As employers and insurers continue to navigate the intricaciesof the Patient Protection and Affordable Care Act, they're findingthat managing wellness programs and non-discriminatory incentives(or disincentives) can be tricky.

“PPACA extended HIPAA non-discrimination rules as to what isconsidered a non-discriminatory incentive or disincentive,”explains Amy Gordon, a wellness benefits attorney with McDermottWill & Emery. “It used to be that the incentive was capped at20 percent of the total premium—or total contribution if theemployer is self-insured. But PPACA raised that 20 percent to 30percent for most programs and up to 50 percent for tobaccocessation.

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

In October 2014, however, the U.S. Equal Employment OpportunityCommission sought to enjoin Honeywell from implementing its 2015wellness program, which included surcharges and loss of healthsavings account contributions for employees and spouses ofemployees who declined to participate in the program. The lawsuit,EEOC v. Honeywell International Inc., is an excellent example ofhow lack of guidelines are muddying the incentive waters. Althoughthe surcharges and losses fall within PPACA guidelines, the EEOC issuing on the grounds that the program violates the Americans withDisabilities Act because employees will be penalized if they do notparticipate in non-job-related biometric screenings.

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

“PPACA tells us that a plan can use up to 50 percent of apremium for an incentive or disincentive,” explains Dave Ratcliffe,a principal in the health and productivity practice at Xerox's BuckConsultants. “And then you look at the recent EEOC actions, andthey're saying, 'Hold on a minute, this isn't a voluntary wellnessplan, this is a violation of the ADA.' So there's acontradiction.”

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 surroundingwellness can help corral the portion of the population that'sunlikely to participate in a wellness program (and is probablyliving an unhealthy, high-cost lifestyle).

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

“Everyone is going to be more cautious about how they useincentives,” says Stephanie Pronk, senior vice president of AonHewitt, “but we haven't seen anyone walk away from doingincentives. They might think differently about the dollar amountand what they're asking people to do, but we haven't see movementaway from it.

“The challenge right now is that most employers are verycompliant with the PPACA and HIPAA—every employer is followingthose guidelines to a tee,” she adds. “But the EEOC does notcurrently have guidelines or specific regulations aroundincentives, so there is confusion and mixed messaging being givento employers.”

“While incentives are not the whole framework, they arefoundational,” Dermer says. “The incentives provision was one ofthe few provisions in PPACA that was supported by both Democratsand Republicans.”

The rise of the incentive

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

“Incentives around motivating people to get involved in wellnessprograms were introduced back in the 1980s,” Pronk says. “They weregiven little trinkets. It was amazing back in the '80s what peoplewould do for a T-shirt—we've moved a long way to where we aretoday.

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

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

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

“Five years ago, the big trend was to do healthy workplacechallenges,” Ratcliffe says. “Then we started doing this 'Wellness2.0,' where we're using biometric screenings and trying to targetthe riskiest part of the population. And now we're looking at itmore holistically.”

Broad incentives that don't incorporate variation in employeepopulations are also not as effective—and many experts recommendtailored programs that offer incentives for employees with specificchronic diseases or surrounding specific procedures andactivities.

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

“We do a terrible job of engaging the chronic-disease part ofthe population, and personalized messaging is the hottest topicglobally,” Ratcliffe says. “We can reach people and get them toparticipate in some of it. The secret is, let's make sure we getthose people involved through incentives and through engagementmethods, and let's refine the strategy that we've used in thepast.”

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

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

“Today employers are offering a variety of tools to helpemployees navigate the health care system and find the bestcombination of cost and quality in their doctors. Rewards andincentives tied to the use of those tools and finding the optimalresources to deal with those health issues is a win-win for all.Employers save money by employees using lower-cost andhigher-quality options, and employees get better outcomes.”

At a certain point, though, incentives can be taken too far—andemployers shouldn't become dazzled (or blinded) by the possibleimpact of incentives or disincentives on their bottom lines.

“When you ask employers about their wellness program, they'lltalk about their incentive program only, and incentives were nevermeant to be a wellness program—they were meant to be a component ofa best practice program,” Pronk says. “We might have shifted alittle too far in terms of having to pay people to do things theyneed to do around their health, and we need to get back to a morebalanced approach because employers will have to continually addmore dollars to keep people interested, and at some point, thereare diminishing returns.”

Who gets the benefit?

“When somebody purchases a fully insured product, the insurer ison the hook, so there's more skin in the game from an insurer'sstandpoint to make sure that population is healthy and minimizeclaims costs,” Gordon notes. “They've set a premium, and if theycan come in under that premium, they make more money. Insurers willtypically build a wellness component into the product.

“If it's a self-insured plan, the third-party administrator hasno skin in the game, so they don't have the same incentive as aninsurer to push the wellness component; they offer it as an optionbut they certainly don't push it on the employer,” she continues.“Their feeling is if the employer wants to make the populationhealthier, fine; if not, fine. They're still getting claims in andpaying on behalf of the employer. It's more the fully insuredproduct or the insurer that's now adding this wellness incentiveand requirement as part of the coverage. In those situations,they're absolutely trying to drive the health of the individualsand make those people healthier, and in doing so, they are addingincentives and disincentives for wellness participation.”

Every employer, however, could benefit from increasing theoverall health of the employee population—if only because there aremyriad benefits to fostering healthy employees.

“Wellness programs began as a way to control expenses, but theability to impact care costs is only one component,” notes CharlieEstey, executive vice president of Interactive Health. “Employersare also interested in absence—whether you're self or fullyinsured, that's important. There's an impact on short-termdisability and injuries, too.”

How to do Incentives

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 feedbackthat you get from your employees and how you communicate theseprograms,” she says. “It's critical in terms of drivingengagement—even when you have, perhaps, a premium differential or apenalty of some kind.”

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

“I think we're seeing a shift from focusing on physical wellnessto well-being, and that will continue,” Pronk says. “Technologywill play a huge role in terms of people being able to getinformation quickly and have access to different tools andresources to be healthy. The devices that are coming out help bothfrom a chronic condition management standpoint as well as awellness perspective, and that whole area will continue to grow.And organizations will be taking more responsibility to look at thework environment and culture they're creating as it relates towellbeing so they have a healthy and high-performingworkforce.”

They're not Everything

“When you design a program with a reward or penalty, someone isgoing to be a winner and someone is going to be a loser,” Pronksays. “People are either going to get penalized or simply not getthe reward. But I think employers are also saying, 'What otherthings can we do?' In an office environment, if you want people tomove during the day and don't want to be sitting all the time, thenyou should create an environment where people could sit or stand todo their work, and sit-to-stand workplaces reinforce that.”

Pronk notes that social connection within the work environmenthas more impact on changing health behaviors than a dollarincentive does.

“There are different ways to look at engaging people and gettingpeople socially connected to change their behavior,” she says.“Organizations also need to change their environments and theculture as opposed to just providing incentives. Incentives canwork, but you've got to create the environment and culture thatreinforces 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 weinclude spouses, but dependents are left out of the equation, andchildhood obesity and sedentary lifestyles are impacting peoplevery negatively,” she notes. “Family programs and initiatives aresomething we'll see from an employer and insurer standpoint. You'llsee more and more industries come around to combating the obesityproblem, from driving productivity to decreasing absence andmanaging disability.”

Where is it heading?

“I think there's a lot more creativity going on right now withinhealth plans; they're now focusing on customer retention like neverbefore,” Dermer says. “We believe consumers will expect to have areward program from their health plan just like they do from theirairline.”

And incentives aren't likely to be a trend of the past anytimesoon.

“Incentives are an absolutely necessary tool, and theyabsolutely have to be combined with other engagement tools,” Dermernotes. “Communications, social, gaming, team challenges—all thedifferent engagement tools work hand-in-hand with incentives. Whatyou're really trying to do with intrinsic rewards like financialincentives is to help people get to some kind of epiphany, if youwill. Maybe that epiphany is that an incentive got you in the room,and now you have a support group; or you never realized thatdifferent doctors charged different fees; or maybe you're a womanwho wasn't going to have a mammogram but did and discoveredsomething. Those kinds of epiphanies unlock these intrinsicmotivators that will spur consumers to lifestyle changes.”

Wellness programs are likely in for the long haul, too—ifthey're well-structured.

“Wellness programs that are not comprehensive and that aren'tpart of a larger healthcare strategy can fizzle out,” Estey says.“Best practices include the C-suite monitoring the wellness programparticipation and impact quarterly. Those wellness programs arevery successful, and with the right structure and financialincentive, we are seeing 80 percent participation, and more than 70percent of those who participate are improving health status andreaching their goals. So a broker who is not embracing wellness aspart of their strategy is missing out on a great opportunity.”

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

“Employers can and should make incentives less punitive; theycan make them more positive than negative; they can always makesure that individuals have alternatives,” Dermer says. “Ifemployees are offered an outcomes-based program that says they haveto reduce their weight or BMI, the law says they have to havereasonable alternatives. As long as employers are proactive abouthelping individuals to that end, that will reduce their risk, butthere's still a risk that the EEOC might come down and say theirprogram is not compliant.”