Wellness 2.0: Outcome-based financial incentives for getting healthier
Until recently, most employers tied wellness incentives to participation. Take a Health Risk Assessment, get a gift card. Submit to biometric screening, pay less for health insurance. Go to a seminar, get points towards rewards. Still, questions remain on whether participation truly improves health. As a result, the next generation of wellness programs will continue to try to improve the health of at-risk people by providing rewards for improving health scores, also known as outcomes-based incentives.
So far, there has been no real consensus on how these programs should look, act or be measured. In order to help organizations further develop their wellness initiatives, six leading organizations recently released guidance in the Journal of Occupational and Environmental Medicine on A Reasonably Designed Employer-Sponsored Wellness Program Using Outcomes-based Incentives. The six organizations are:
- The Health Enhancement Research Organization (HERO)
- American College of Occupational and Environmental Medicine
- American Cancer Society
- American Cancer Society Cancer Action Network (ACS CAN)
- American Diabetes Association
- American Heart Association
The most recent National Business Group on Health survey found that only 10% of employers had any form of outcomes-based incentive, most which centered around tobacco use. However, 23% of companies said they were considering it for 2013. Hopefully, this means that more employers will be measuring people based on making progress towards a goal or fully reaching it in the coming years. In addition, with PPACA allowing an increase in the amount of incentives (or penalties) beginning January 1, 2014 from 20% of premium to 30% or more, there is a sense that we will see more employers pursuing outcomes-based incentives soon.
There are three primary laws that come into play when considering an outcomes-based incentive program: the Health Insurance Portability and Accountability Act (HIPAA), the Americans with Disabilities Act (ADA) and the Patient Protection and Affordable Care Act (PPACA or the ACA). The guidelines take each of these laws into consideration, but also note that there is still a lack of clarity regarding certain aspects of a wellness plan or outcomes-based incentives.
Based on existing law and regulation, best practices, various studies and other sources, the authors of the guidelines recommend the following for any employer moving to outcomes-incentives:
- Use four basic biometric targets as outlined by the Department of Labor in 2008 as reasonable and modifiable: weight, total cholesterol, blood pressure and tobacco use. Avoid any measure that is non-preventable or due to a disability. Note that Body Mass Index (BMI), a measure of height and weight, is not recommended even though BMI is a popular measure. It’s recommended to use BMI when a third-party measures it during a screening event, rather than self-reported.
- Factor in the time and/or financial burdens someone may have to meet a standard. In order for a person to lose weight, they may not have the time to get any exercise nor the income or access to healthy foods. A wellness company or health plan may be able to provide support, tools and ideas to the person, but if they don’t have the time or the money to do it, employers may need to help by giving them paid break time to go for a walk, or access to free or subsidized healthy foods.
- Have a third-party deal with managing the program, dealing with accommodations and alternatives. If you have been doing your own wellness program or only using resources provided by your health plan, this may be the time to look at a specialty wellness vendor.
- Consider if the incentives place a greater economic burden on one racial or ethnic group compared to others. For example, you may have a headquarters, engineering and sales staff that is predominately white in the Northeast, and a manufacturing facility that is predominately African-American in the Southeast and significantly lower compensated. You may need to adjust your incentives and standards for each location or group.
- Be flexible with standards. An employer must allow for “reasonable alternative standards” to people who face difficulties meeting standards based on existing medical conditions. The guidelines suggest four options for a reasonable alternative standard:
- Lower the threshold of the existing standard
- Substitute a different standard
- Waive the standard
- Follow a plan set up by the person’s doctor – the authors recommend this as the preferred alternative
- Request documentation from the physician when they lay out an alternative plan. At this stage, having a third-party firewall to review letters from physicians that may contain Protected Health Information (PHI) is a good idea.
- Personalize your standards. In a similar vein as #5 above, you may work with a wellness vendor that has a good one-on-one coaching program. You may allow the coach to establish a target rather than setting a fixed standard for all employees. For example, a person may be overweight, have high blood pressure and high cholesterol because they get no exercise. The coach may lay out a moderate program for the person, and rather than having the standard be about weight, BP and cholesterol reduction, it’s about sticking to the exercise plan. Progress may still be realized on those measures, but the standard becomes more personalized to the individual.
- Evaluate the amount of the incentive (or penalty), and avoid such large amounts that the incentive would discourage health plan enrollment or create too heavy of a financial burden. The authors recommend incentives between $40 and $60 per employee per month as effective without creating too much of a burden. WGA takes into consideration an employee’s history with incentives (if there is one), their culture, pay practices and their goals and objectives when it comes to establishing incentives.
- Offer rewards for both making progress towards a goal, and meeting the goal. For example, an obese individual may have a BMI of 31, and the employer’s stated standard for all employees may be achieving normal BMI (under 25). Using this approach, the employee receives an incentive that pays for reaching “overweight” status of 29.5, say half of the total possible, and another for the full amount when he or she reaches a BMI of 28 or less. This way, the employee is recognized for their effort and progress, regardless if they are able to achieve a “normal” BMI.
- Understand and craft your program to balance between rewards versus penalties. For example, if health plan participants currently pay 20% of the cost of insurance, you may not want to have a program that only penalizes those that do not meet the standards by having them pay 40%. There are a lot of ways to craft an incentive plan that accommodates everyone, and it’s important to talk to your advisors about what works best in your specific culture, and for your people.
WGA’s Engage in Health approach has worked through the various issues regarding outcomes-based incentives with a few leading edge clients, and we strongly recommend discussing how to do this before trying to do it on your own. We do believe that this approach can further drive results, if designed properly.
William Gallagher Associates is a leading provider of insurance brokerage, risk management and employee benefits services to firms with complex risks and dynamic needs, within industries that include technology, life sciences, financial risks, health care, renewable energy & clean technology, and environmental services. WGA has offices in Boston, MA; New York, NY; Hartford, CT; Princeton, NJ; Columbia, MD; and Atlanta, GA.