One major obstacle HR professionals have had when it comes to implementing a wellness program with financial incentives for employees has been selling the program to top management. Michael F. Carter, Vice President of Hay Group, a global consulting firm, says he's got the evidence that HR can come armed with when a CFO, CEO or other top executive says "Show me the money!"--that is, the savings that will result in the implementation of such a program.

He presented some of this evidence--along with loads of other practical information, including more evidence his audience could use to combat the traditional arguments employers often make when claiming such program "won't work"--at the 2006 WorldatWork Total Rewards Conference & Exhibition in Anaheim, California.

The Win-Win of Financial Incentives

Carter began with some basics about the concept of financial incentives for wellness programs, and some facts about the current state of medical cost containment in the United States. Wellness financial incentives provide a "win-win" for employees and employers. Obviously, employees can benefit from improved health. Employers can lower their plan utilization, thus lowering health benefits costs and in turn, increasing profits.

Employers have seen six straight years of double-digit rate increase for medical insurance. Two of the main reasons for this are the aging population and the continuing declining health of the nation's population as a whole. America, Carter explains, is in the process of a 'Metabolic Meltdown'--a combination of worsening hypertension, cholesterol, and being overweight. Some of the statistics are staggering: for example, a full two-thirds of American adults are overweight. Meanwhile, 25 percent are totally sedentary while 40 percent exercise rarely.

Carter strongly believes that while we have no control over our aging population, the declining health of the American population can be improved. He proposes that employers implement a pay-for-performance incentive for wellness plans much like employers do for compensation plans. In a compensation plan pay-for-performance improves employee performance, and in turn, company profitability. In a wellness plan, Carter explains, pay-for-performance improves employees' health, which lowers medical insurance costs, and in turn, likewise increases company profits.

What kind of incentives can you give? Cash is always popular, and the most prevalent form of incentive Carter says. The appropriate monetary incentive amount in the average workplace falls somewhere in the $500 (per year) range, Carter says. Other options are gift certificates and days off from work. However, he is a proponent of offering lower medical premiums to those who participate instead. What better way to show the correlation between a healthier lifestyle and more money in someone's pocket than by reducing how much they pay for their health care premium?

Combating "It won't work because?"

Carter presented the standard hesitations or concerns employers have when such a program is proposed, and more importantly, the information HR professionals can provide in response to these concerns. Here are a few of them.

Are they legal? Employers may be concerned with whether providing incentives for wellness may be a violation of employee privacy. Carter explains that there are two federal laws that apply--the Americans with Disabilities Act (ADA) and HIPAA. Both laws permit premium differentials for bona fide wellness programs, he says. In order to comply with both laws, however, you should adopt incentives for behavior, not health status. (An employee can take steps to eat healthier, eat smaller portions, exercise more, or quit smoking--this is behavior-based criteria on which they can be rewarded. But they can't necessarily control their blood pressure or cholesterol levels, for example, which can be genetic/hereditary.). Also, such programs should not be mandatory, but strictly voluntary.

You should also be aware, however, that a dozen states--CA, CT, IN, KY, LA, ME, NM, NV, NY, ND, OK, RI--and Washington, D.C. have 'Smokers' Rights' laws. In these states employers are prohibited from discriminating against smokers in compensation, benefits, or the terms, conditions, or other terms of employment. However, Carter is quick to point out that these laws fall under Labor--not Insurance--law. And since wellness financial incentives are part of an employee benefits program "most attorneys interpret these laws to be preempted by ERISA, and not applicable." Carter advises that you "get a legal opinion if your program involves these states and includes incentives for not smoking or participating in a smoking cessation program."

Can people's behavior really change, with or without incentive? Many employers are critical of the notion that people with unhealthy behaviors are willing or able to change, regardless of whether a wellness program is available. Carter offers the simple statistic of the change in behavior among smokers in the past 40 years--in 1965, almost 42 percent of all adults smoked. By 2004, that percentage was down to less than 21 percent. Simply put, Carter says, you can rest your case on those stats that behavior can indeed change.

And, while some employers might argue that some may be resistant to change even in the face of incentives, Carter says such people are one of the two "fringes" of the employee population. The other fringe is made up of those who are health conscious and therefore don't need incentives. However, the rest of the employee population, which Carter calls a "very large group," are the "middle ground" employees who need a little "push"--and these individuals are who will benefit from your program.

Will employees tell the truth---or will they lie to reap rewards? Most wellness programs in which financial incentives are provided will include some degree of "self-reporting" or a health appraisal. For example, an employee in the program might self-report as to tobacco use. If they are taking part of a smoking cessation program in which they receive incentives for quitting, how are you to know if they are being truthful? Carter says you can have them sign a statement which makes it clear that they are expected to be accurate and truthful in their reporting. He says that in general people are less likely to lie not only if you ask them to be truthful, but even more so if you have them sign a statement which specifically states they will be truthful.

Are they cost effective? (Show me the money!) Here's where the evidence we promised comes into play. Carter says that significant scientific research has shown that well-designed wellness plans lower health service utilization, have savings that outweigh administrative expense, and are cost effective. He cited specific studies including two from the American Journal of Health Promotion. One included analyses of plans of over 200 employers that showed an average Medical Cost ROI of 3.48. The other was a major study of 20 Health Promotion programs by Kenneth R. Pelletier, Ph. D., M.D. which showed that such programs are cost effective. Carter provided the full citation information for these two studies. If you would like to have them for your reference, write us and editors@blr.com and we will send them to you.