Putting a Premium on Health

When a Wal-Mart memo describing the retailer's plans to hire and retain healthier workers was leaked to the press last year, it touched off a firestorm. But in truth, many companies are coming to regard a fitter workforce as one way to control health-care benefit costs.

Feeling the pinch of double-digit increases in insurance premiums over the past several years, a number of employers have rolled out various kinds of health-improvement initiatives intended to nudge at least some workers toward lifestyle changes that could help rein in medical costs. While these programs, also known as wellness plans, have been around for decades, companies are now giving employees a really good reason to participate: breaks on their insurance premiums.

In the past, programs offered token rewards, like T-shirts or coffee mugs, but now companies are encouraging participation in wellness programs by offering incentives that attract the attention of workers. Bruce Kelley, a senior consultant at HR advisory firm Watson Wyatt Worldwide, says the incentives usually take one of three forms: a percentage reduction (or rebate) in an employee's contribution toward health-insurance premiums, a cash deposit into a health savings account or health reimbursement account (tax-advantaged accounts used for medical expenses), or gift certificates. In some cases, workers can't afford not to participate. "A typical incentive amount is between $100 and $200 per year, although we've seen them as high as $500," Kelley says.

At PepsiCo, which launched its HealthRoads program in 2004, employees have the option of completing an annual online health risk assessment, which identifies health concerns and unhealthy behaviors. Participants receive $100 in cash for themselves and an additional $100 for a participating spouse simply for answering health-related questions and reviewing the results. Employees can then take advantage of company-sponsored informational resources, one-on-one counseling, or wellness seminars scheduled throughout the year. Those who participate can earn additional incentives in $25 increments. "In its first year, the response level was terrific," says Greg Heaslip, PepsiCo's vice president for benefits. "Nearly 28,000 employees, or 40 percent, of our eligible workers, completed an assessment."

Some companies have achieved even higher rates, largely by linking participation to rebates in health premiums. "Our health-insurance costs were going up 13 to 15 percent a year, but we were no healthier for it," says Harry Goussetis, president of the cylinders division of Worthington Industries Inc. in Columbus, Ohio. The steel processor already had a strong culture of wellness among its 8,000 employees — thanks to its on-site gymnasium, medical clinic, and fully paid health insurance — but management decided that further progress demanded an economic impetus.

The company launched a wellness program based on an annual health assessment that includes specific screenings for weight, blood sugar, and cholesterol. Results place employees into one of three categories: low, moderate, and high risk. Those who are considered low risk automatically receive a full credit on their monthly insurance premiums for the following year ($25 per month for individual coverage and $50 for a family plan). Workers who score in the moderate- and high-risk groups can also qualify for the credit, as long as they agree to take periodic calls from a health professional and create a personal health-improvement plan.

As with other voluntary programs, incentives are based on participation, not on achieving results. "We reward people just for trying," says Goussetis. About two-thirds of the workers at Worthington opted to take part in the program. The one-third of Worthington's workforce who don't participate now find themselves paying for a portion of their health insurance, up to $80 a month for a family plan.

Healthy Rewards
Some companies combine premium discounts or rebates with other incentives. At Weyco Inc., a benefits administration firm in Okemos, Michigan, employees can earn a monthly premium discount "of around $20 to $30 per month for taking an annual health assessment and getting preventive medical checkups," says CFO Gary Climes.

They can also earn additional "Weyco bucks" for taking part in exercise or nutrition programs, which can be redeemed for cash. Weyco, which also instituted a no-smokers policy in 2003, hasn't determined the precise impact of the wellness program on its costs yet, "but I do know we're trending lower since we benchmarked in January 2004," says Climes.

Getting Tough
If incentives don't work, companies can up the ante for at-risk employees. Those with chronic conditions who refuse to participate in disease-management programs, for example, may face restrictions on health-care coverage, higher prescription co-payments, or lower caps on lifetime benefit maximums. In such cases, participation in a wellness program is "the price of admission to full health coverage," says Sue Willette, specialty practice leader at Mercer Human Resource Consulting. She cautions, however, that "a punitive approach may force compliance, but it's unlikely to really change behavior."

Further, federal law limits the extent to which an employer can impose penalties on the less healthy. Under the Health Insurance Portability and Accountability Act, employers cannot ask those with health risk factors to pay a differential of more than 20 percent of the premium. It also prohibits employers from using surcharges to discourage the chronically ill from taking health-care coverage.

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