How aggressive financial incentives can encourage a healthy lifestyle for employees Featured

9:01pm EDT September 30, 2011
How aggressive financial incentives can encourage a healthy lifestyle for employees

Even employers who maintain a workplace that encourages employees to eat better, exercise, stop smoking and follow doctor’s orders regarding chronic illnesses will continue to have employees who smoke, who aren’t taking their medications and who are out of shape. These unhealthy habits hurt the company through lost productivity and increased health care costs.

“Employers have tried to play nice, meaning that if employees did specific things, such as stop smoking or complete a health risk assessment to understand their numbers, the employer gave them a gift certificate,” says Steve Freeman, president of USI. “The problem is, employees that don’t want to change and continue their poor behavior will continue to do so if the incentive isn’t meaningful. A gift certificate isn’t going to cut it if you want to change behavior.”

Employers are seeing that this behavior is affecting their bottom line costs, and are using more drastic measures to take control.

Smart Business spoke with Freeman about how to use financial incentives to promote wellness and how doing so can improve productivity and your bottom line.

Why should employers care about the health of their employees?

Health risk factors pose a substantial economic burden to businesses. Health care spending is projected to reach $4.2 trillion per year by 2012, or 20 percent of GDP. Of that, $450 billion will be spent on direct costs, and American companies are bearing the costs of poor employee health. But it’s not just direct costs. Obesity, heart disease, depression, diabetes and other chronic illnesses lead to sick days, absenteeism, decreased productivity, low morale and staff turnover, which are estimated to cost U.S. corporations an additional $225.8 billion per year.

If people are healthy and feel good about themselves, they are more productive, miss less work and claim less on medical plans. Employers are realizing they can provide an environment that promotes a culture of good health, resulting in direct and indirect benefits.

How can employers begin to build a wellness program that works?

Start with getting the overall health status of your employee population by having everyone complete a health risk assessment (HRA). This will give you a profile of your employees regarding their overall health. For example, It will share how many people have high blood pressure, diabetes, or a BMI over a certain level so that you can establish a starting point. That way, if people participate in wellness programs, you’ll have a benchmark to compare against the following year.

From there, determine the incentives based on actual results. It is important to keep score, monitoring and measuring results or changes in activities. Sharing aggregate results and success stories will help promote these programs.

What financial incentives can employers use to encourage people to participate?

Instead of a gift card or a minimal cash incentive to fill out a health risk assessment, consider discounts on contributions to the health plan or offer those who participate a better plan with a lower deductible, coinsurance and copay. Also, some employers can make cash contributions into health reimbursement accounts for employees.

Under HIPAA’s 20 percent rule, the reward offered cannot exceed more than 20 percent of the cost of the insurance. For example, if a single employee’s insurance costs are $550 a month, and the employee pays 30 percent, that’s $165. If that employee made improvements in his or her wellness measurements and scored well, the person could only pay 10 percent, or $55, which is a considerable savings. As an employee, why wouldn’t you participate and try to make some improvements?

Under HIPAA, a program that offers incentives must be reassessed yearly, be designed to promote health and wellness, and be made available to all similarly situated individuals to provide a reasonable alternative method of receiving the reward.

How can a program be structured to reward healthy behavior?

If employees are overweight, you’re not telling them they have to be a certain weight. It’s about making incremental changes and seeing results. Or if employees have diabetes and are not taking their medication, but the programs get them to adhere to their medication plan, then they’ve satisfied that criterion. There are a lot of ways to set it up and measure results.

How are insurance companies encouraging employers to incentivize employees?

If companies provide a smoke-free environment, an onsite exercise facility or gym memberships, many insurance companies will reduce their premiums. In addition, if you mandate HRAs and get a certain percentage of employees to participate, there may be premium reductions because it gives the insurance company a snapshot into the overall health status of the group. That allows them and the employer group to set up a targeted wellness program that is tailored to their own population. For example, if you have a high prevalence of individuals with diabetes, you can focus your wellness communication on how to manage diabetes. If you have a high prevalence of smokers, you can zero in on smoking cessation programs. It allows you to tailor your communication to your population versus just pulling something off the shelf and saying you have a wellness program.

What is the role of management?

It is critically important that senior management endorse and participates in the program. If they don’t, it won’t be successful. If the CEO knows it’s important and is participating, employees will follow. Companies that want to increase their bottom lines may want to influence their employees with more aggressive incentives, which will increase productivity and moral and decrease absenteeism, turnover and medical premiums.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or