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Getting Tough

Frustrated by employees who fail to participate in wellness efforts or change their unhealthy lifestyles despite a continual rise in healthcare costs and insurance premiums, a significant number of companies are planning to make their wellness efforts mandatory. The results could be transformative -- but they could also spark resentment and legal action.

Saturday, May 1, 2010
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When AmeriGas mulled rolling out a wellness plan that required employees to obtain a medical checkup or lose their health insurance, Bill Katz anticipated some pushback. That's why the vice president of human resources for the nationwide propane distributor couched the mandate in language most of the 6,000-some workers readily identified with.

Katz characterized health insurance as a kind of warranty on one's body, much like the warranty on the trucks that many AmeriGas employees drive. Suppose your truck is equipped with a warranty, he told them, but you never changed the oil after 35 months and 34,000 miles. Say the motor seizes up and you ask the dealership for a new engine. The dealer would rightfully scoff, claiming a voided warranty because you didn't maintain the vehicle.

"With medical insurance being a kind of warranty that companies provide for your body, you have a responsibility to maintain it," says Katz. "That means going to have regular checkups. The analogy resonated very well."

That communication was hardly the sole reason "all but a handful" of the Valley Forge, Pa.-based company's employees ended up getting checkups and retaining their health insurance, says Katz. But it was instrumental in making the case, as legions of other large employers are doing these days, that employees must take more ownership of their health -- or risk some consequences.

Escalating healthcare costs are compelling employers to consider a "stick" approach or at least combining stick-and-carrot measures, says Helen Darling, president of the National Business Group on Health, a Washington-based nonprofit with a membership of mostly larger companies.

The predicament is so dire, many firms aren't waiting for federal healthcare reforms to kick in and are attaching penalties to their wellness programs as last-ditch measures. Backers of these programs say it's because "carrot" initiatives aren't significantly lowering costs and improving employee health.

Almost half (47 percent) of large employers say they are already slapping employees with financial penalties, or planning to, in the next three to five years if they don't participate in certain health-improvement programs. That's according to a recent survey by Lincolnshire, Ill.-based Hewitt Associates.

"There has been a dramatic uptick in interest from employers of all sizes in the area of mandating wellness," says Greg Keating, Boston-based co-chair of the national practice group at Littler Mendelson, a law firm that has drafted white papers on mandated wellness programs. "This interest began a couple of years ago, but it has absolutely accelerated in the past year."

Some find the trend off-putting, however. JoAnn Volk, the AFL-CIO's legislative representative, worries that the penalties contribute to making healthcare unaffordable for some folks. Furthermore, she says, there's no proof following a mandatory course -- do this or lose something -- is more effective than a voluntary one -- do this and gain something.

Many organizations remain on the sidelines, with some perhaps viewing financial penalties as punitive and not befitting their culture. Others fret about the penalties of running afoul of certain federal and state laws and regulations. And there's another cause for pause: Will instituting wellness programs that are more stick than carrot drain morale and even spark some employees to quit?

"If you had a situation where you're thrusting things upon people, some employees will speak with their feet," says Mark Bukowski, a senior consultant at Hewitt Associates. "If [we as] employers are concerned about the retention of our best assets, we don't want to take out our issues, including ones involving costs, on employees. They will remember that when the economy improves and jobs are available."

A Growing Phenomenon

To hear some tell it, organizations are almost commanded to consider wellness programs with more arm-twisting measures. Healthcare costs for large employers continue to mount; they are expected to rise 6.5 percent this year, compared to 7 percent in 2009, according to a survey by NBGH and New York-based Towers Watson.

A growing number of large organizations are offering wellness programs -- 61 percent last year, compared to 46 percent in 2005, according to the latest employee- benefits trends survey conducted by MetLife, a New York-based insurance, employee benefits and financial-services provider. And many of those programs still prominently feature carrot-like incentives. HR officials such as Katz, however, say the voluntary nature of his company's past wellness efforts wasn't cutting it.

"We really had to have a more compelling way for people to take better care of themselves," says Katz.

Apparently, many companies can commiserate with AmeriGas. The NBGH/Towers Watson survey revealed that two-thirds of large employers say employees' poor health habits is their primary challenge in maintaining affordable benefit coverage. Further, 58 percent said their biggest obstacle to changing employees' health-related behavior is their lack of engagement.

"Every company in America is wondering how we can control healthcare costs while improving the health of our employees," says Katz. "Both the company and employees are incurring more expense, but no one's health is getting any better."

Motivated by those concerns, more companies are considering or instituting get-tough measures, often affecting employees' pocketbooks.

According to Hewitt Associates, eight in 10 large organizations are using or planning to use penalties in the form of higher benefit premiums. The Hewitt survey also revealed that almost two-thirds would penalize smokers, half said they would penalize those not participating in disease management/lifestyle behavior programs and 45 percent would target employees who didn't participate in biometric screenings.

Some companies have attracted considerable attention for their hard-nosed actions. Scotts Miracle-Gro, a Marysville, Ohio-based lawn and garden company, instituted a program in 2007 whereby it would no longer employ smokers and would even conduct random urine tests for nicotine.

At least one employee, Scott Rodrigues, was terminated after a urine test revealed nicotine. Rodrigues sued Scotts over the off-site smoking ban. Harvey Schwartz, Rodrigues' attorney, says his client was "pleased" with a resulting settlement, which forbids him from discussing the case.

"I Needed a Push"

AmeriGas' program employs a stick-and-carrot approach. While all employees and their covered spouses are mandated to get biennial check-ups or lose their health insurance, the exams are free. Even medications for common ailments such as high cholesterol, diabetes and high blood pressure are offered with no co-pays. Those who assert they don't use tobacco -- their supervisors must also certify that -- receive about a 20-percent discount on their share of the company's medical plan.

Under AmeriGas' program, all workers are required to obtain annual physical exams, cholesterol and blood-sugar tests, and blood-pressure checks. Women must get Pap smears and those 40 and older are required to get mammograms.

Katz says the company launched the Operation Save a Life program after exhausting other efforts. A poster campaign in 2001 featuring health tips was among the first of its voluntary wellness initiatives. Other efforts included offering health-insurance premium reductions to nonsmokers, a disease-management program operated by an outside vendor, cash rewards for employees completing a health-assessment form and an exercise program.

None made a major dent in thwarting AmeriGas' skyrocketing healthcare costs or boosting employee health.

Operation Save a Life started in January 2008 and workers were given a year, more in some cases, to complete the checkups. "Our objective wasn't to disqualify employees but to get them to do the tests," says Katz.

Almost all company employees got the checkups, he says. Certified letters were even sent to the hold-outs. In some cases, the employees declined because they were on their spouses' plans.

"There was a very small number of people who just didn't want to do it," says Katz. "For that group, we ultimately did remove them from the insurance rolls. But it's not as if they can't get back in."

Indications are the plan is paying dividends. Katz says the vast majority of AmeriGas workers embrace it. A third-party administrator AmeriGas hired to manage the plan reports claims records show more workers are following health regimens such as taking cholesterol, diabetes, asthma and blood-pressure medications, he says. Using the outside firm also helps allay employee-privacy concerns, he adds.

That's especially significant, because company employees appear unhealthier than average. For instance, an "extremely high number" -- 44 percent -- use tobacco and many are pre-diabetic or diabetic, says Katz. Additionally, he says, life-insurance claims for the self-insured AmeriGas were far higher than the national average for people under 60.

"I think many are realizing that going to the doctor on a regular basis for preventive care is something we all should do," he says. "I've had individuals come up to me and say, 'I'm so glad you're doing this, because I needed a push.' "

The program still confronts challenges. There were administrative mix-ups involving co-pays early on. Going forward, Katz hopes the same high percentage of employees will obtain checkups in the next program cycle. He says he is closely monitoring the program's health outcomes, comparing them to previous initiatives.

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Perhaps the most gratifying aspect of the plan is that it is, apparently, saving lives. Although Katz says he doesn't have access to individuals' records, some employees have volunteered that the program uncovered life-threatening ailments.

A manager told Katz a doctor discovered a serious heart condition during a routine exam. Within two weeks, a stent was installed near his heart. Moreover, several incidents of breast cancer were detected in women 40 and older.

"I've heard of many such stories," says Katz, estimating that more than 10 employees credit the program with potentially saving or outright saving their lives.

Legal Concerns

And yet, as laudable as some mandated programs appear, many question whether they are more effective than those emphasizing the carrot. For instance, seven in 10 large-company employees said they participate in wellness programs simply because they're concerned about their health, according to the MetLife study. In addition, 58 percent said monetary incentives (the carrot) motivated them to participate, the study reported, while 30 percent said financial penalties (the stick) imposed for nonparticipation sparked their involvement.

Other questions center on whether the programs meet legal requirements, especially those related to privacy and discrimination. Adding to the uneasiness, provisions of the federal healthcare-reform bill are still being interpreted by authorities. For that reason, companies are strongly advised to seek legal counsel before instituting a wellness program with an incentivized component.

Katz says his firm has no qualms about requiring AmeriGas employees who want health insurance to obtain medical checkups. "We closely reviewed all the regulatory and statutory framework," he says, "and we became very comfortable that our program is completely legal."

There is little case law on the books involving mandated employee participation in wellness plans, says Hewitt Associates' Bukowski. Combine that opening with the prospect for boosting the bottom line by improving employee health, even if just a smidgeon, and more companies may be examining their risk tolerance for such plans, he says.

"For some companies, the decision [to forge ahead with a mandated component] gets back to the attitude and belief of the CEO," adds Keating, of Littler Mendelson. "Is he or she willing to take on a legal challenge because of principle?"

Among the issues potentially fraught with legal consequences is tying employee health benefits to achieving certain health goals such as reducing tobacco use or lowering body mass index or blood pressure. Under the Health Insurance Portability and Accountability Act, only those organizations with wellness plans can make the connections, but only under certain conditions.

Among other things, HIPAA requires that a plan participant must be offered a reasonable alternative to meeting certain health goals, says Bukowski. Significantly, the IRS says the value of the plan's penalty can't exceed 20 percent of the total cost of the premium -- although the recently passed healthcare-reform legislation bumps that up to 30 percent.

This greatly concerns JoAnn Volk of the AFL-CIO. "Such a penalty would have the effect of making unaffordable the care that some employees need," says Volk.

Even with the best of intentions, companies offering conditional health benefits could create a backlash that may end up undermining their goals. "You're trying to build a culture and attitude of health within the organization," says Bukowski. "But if you're forcing people into doing something, you really don't have a culture and attitude of health. What you actually have is an attitude of compliance, which can bring about some resentment."

Some of this resentment can be eased by an effective communications campaign, says Michael Wood, a senior consultant in health and productivity at Towers Watson in New York. This communication must be "strong and relentless," says Wood. "It must be advertised and marketed constantly, not just at enrollment time."

The NBGH's Darling acknowledges that some turned-off employees may end up hunting for jobs elsewhere. But, she maintains, they will quickly discover companies everywhere are examining ways to shrink healthcare costs, including exploring or offering mandated wellness programs.

"We just can't afford to continue having free-wheeling, life-harming lifestyles," says Darling. "Employers really don't have a choice."

What about future prospects for health programs mandating employee participation in some fashion?

Given the momentum already under way, and the fact that rising healthcare costs appear inevitable, it seems likely more companies will both examine and offer health benefits conditionally. Volk forecasts as much, though she questions the programs' value. In a way, though, she welcomes more such programs.

"There isn't a lot of evidence out there saying voluntary or mandatory is the way to go," says Volk. "With more mandated programs, we'll have more to study. Then we'll be able to see which offers the best way to a healthier place."

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