Carrot or Stick?

When it comes to wellness, employers are moving toward cash incentives as a way to motivate employees, but it's still unclear whether positive or negative reinforcement works best -- and whether such efforts are seen by workers as encouragement or intimidation.

Wednesday, April 25, 2012
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At Safeway, the giant food retailer based in Pleasanton, Calif., it started with a $3 salad dish -- compared to the purposely higher-priced $6 burger -- at the company's cafeteria. At Disney, it may have started with its $100 offering for its employers to perform a personal health assessment.

Today, a growing number of employers are pitching incentives for their staffs to change their health habits -- and they can mean big bucks for employees and big healthcare savings for companies.

These incentives are increasingly inventive, raising a flock of questions:

* How much financial incentive is enough?

* Is negative reinforcement OK?

* Who should be targeted: the well, the at-risk or the sick?

* Do financial incentives distract from what some experts say is the ultimate incentive, the employee's intrinsic desire for health?

While many employers may dislike using them, financial incentives may be a particularly American way of using free-market practices to contain healthcare costs and health-related productivity losses.

The large, attentive audience at February's annual Integrated Benefits Institute conference in San Francisco absorbed message after message about health behaviors and incentives.

"We must become experts in the science of behavior change. We need to know the extrinsic and intrinsic levers of change," said Dr. Arthur M. Southam, executive vice president of health plan operations for Kaiser Foundation Health Plan Inc. and Kaiser Foundations Hospitals in Oakland, Calif.

Later in the conference, IBI board chair Chris McSwain, vice president of U.S. benefits for Walmart in Bentonville, Ark., said that households should equate healthy behaviors as "wealth enhancement."

A leading researcher in the application of financial incentives for health, Kevin Volpp, professor of medicine and healthcare management at the Wharton School in Philadelphia, cautions that the design of financial incentives in healthcare is not well understood and that non-financial factors must be taken into account.

Companies, however, seem to already have their proof. After Disney enacted its $100 incentive for employees to take a health-risk appraisal, top executives removed the payment -- and usage almost vanished.

At Centrix Bank, based in Bedford, N.H., Human Resource Director Debbie Bremberg is "absolutely" convinced that cash awards of up to $250 have led employees to select lower-cost providers of mammograms and colonoscopies.

For years, employers have been using modest incentives to induce employees to be healthier, such as paying for health-club memberships and smoking-cessation programs.

While the credibility of wellness incentives has suffered because it's tough to gauge their impact on productivity and healthcare costs, use of incentives has picked up. Sixty-one percent of employers offer wellness rewards in 2012, compared to 36 percent in 2009, according to New York-based Towers Watson's 2012 employer survey, conducted with the National Business Group on Health in Washington.

Stepped-up use of financial incentives, experts say, arises from fundamental changes in knowledge, health-cost inflation and wellness strategies. Others say that poor health habits are causally related to healthcare costs and presenteeism.

Meanwhile, healthcare costs have surged every year. People pay more in co-pays and co-insurance and are hit with ever-larger premium deductions from their paychecks. And they incur dramatically higher rainy-day risks by taking on high-deductible plans.

Emerging employer and insurer-driven strategies include wellness-program redesign, health-plan redesign and health-consumer tools, often coordinated with large financial incentives.

Jennifer Price, a consultant in Willis' human capital practice in New York, finds in the firm's annual survey that "employers are moving from trinkets or gift cards to integration of wellness with their health plans."

And some C-suites have begun to absorb the lessons from the field of behavioral economics. This term refers to the science of motivation and decision-making by individuals. New York-based Sibson Consulting, issued in April 2012, a tutorial on the topic geared to benefit managers. The books Freakonomics and Nudge have also popularized those concepts.

Techniques for behavior change can be inventive. The website helps registrants set up personal plans to forfeit escrowed money if they do not meet a specified goal, such as weight loss.

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Some experts think that such negative reinforcement can be more effective than positive, while others say that it doesn't help and -- if pushed by an employer -- could lead to lawsuits.

Advocates of behavioral change will counsel employers to present clear choices to their employees: Give them timely information, tools and reminders.

For example, a company may frame for its workers a choice between health-insurance plans. It could make the most financially attractive plan available on the condition that employees complete health-risk appraisals and have biometric tests.

Safeway, with its $3 salad and $6 hamburger, is widely credited as the first large employer to innovate in this area, and the company went on to offer incentives for good scores on biometric tests for items such as body-mass index.

Employers should be aware of the regulations issued by the federal government in 2006 to guide their actions in using wellness incentives. The Patient Protection and Affordable Care Act will likely boost their use because it permits companies to vary health-insurance premiums by up to 50 percent for covered employees who achieve specified targets.

It's necessary that employer customize wellness targets so affected employees have a fighting chance to meet them. Otherwise, Harvard researchers -- alarmed over the potential impact on lower-income workers -- have estimated that a 50 percent premium variance could equal $2,412 a year for an individual and $6,688 for a family.

In 2007, Delhaize, a grocery chain based in Salisbury, N.C., introduced a healthy-behavior discount for insurance premiums. More recently it categorized its providers according to tiers and, depending on which tier an employee chooses, they pay a different percentage of treatment costs.

How receptive are employees to these creative and, some might say, intrusive strategies? Joanne Abate, Delhaize's director of health and wellness strategy, says there is a "true reluctance" to participate and earn credits by doing things differently.

Nonetheless, expect to see a lot more interest in financial incentives as employers attempt to bend the healthcare cost curve.

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