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Employers use penalties to push workers into wellness programs

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Penalties can be effective in boosting wellness program participation among at-risk workers, but employers must be prepared to address negative reactions from employees.

The percentage of employers incorporating premium increases, so-called “gated” health plans and other penalties for nonparticipation in wellness initiatives, has shown modest but steady growth during the past several years.

However, for those penalties to be an effective incentive, it's essential that companies have clear and consistent communication of their overall wellness goals with their employees.

The issue of wellness penalties was highlighted last month when pharmacy chain CVS Caremark Corp. announced it would increase premiums for employees that don't take certain health screening tests.

In 2012, 15% to 22% of employers had incorporated some form of penalty into their wellness programs, according to several recent surveys conducted by health care consultants and nonprofit organizations. Additionally, 36% to 58% of employers surveyed said they plan to add penalties within the next three to five years.

As wellness and health management programs have become more institutionalized within the health care industry, experts say many employers have seen the positive results of their original reward-based incentives wither, and are now turning to penalties to boost participation in wellness programs.

“What a lot of employers have found is that positive rewards generally aren't that effective unless they involve a fair amount of money, depending on the pay level of the employees,” said Helen Darling, president and CEO of the Washington-based National Business Group on Health. “Where the rewards probably had worked initially, employers that have been doing this for a while are deciding that if they wanted to get people's attention and to get them into the program, a penalty or consequence is going to be more effective.”

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Experts said the logic behind penalty incentives is rooted in behavioral economics, particularly in the theory of loss aversion. This holds that a person is more easily compelled to prevent the loss of something than to pursue a reward.

The most common forms of penalties employers use today are monthly or annual increases in employees' health care premiums, copayments and deductibles, experts say.

In its announcement last month, for example, CVS Caremark told employees it would raise premiums $50 per month for its group health care enrollees who did not submit to a health risk assessment and biometric screening.

“For those types of initiatives, which many employers are more aggressively moving toward in order to start to build that foundation of health knowledge that people need in order to engage in their own health, we do see consequence-based strategies working pretty effectively there,” said Jim Winkler, Lincolnshire, Ill.-based chief innovation officer at Aon Hewitt.

Experts said many employers have begun implementing gated benefit plans, which limit employees not participating in wellness efforts to more modest, high-deductible health care plans, while rewarding participation with access to plans featuring more comprehensive coverage and/or lower premiums and deductibles.

When Penfield, N.Y.-based Paychex Inc. revamped its health and wellness strategy in 2008, it adopted a tiered menu of self-insured health plans. Employees who did not complete an annual health risk assessment and on-site health screening — as well as indicate they either didn't smoke or had enrolled in a smoking-cessation program — were limited to the company's high-deductible “cost awareness plan.”

After only one year, health risk assessment participation rose dramatically to approximately 11,000 employees from roughly 900 in the 2007 plan year, according to Paychex.

Reston, Va.-based Lafarge North America Inc. has gradually integrated a similar system of “gated” health care plans into its wellness program, beginning in 2007. By 2011, the company lowered its medical cost trend to 5.2%, down from 13.3% growth from 2001-2006.

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“The gated benefit plan approach has got some funky administrative challenges to it, just in terms of what happens to employees from one year to the next based on their wellness compliance,” Mr. Winkler said.

“But it's a cool concept, and we're seeing more interest from employers in going that route,” he said.

Despite their potential effectiveness, wellness penalties carry the risk of alienating or angering employees if they don't understand the broader goals of the wellness program, experts say.

“Penalties can be helpful because they target the people whose behavior needs to change and prevent employers from wasting resources,” said Susan Connolly, practice leader for total health management at New York-based Mercer L.L.C. “At the same time, they can be tricky, because they can send a negative message.”

The CVS plan to incorporate penalties into its wellness program drew considerable criticism from national media, while patient rights advocates called the plan overly punitive and potentially discriminatory. In response, CVS has maintained that the nonparticipation penalty is the most effective way to drive better health management engagement among its employees.

“Ultimately, this is a matter for you,” Dr. Troy Brennan, CVS Caremark's chief medical officer, said in a video message to employees. “We want you to be healthy, but you're in charge of your health, and you've got to take the right steps. We're trying to encourage you to do so.''

Employers' messaging should strongly emphasize their wellness program's overall goal of improving employee health, as well as a theme of shared responsibility for the long-term viability of their group health plans.

“You might need a whole year of lead time to begin the process of educating employees on why the company is sharing responsibility for their health care coverage,” Ms. Connolly said. “Only after you get through that incremental education process are you really ready to actually implement the change, especially if it's a penalty.”