Filed Under:Health Insurance, Individual Health

To incent or not to incent

A question for employers and their benefits advisors

There is a lot of confusion and more than a few questions about the use of incentives in benefits these days.

What do the Health Insurance Portability and Accountability Act’s (HIPAA) new wellness regulations mean? How can we incentivize employees, without risking noncompliance with new regulations?

Incentives are an especially big question mark for employers because so many want to find ways to motivate, encourage and lower the health care costs for the 5 percent to 10 percent of their employee population that is driving 80 percent or more of their costs.

Often these are employees who have chronic conditions such as diabetes or heart disease, or who may be obese – a condition now classified by the American Medical Association as a disease. Often these are also valuable tenured employees who have the skills, knowledge and expertise a company may need; helping them helps the company.

Here’s what you can tell your group health employer clients about the complex issues surrounding incentives today:

1. Offer a health risk assessment
One of the first steps toward getting employees to improve their health is the health risk assessment (HRA), which is the entry point for most wellness programs. Employers frequently offer financial incentives, premium discounts, or even PTO to get people to take the HRA.

Yes, HRAs have come into question of late in benefits circles – but, despite the current controversy, they remain a very smart tool for employers. They provide important information about the health status of employees and what programs (based on aggregate, not individual data) could provide the most value to the organization.

But . . . and here’s where a lot of employers have gotten into trouble . . . you must fully explain their value, including how they work. Include the steps that need to be taken to protect privacy and ensure employees know they can opt out – preferably without penalties - if wanted.

2. Understand what new regulations do and don’t say
What employers can and can’t do with incentives is governed in part by the Patient Protection and Affordable Care Act (PPACA) and HIPAA.

One of the many provisions of PPACA is that it allows employers to link greater financial incentives to the achievement of predetermined health targets, such as smoking cessation or healthy weight. HIPAA also governs what group health plans can do with benefit programs.

Most importantly, HIPAA prohibits employers from charging different premiums based on health status. People can’t be penalized just because someone is overweight or has diabetes or heart disease.

HIPAA’s new wellness regulations, introduced in June of this year, state that:

…a group health plan…may not require any individual (as a condition of enrollment or continued enrollment under the plan) to pay a premium or contribution which is greater than [that] for a similarly situated individual enrolled in the plan on the basis of any health status related factor…

The other major component for HIPAA is guidance on the dollar amount allowed for incentives.

Health plans and insurers will be able to offer higher financial rewards to participants achieving healthy behaviors such as quitting smoking or reducing cholesterol. Specifically, as of Jan. 1, up to 30 percent of the total cost of health plan coverage (employer and employee cost of coverage with no cap) may be tied to an incentive. Tobacco cessation and usage reduction programs allow rewards to be increased to 50 percent. Now, in reality very few employers will go up to that 30 percent, but it is an option.

The real trick to compliance with HIPAA’s wellness regulations is that wellness programs will have to ensure they do not discriminate against people based on health factors. For example, if an employee is extremely obese and unable to participate in a walking program that provides financial incentives, there must be an alternative program for that employee.

3. Determine if you will use a carrot or stick 
Employers have developed a range of approaches to incentives over the past few years. Most incentives today are based either on participation, outcomes or progress. Participation-based programs are simple.

You participate, sign a sheet that you came to the stop-smoking class or joined a gym, and you qualify for the incentive. Outcome-based programs usually include financial incentives.

Employers have learned over time that money is a great motivator for participation in either the HRA or a wellness program. The threshold for motivating employees seems to be right around $300 to $500 annually.

The key characteristic of an outcome incentive is that the employee doesn’t get that incentive unless he or she achieves a pre-determined goal or health standard, such as quitting tobacco use, losing 10 percent of body weight within six months, or bringing cholesterol levels within normal limits, etc.

Progress-based incentives are viewed as a “kinder, gentler” approach. They reward employees based on incremental, individually-attainable goals rather than a singular goal for all. In other words, you may need to lose 50 pounds, but the employer says, “We know losing even five pounds helps you and helps us, so you will still get the incentive.” (Studies show even small reductions in risk lower health care costs.)

Here again is where the incentive question gets tough and complicated. A Towers Watson 2012 survey reports that 62 percent of employers plan on switching from incentives for participation – which employees like – to incentives for improvements – which employers like – because it holds employees more accountable and the thought/hope is it will produce more tangible and measurable outcomes.

So what’s an employer to do when it comes to incentives? As we are learning from recent high profile news stories, employees will push back hard if they don’t support a wellness program and its goals (which typically happens if there is poor communication), or if they think non-participation penalties are too punitive. We all understand the need for accountability, but if that comes at the price of an unhappy employee population, what have you really won?

Every organization is different; I think it’s difficult to mandate you must do X, Y or Z. As part of my job with a leading health and wellness company and as a member of a number of key organizations evaluating worksite wellness programs and incentives, my recommendation is to consider a developing and evolving plan with incentives that engage, motivate and encourage all employees.

Start with simply incentivizing participation. Then as the program becomes better accepted with employees experiencing success – and as you do more education and communication – you can always migrate to the incorporation of a program that incentivizes progress.

Again, there is no one-size fits all, but we do know that what truly motivates people are programs that build intrinsic motivation. Program designs with the best chance of fostering such intrinsic motivation are those that use extrinsic tools (e.g., a weight loss program for employees) in a way that doesn’t make employees feel pressured but creates a supportive and empowering environment that promotes individual choice.

The last word on incentives is that the ultimate goal is not to get people to engage in behaviors for a short period of time just to get dollars. The objective is for employees to internalize the goal and learn how to make and sustain better lifestyle choices themselves.

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