Newsletter Issue 3

Penalizing Unhealthy Behaviors

While U.S. companies continue to use financial incentives as a way to increase employee participation in health and wellness programs, a new survey by Hewitt Associates, a global consulting and outsourcing company, shows employers' appetite for penalizing workers for unhealthy behaviors is also on the rise.

This shift in strategy suggests that companies are increasingly challenging employees and their dependents to be accountable for the decisions they make regarding their health.

Hewitt's annual health care trends survey of nearly 600 large U.S. employers, representing more than 10 million employees, shows nearly one-half (47 percent) say they either already use or plan to use financial penalties over the next three to five years for employees who do not participate in certain health improvement programs. Of those companies using or planning to use penalties, the majority (81 percent) say they will do so through higher benefit premiums. Increasing deductibles (17 percent) and out-of-pocket expenses (17 percent) were also cited as possible penalties.

When asked what types of behaviors or programs they would penalize, almost two-thirds (64 percent) of employers cited smoking, half (50 percent) indicated not participating in disease management/lifestyle behavior programs and 45 percent noted not participating in biometric screenings (45 percent).

"The economy and continued escalation of health care costs have driven many employers to be a little more bold and demanding of their employees, making disincentives an increasingly attractive option," said Cathy Tripp, a principal in Hewitt's Health Management practice. "As companies learn more about their workforce, they're realizing that some people may be more motivated to take action if they risk losing $100 versus gaining $100. The key for each employer is to find the right mix of strategies and plan designs that will motivate employees to be healthier, but not go so far as to drive the wrong behaviors."

Employers' increased focus on incentives and penalties stems from a concern about rising health care costs. Hewitt's research shows that total health care costs have more than doubled in a decade—from $4,793 in 2001 to $11,058 in 2010—and are expected to continue increasing over the next 10 years. Ninety-five percent of employers say cost is a top business issue. Seventy percent indicate that "promoting employee accountability" is a key component of their health care strategy, and for the second year in a row, keeping employees healthy is their top workforce issue.

"Incentives and penalties are not aimed at punishing those who are sick," added Craig Dolezal, principal and senior Health Management consultant. "Employers may reward a diabetic who manages her condition well, with appropriate prevention, weight management and nutrition. In contrast, they may hold an employee who does little to address the behaviors that may lead him to become a diabetic accountable for those behaviors."

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