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Employers move to keep profit from going up in smoke

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Employers are taking a tougher stance on curbing employee smoking. While overall U.S. tobacco use has dropped dramatically in the past half-century, to less than 18% of U.S. adults in 2013 from 42% in 1965, an estimated 20% of workers still smoke and cost employers an annual average of $3,400 per employee in additional medical expenses and productivity losses, according to the Centers for Disease Control and Prevention.

When expenses tied to workers compensation claims and employee exposure to second-hand smoke are factored in, smokers can cost their employer as much as $6,403 per year, according to Seattle-based health and wellness consultant Alere Wellbeing Inc.

“It's still a major public health issue and a cost issue for employers,” said Seth Serxner, chief health officer at Eden Prairie, Minnesota-based benefits consultant Optum Inc.

To combat the added costs and improve employees' overall health and productivity, more employers are offering tobacco-cessation programs with incentives and, in many cases, banning even electronic cigarettes at their facilities.

The percentage of large and midsize employers offering smoking-cessation programs — long considered a staple of “best-in-class” wellness programs — has grown as have employers using financial rewards and/or penalties to motivate employees to quit.

Eighty-four percent of large employers polled this year by the National Business Group on Health and Fidelity Investments offer a smoking-cessation program, up from 74% in 2010.

Generally speaking, experts say the most effective programs consist of free or subsidized Food and Drug Administration-approved nicotine-replacement products and prescription drugs, as well as online and printed educational materials, personal coaching and peer support networks.

“Good smoking-cessation programs are, quite frankly, a bit expensive, but since the employers stand to benefit from them as well, most are willing to subsidize, if not wholly cover, the costs that employees encounter in quitting tobacco,” said Brad Wolfsen, an executive director at benefits administrator bSwift L.L.C. in San Francisco. “The pharmaceuticals are typically the costliest component over time, but the coaching isn't low cost-either, depending on how it's done.”

Such programs typically cost $600 to $1,000 per employee, sources said.

Using financial incentives as part of smoking-cessation programs also has grown, with 71% of employers offering them in 2015, up from 59% in 2010, according to the NBGH and Fidelity survey data (see chart).

While most employers reward employees who quit smoking, 44% said their group health plans include premium surcharges for tobacco users.

“What needs to be taken into account is how you position these incentives and how you present it to the individual employee,” said Jonathan Dugas, director of clinical development at wellness program provider Vitality Group. “The challenge is … how to frame the message so that you can really leverage the behavioral economics behind how people think and act, and specifically play off of our natural aversion to loss.”

How employees qualify for the rewards, avoid the penalties and how much money that involves is changing as well, experts said, due in large part to wellness incentive rules under the federal health care reform law that were implemented in 2013.

Under those rules, the federal government raised the dollar limit on financial incentives linked to smoking-cessation programs to 50% of the total value of an employee's health insurance benefits.

Since then, a small but growing number of employers have rewarded or penalized employees based on actual tobacco use, rather than participating in or completing a quit-smoking program, according to the NBGH/Fidelity study. However, experts said most employers have stopped short of testing participants for nicotine, or its byproduct cotinine, and rely self-reporting by employees to verify incentive eligibility.

For employers that do test employees, the EEOC earlier this year proposed limiting financial incentives linked to smoking-cessation programs to 30% of the total value of an employee's health insurance. But, according to the NBGH/Fidelity survey, only 6% of employers do such testing.

“For the most part, what we're seeing is that the honor system is still very common,” Mr. Serxner said. “Many employers feel like it's really not worth the ill will to go tracking people down and acting like the smoking police. Yes, there are probably going to be a few people that cheat the system, but I think at some point it usually catches up to them.”

Employers also are making it harder for employees to smoke during the workday.

In particular, 61% of large and midsize employers in Optum's 2015 Wellness in the Workplace Study have implemented campuswide smoking bans, which experts said typically reduce tobacco use among employees more immediately and permanently than cessation programs alone.

“I'd say that's where we see the greatest gains in terms of smoking reduction, where companies are able to go tobacco-free on their campuses,” said LuAnn Heinen, vice president of the Washington-based National Business Group on Health.

“Not every company can do that, for a variety of reasons, but it really does move the needle,” Ms. Heinen said.