As employers and insurers continue to navigate the intricacies of the Patient Protection and Affordable Care Act, they’re finding that managing wellness programs and non-discriminatory incentives (or disincentives) can be tricky.

“The PPACA extended HIPAA non-discrimination rules as to what is considered a non-discriminatory incentive or disincentive,” explains Amy Gordon, a wellness benefits attorney with McDermott Will & Emery. “It used to be that the incentive was capped at 20 percent of the total premium -- or total contribution if the employer is self-insured. But PPACA raised that 20 percent to 30 percent for most programs and up to 50 percent for tobacco cessation.

“Just in the last year, when the new incentive and disincentive regulations went into effect, we have definitely seen employers ramping up their penalties and incentives,” Gordon says.

In October of 2014, however, the U.S. Equal Employment Opportunity Commission sought to enjoin Honeywell from implementing its 2015 wellness program, which included surcharges and loss of health savings account contributions for employees and spouses of employees who declined to participate in the program. The lawsuit, EEOC v. Honeywell International Inc., is an excellent example of how lack of guidelines are muddying the incentive waters. Although the surcharges and losses fall within PPACA guidelines, the EEOC is suing on the grounds that the program violates the Americans with Disabilities Act because employees will be penalized if they do not participate in non-job-related biometric screenings.

“More than 80 percent of large employers offered some kind of incentive program in 2013,” notes Michael Dermer, chief incentive officer at Welltok. “And 40-something percent of those employers are expected to engage in outcomes-based programs as opposed to participation-based programs. This is a trend that’s been going on for multiple years. The Honeywell case caused a lot of the concerns, and the general consensus is that there are many programs that would not be compliant.”

“The PPACA tells us that a plan can use up to 50 percent of a premium for an incentive or disincentive,” explains Dave Ratcliffe, a principal in the health and productivity practice at Xerox’s Buck Consultants. “And then you look at the recent EEOC actions, and they’re saying, ‘Hold on a minute, this is not a voluntary wellness plan, this is a violation of the ADA.’ So there’s a contradiction.”

Some health care policy experts are using the term “wellness-or-else” to describe plans that include a disincentive, and many note that financial incentives and penalties surrounding wellness can help corral the portion of the population that’s unlikely to participate in a wellness program (and is probably living an unhealthy, high-cost lifestyle).

“What tends to be the issue in employee populations is that a very small percentage of the population typically drives the majority of the medical cost of the larger group,” Gordon explains. “And, unfortunately, what some employers have learned is that if they make these programs voluntary, with no financial incentive or disincentive to participate, they end up getting their healthy population jumping on board, embracing this, and the not-so-healthy people sitting back and continuing in their current lifestyle -- essentially not really accomplishing any change for the plan experience and the group as a whole. So over the years, employers have been ramping up either the carrot or the stick to try to get more people on board to participate in these programs.”

“Everyone is going to be more cautious about how they use incentives,” says Stephanie Pronk, senior vice president of Aon Hewitt, “but we haven’t seen anyone walk away from doing incentives. They might think differently about the dollar amount and what they’re asking people to do, but we haven’t see movement away from it.

“The challenge right now is that most employers are very compliant with the PPACA and HIPAA -- every employer is following those guidelines to a tee,” she adds. “But the EEOC does not currently have guidelines or specific regulations around incentives, so there is confusion and mixed messaging being given to employers.”

“While incentives are not the whole framework, they are foundational,” says Dermer. “The incentives provision was one of the few provisions in PPACA that was supported by both Democrats and Republicans.”

The rise of the incentive

In the decades since incentives we emerged onto the health and wellness arena, the programs have ballooned from small and simple to vast and intricate.

“Incentives around motivating people to get involved in wellness programs were introduced back in the 1980s,” Pronk says. “They were given little trinkets. It was amazing back in the ’80s what people would do for a T-shirt -- we’ve moved a long way to where we are today.

“The late ’90s into the 2000s is when we saw employers really start to think about tying incentives to benefit design, and it’s really caught on in the last five to six years,” she continues. “The philosophy is, we want people to do positive things around their health and reward people for making the right choices.

“Most employers started with one-time compliance events that are pretty easy for people to do,” Pronk notes, “but they weren’t seeing a behavior change. For example, a health risk assessment and a biometric screening. The employees take 15 minutes to fill out a questionnaire and maybe 30 minutes to do a biometric screening. The employers weren’t incenting action to change a certain behavior that might have been identified in the biometric screening.

“Then we moved to a design where we were looking to incentivize people for activities that would improve or maintain their health or manage some type of chronic condition,” she adds. “And then we moved to what we call outcomes-based programs -- you have to meet a certain health standard in order to receive an incentive. Most of the time, this was done with a reward in mind, but in the last two to three years there has been a small movement -- I would not say it is a large movement -- to more of a penalty-based approach.”

“Five years ago, the big trend was to do healthy workplace challenges,” Ratcliffe. “Then we started doing this ‘Wellness 2.0,’ where we’re using biometric screenings and trying to target the riskiest part of the population. And now we’re looking at it more holistically.”

Broad incentives that don’t incorporate variation in employee populations are also not as effective -- and many experts recommend tailored programs that offer incentives for employees with specific chronic diseases or surrounding specific procedures and activities.

“It’s really important to know where your risks lie within your population so you can design a wellness program that targets the people that you need to target,” says Kayla Wilcox O’Neal, the national practice consultant for health risk solutions at Lockton Benefit Group. “Your program shouldn’t be one-size-fits all -- it’s best to consider what you want to incent and how accountable you want people to be for their health. It’s very important to know the health of your population, the gaps in care, the populations with chronic disease burdens, and to design your program around that, versus just saying, ‘We want everybody to run a 5K.’ So having the proper data before you build a program is critical.”

“We do a terrible job of engaging the chronic-disease part of the population, and personalized messaging is the hottest topic globally,” Ratcliffe says. “We can reach people and get them to participate in some of it. The secret is, let’s make sure we get those people involved through incentives and through engagement methods, and let’s refine the strategy that we’ve used in the past.”

“Employers need to think beyond long-term risk reduction,” Dermer says. “Why wouldn’t you use a mix of incentives that provide immediate return on investment, intermediate return and long-term return?”

He explains how an immediate return incentive plan might work in practice: “Let’s say somebody sprains an ankle and has to get an MRI. You can get an MRI at a facility that costs $500 or one that costs $2,000 that are literally two blocks apart but that are the same in terms of quality. Why wouldn’t we use incentives that prompt consumers to select the less expensive facility? If you think about the advent of transparency and telehealth solutions, why wouldn’t we encourage somebody to use a transparency-based or telehealth visit? Change the conversation from just the long-term risk reduction.

"Today employers are offering a variety of tools to help employees navigate the healthcare system and find the best combination of cost and quality in their doctors. Rewards and incentives tied to the use of those tools and finding the optimal resources to deal with those health issues is a win-win for all. Employers save money by employees using lower-cost and higher-quality options, and employees get better outcomes."

At a certain point, though, incentives can be taken too far -- and employers shouldn’t become dazzled (or blinded) by the possible impact of incentives or disincentives on their bottom lines.

“When you ask employers about their wellness program, they will talk about their incentive program only, and incentives were never meant to be a wellness program -- they were meant to be a component of a best practice program,” says Pronk. “We might have shifted a little too far in terms of having to pay people to do things they need to do around their health, and we need to get back to a more balanced approach because employers will have to continually add more dollars to keep people interested, and at some point, there are diminishing returns.”

Who gets the benefit?

“When somebody purchases a fully insured product, the insurer is on the hook, so there’s more skin in the game from an insurer’s standpoint to make sure that population is healthy and minimize claims costs,” Gordon notes. “They’ve set a premium, and if they can come in under that premium, they make more money. Insurers will typically build a wellness component into the product.

“If it’s a self-insured plan, the third-party administrator has no skin in the game, so they don’t have the same incentive as an insurer to push the wellness component; they offer it as an option but they certainly don’t push it on the employer,” she continues. “Their feeling is if the employer wants to make the population healthier, fine; if not, fine. They’re still getting claims in and paying on behalf of the employer. It’s more the fully insured product or the insurer that’s now adding this wellness incentive and requirement as part of the coverage. In those situations, they are absolutely trying to drive the health of the individuals and make those people healthier, and in doing so, they are adding incentives and disincentives for wellness participation.”

Every employer, however, could benefit from increasing the overall health of the employee population -- if only because there are myriad benefits to fostering healthy employees.

“Wellness programs began as a way to control expenses, but the ability to impact care costs is only one component,” notes Charlie Estey, executive vice president of Interactive Health. “Employers are also interested in absence -- whether you’re self or fully insured, that’s important. There’s an impact on short-term disability and injuries, too.”

How to do incentives right
Communication is key when implementing a wellness program, O’Neal points out.

“A lot of discovery should go into the employer culture, commitment from leadership, employee expectations, the feedback that you get from your employees and how you communicate these programs,” she says. “It’s critical in terms of driving engagement -- even when you have, perhaps, a premium differential or a penalty of some kind.”

O’Neal says a lot of groups “focus more on communicating the programs as a ‘carrot,’ versus coming out and saying, ‘it’s our way or the highway.’ And I think people realize that’s a message that can be delivered in a much, much softer way. You can still get the end results without coming at it from that ‘or-else’ angle.”

“I think we’re seeing a shift from focusing on physical wellness to well-being, and that will continue,” Pronk says. “Technology will play a huge role in terms of people being able to get information quickly and have access to different tools and resources to be healthy. The devices that are coming out help both from a chronic condition management standpoint as well as a wellness perspective, and that whole area will continue to grow. And organizations will be taking more responsibility to look at the work environment and culture they’re creating as it relates to wellbeing so they have a healthy and high-performing workforce.”

Incentives aren’t everything
“When you design a program with a reward or penalty, someone is going to be a winner and someone is going to be a loser,” Pronk says. “People are either going to get penalized or simply not get the reward. But I think employers are also saying, ‘What other things can we do?’ In an office environment, if you want people to move during the day and don’t want to be sitting all the time, then you should create an environment where people could sit or stand to do their work, and sit-to-stand workplaces reinforce that.”

Pronk notes that social connection within the work environment has more impact on changing health behaviors than a dollar incentive does.

“There are different ways to look at engaging people and getting people socially connected to change their behavior,” she says. “Organizations also need to change their environments and the culture as opposed to just providing incentives. Incentives can work, but you’ve got to create the environment and culture that reinforces those behaviors.”

And there’s still room for improvement in many areas -- notably, Pronk says, in the family connection to the employee.

“We tend to do things for our employees, and sometimes we include spouses, but dependents are left out of the equation, and childhood obesity and sedentary lifestyles are impacting people very negatively,” she notes. “Family programs and initiatives are something we’ll see from an employer and insurer standpoint. You’ll see more and more industries come around to combating the obesity problem, from driving productivity to decreasing absence and managing disability.”

Where is wellness heading?
“I think there’s a lot more creativity going on right now within health plans; they’re now focusing on customer retention like never before,” Dermer says. “We believe consumers will expect to have a reward program from their health plan just like they do from their airline.”

And incentives aren’t likely to be a trend of the past anytime soon.

“Incentives are an absolutely necessary tool, and they absolutely have to be combined with other engagement tools,” Dermer notes. “Communications, social, gaming, team challenges -- all the different engagement tools work hand-in-hand with incentives. What you’re really trying to do with intrinsic rewards like financial incentives is to help people get to some kind of epiphany, if you will. Maybe that epiphany is that an incentive got you in the room, and now you have a support group; or you never realized that different doctors charged different fees; or maybe you’re a woman who wasn’t going to have a mammogram but did and discovered something. Those kinds of epiphanies unlock these intrinsic motivators that will spur consumers to lifestyle changes.”

Wellness programs are likely in for the long haul, too -- if they’re well-structured.

“Wellness programs that are not comprehensive and that aren’t part of a larger healthcare strategy can fizzle out,” Estey says. “Best practices include the C-suite monitoring the wellness program participation and impact quarterly. Those wellness programs are very successful, and with the right structure and financial incentive, we are seeing 80 percent participation, and more than 70 percent of those who participate are improving health status and reaching their goals. So a broker who is not embracing wellness as part of their strategy is missing out on a great opportunity.”

And in the meantime, employers concerned about EEOC activity should continue to tread lightly.

“Employers can and should make incentives less punitive; they can make them more positive than negative; they can always make sure that individuals have alternatives,” Dermer says. “If employees are offered an outcomes-based program that says they have to reduce their weight or BMI, the law says they have to have reasonable alternatives. As long as employers are proactive about helping individuals to that end, that will reduce their risk, but there’s still a risk that the EEOC might come down and say their program is not compliant.”