitt survey, 17 percent of employers already have or plan to implement a penalty related to nonsmoking risk factors, such as obesity or high blood pressure.

In Alabama, however, state officials have chosen a positive incentive to encourage high-risk employees to consult a doctor or seek other medical help. The state provides a $25 monthly discount on health insurance premiums to all employees who receive such wellness screenings, whether their medical risks are high or low. But employees identified as high risk must take an additional step, such as seeing a doctor or enrolling in a wellness program, to retain that discount. Alabama decided not to tie the incentive to specific health goals but rather to simply try to motivate employees to seek medical feedback, says William Ashmore, chief executive officer of the State Employees’ Insurance Board in Alabama.

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At some companies, employees are asked to report their own weight, blood pressure and other health risk factors on assessment forms, typically during the enrollment period. Other wellness proponents, such as Thomas Parry of the Integrated Benefits Institute, say it’s more beneficial to pursue the path taken by Alabama state officials: directly measuring employees’ weight and other risk factors—sometimes dubbed biometrics—instead of relying on self-reporting. “Once you have biometric measurements, it’s certainly much easier to judge whether behavior has changed,” says Parry, president of the San Francisco-based research institute. “There is no doubt that folks are moving toward this.”

But are such tactics turning companies into Big Brother? Michael Gusmano, a research scholar at the Hastings Center, questions the degree of employer involvement in workers’ personal lives. Companies certainly have a vested interest in healthier employees, he says. “But it’s not entirely clear that it’s appropriate for them to have that kind of influence over domains of your life that aren’t directly related to you doing your job.”

Don Weber, a managing director at PricewaterhouseCoopers, agrees. “You get into a lot of really personal and emotional issues around health care,” he says. “People take it personally. ‘Why should my boss know that my cholesterol is too high? That’s between me and my doctor.’ Those are the issues that [employers] are really tiptoeing around right now.”

There clearly are risks in becoming too intrusive. Companies could lose talented—albeit less fit—employees who consider such wellness programs an invasion of their privacy. Some workers also may find the monetary incentives unfair. After all, employees’ health issues are affected by their genetic background, economic circumstances and other factors beyond their control.

Designing incentives
    Employers need to design health programs with financial incentives carefully to avoid potential legal complications. Under the Health Insurance Portability and Accountability Act, or HIPAA, a group health plan can’t discriminate against individuals by charging different premiums based on their health status, says Bob Christenson, chairman of the employee benefits practice group at Fisher & Phillips. But there’s an exception involving wellness programs. As much as 20 percent of the individual’s total premium can be linked to wellness goals, an amount that under health reform legislation will be raised to at least 30 percent beginning in 2014.

But HIPAA also provides for a reasonable alternative if it’s not medically feasible for an individual to achieve a specific wellness goal, Christenson says. For someone unable to quit smoking because of nicotine addiction, alternatives might include wearing a nicotine patch or taking a cessation class, he says. “I think you start running into legal issues when you say, ‘You have to achieve this’ and you don’t give [employees] any alternatives.” Navistar does make exceptions. It provides a smoking-related exemption for employees who have been told it’s medically inadvisable for them to quit, Weddle says. “To my knowledge, I don’t think we’ve ever made that exemption for employees.”

In 2005, Navistar employees were notified about the smoking premium increase several months before open enrollment. Once the 2006 benefit year started, they were given a six-month waiver as long as they enrolled in a company-sponsored smoking cessation program. These days, smokers who snuff out their last cigarette partway through the year can sign a related affidavit and the higher premium will be dropped, Weddle says. Employees also are required to step forward if their willpower lapses—backsliding that will hit their wallets along with their long-term health. “Each month we get a few who come back and say that they’ve started,” Weddle says. If an employee reported that a co-worker did smoke, there would be an investigation, she says, but she couldn’t recall a situation in which that has occurred.

Weber of PricewaterhouseCoopers advises employers to move cautiously, educating employees and setting “pretty wide guardrails” in terms of how rigorously they set weight and other benchmarks. “It’s really about getting people’s attention,” he adds, noting that it’s important that employees are educated about why health risk factors are being monitored. The goal, he says, is for them to view related financial incentives or penalties as motivational, not invasive. Indeed, Navistar has primarily focused on boosting participation in wellness programs rather than mandating specific goals such as smoking cessation. “With smoking, there is some really hard data on the cost of smokers and the impact they have on your health care costs,” Weddle says. “Whereas with some of the other biometric testing, such as cholesterol, blood pressure or weight, it’s not as clear cut. There are a lot of other confounding variables that you have to factor in.”

Navistar employees can benefit financially in a variety of ways beyond quitting smoking. Any employee who fills out a health assessment saves $300 on the annual premium. If a spouse also fills out the form, that’s an additional $120 savings annually. Employees who both fill out the self-assessment and participate in at least two wellness programs—ranging from weight-loss efforts to telephone coaching on healthy behaviors—receive $200 in their flexible spending account.

Since the smoking surcharge was added, health costs have stabilized in recent years, Weddle says. But the penalty and related wellness efforts were only one of a number of steps taken since 2005, including other changes in how insurance coverage was designed, she says.

Delving into the research
Research results on the effectiveness of wellness incentives are mixed. Alan Balch, vice president for the Preventive Health Partnership, describes employer initiatives as “by definition, an experiment.” He says, “Some people have pushed this idea of incentives tied to biometrics tied to health standards as the magic bullet. There is almost no evidence to support doing that.”

Yet several wellness proponents point to a New England Journal of Medicine study published last year that found that employees at a U.S. company who were offered money to quit smoking were more apt to kick the habit within the first year than those who simply received information about smoking cessation programs—14.7 percent versus 5 percent. The difference narrowed over time, however. After 15 to 18 months, 9.4 percent of the financially rewarded employees were still smoke-free, compared with 3.6 percent of the group who didn’t receive any monetary incentives.

Another recent study involving weight loss and the same researcher, Dr. Kevin Volpp, also illustrated the difficulty of sustaining results. The participants who received incentives did lose more weight during the 16-week effort. But they subsequently regained much of that weight, nearly erasing the gap with the group that didn’t receive any money, Volpp and other researchers reported in the Journal of the American Medical Association.

In short, cash is not a cure-all, says Dan Ariely, professor of psychology and behavioral economics at Duke University. While money can be effective in the pursuit of short-term goals, Ariely says, it doesn’t provide enough intrinsic motivation to win the ongoing struggle to keep off the lost weight.

“People like money; there is no question,” says Ariely, the author of the book Predictably Irrational. “If you could pay people lots of money for very long durations, it would work. The question is, ‘Do we have enough money?’ And the second question is, ‘What happens when we stop?’ ”

One of the leading researchers in corporate wellness, Dee Edington also is concerned about where financial rewards end. If you lower insurance premiums for slender employees, he asks, do you also offer rewards based on the number of hours exercised or blood-sugar levels? He has been approached by corporate leaders to study the effectiveness of money in driving health goals, but isn’t interested. “I tell them, ‘We just don’t believe in that,’ ” says Edington, director of the Health Management Research Center at the University of Michigan. “We believe in encouraging participation [in wellness programs].”

What is the exit strategy from financial incentives? There’s no easy answer, but LuAnn Heinen, a vice president at the National Business Group on Health, suggests that instead of rolling out a new financial incentive year after year, progressive employers try to motivate employees by promoting other tangible benefits, including better sleep, reduced stress and higher productivity. But it remains to be seen whether quality of life can compete with money in motivating employees to become healthier and help companies reduce medical costs.

Workforce Management, August 2010, p. 22, 24, 26 — Subscribe Now!