Wellness programs are becoming more and more common as companies strive to reduce healthcare costs. The idea is simple: in exchange for employees making lifestyle changes that promote good health, companies will provide bonuses or reduced insurance costs to their workers. On paper, everybody wins: companies cut costs in the long run, while workers save money and enjoy a better quality of life.

The reality, as with so many things, is slightly more nuanced.

The success of wellness programs has been widely reported. Safeway, a supermarket chain, initiated its Healthy Measures program in 2005, using four criteria – smoking, weight, blood pressure, and cholesterol levels – to incentivize employees to follow recommended guidelines. If employees ‘pass’ the four measures, they can receive reduced premiums of as much as $780 per individual. Safeway is proud of its program and boasts that it has kept healthcare costs stable over a four-year period when many similar companies have seen costs increase by around 40%. The company also ties 70% of all healthcare costs to behavior, meaning that the making the program’s recommended changes could improve not only an employee’s overall health, but also reduce their healthcare costs.

Wellness programs have been touted as car insurance applied to people: the safer and healthier you are, the cheaper insurance becomes. Employers do need to be careful, however. Not every employee will be happy to take up the offer – or even welcome it. Incentivizing health care has led some to suggest that certain employees could be penalized for issues – such as some congenital conditions – that are beyond their control. “In addition to socio-economic factors, genetic predisposition plays a significant role in determining many health factors including excess weight, high blood pressure, blood sugar, and cholesterol levels,” DeAnn McEwen, vice president of National Nurses United has observed. Others have suggested that the cost of company screenings and checkups can in fact add to healthcare costs, rather than reduce them. Annual tests for cholesterol, as might be required by a wellness program, are excessive when compared to doctors’ recommendations that such tests only be carried out every five years.

As Business Week recently pointed out:

“Advocates for patients also fear that wellness programs that tie financial rewards to specific health measures can be used to make less healthy workers bear higher costs. Under the Affordable Care Act, companies may charge workers premiums of up to 30 percent more if they don’t meet certain health goals. That could keep the sickest workers from affording the care they need.”

Nevertheless, a company that wishes to introduce programs to encourage healthy living in its employees has a range of options available:

  • Educational incentives focus on awareness and employees’ knowledge of their own lifestyles and risks. For instance, an employee who completes a questionnaire about the effects of smoking will receive a $100 – $200 reduction in healthcare costs in exchange for his or her participation.
  • Action incentives encourage employees to carry out certain tasks (screenings or programs) to qualify for a slightly higher reward. For example, joining a weight-management program or having a cancer screening test could qualify employees to a $200 reduction in healthcare costs.
  • Results-based incentives set goals– such as reaching a certain BMI or weight – and offer lower rates for those who meet their targets. This can be more controversial as it implicitly raises rates for those who do not meet certain criteria.
  • Personal incentives offer individual plans based upon employees’ data (height, weight, lifestyle medical history, family history, etc.), with tailored targets and one-on-one analysis. Critics say this can violate workers’ privacy.

With the Affordable Care Act itself tying up to 30% of insurance costs to an individual’s current state of health, wellness programs are here to stay. As a business, it’s always tempting to find a way to lower costs – but smaller companies especially should be cautious of taking action that could upset their employees or put them at a disadvantage in the workplace.

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