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Should Health Reform Legislation Allow Insurers to Incent Wellness Programs With Carrots and Sticks Made of Cash?

by jaansidorov

1/12/10: There is an important update at the end of the post.

Should employers offer wellness and prevention programs like worksite-based health coaches, gyms, diet information, health fairs, blood tests, excercise classes, tobacco cessation courses and wellness screenings? If you think so, do you also believe that employers should incent or reward employees that participate in these programs? Should rewards also be made available for employees that become healthier as a result? Should the rewards be time off, a favored parking spot, entry in a raffle, a gift card, a discount or cash? Should the rewards be small, medium or large?

Years of experience has led most experts to answer ‘that it depends.’ Yet, if you read a December 30 New England Journal of Medicine piece titled ‘Carrots, Sticks, and Health Care Reform — Problems with Wellness Incentives’ by Harvard’s Harald Schmidt, Kristin Voigt, and Daniel Wikler, you’d think the answer boils down a simple ‘no.’ Citing ‘fairness’ as a criterion, they note that employer-sponsored programs are only technically ‘voluntary,’ can poison the doctor-patient relationship, and fail to account for the pernicious influence of socioeconomic status on participation and success rates. If significant financial incentives are tossed in, they claim the well-off will not only become disproportionately healthier, they’ll be unfairly wealthier and benefit from cost shifting.

This is not just an academic thought experiment. According to a ‘FAQ’ document released under the banners of the American Cancer Society, Diabetes Assocation and Heart Association, pending health reform legislation will permit an increase in permissible financial incentives from the current HIPAA allowed level of 20% of the health insurance premium to 30% (and if the HHS Secretary okays it, 50%). That possibility that the has become a contentious flashpoint for progressives, who view such financially incented wellness programs as an underwriting Trojan Horse really designed to charge sicker people more for their health insurance.

I respectfully disagree. Here’s why:

First off, it’s been widely accepted for a long time and there is ample peer review literature that shows worksite-based health promotion programs improve the health status of populations. Management’s interest in promoting wellness is only partially based on retaining a talented and healthy workforce or lowering health care costs to the benefit of the shareholders: they also feel responsible for their workers’ wellbeing, even when national health insurance is in place. Financial incentives care are not only welcomed by employees (for example, in weight loss programs), they positively influence health behaviors, especially when they are combined with other features like obtaining employee input into the programs’ design, linking them to a health risk assessment, changing the insurance benefit and providing free on-site services.

Unlike the theorists writing in the New England Journal, I’ve been in on the ground floor of several employer-sponsored and evidence-based health promotion initiatives. I never saw one of the problems cited by Schmidt et al. I also doubt that that would surprise to anyone with experience in the wellness business, expecially since the Journal article didn’t cite any concrete examples of any of the possibilities it raised.

There is, however, an example raised in the Health Care For America Now! (HCAN) blog. The State of North Carolina apparently imposed a 10% out-of-pocket cost differential on State employees based on weight (BMI a hefty 40 or greater) or tobacco status. The local SEIU chapter has raised this as the poster child of employer-sponsored wellness run amok. However, closer inspection of the North Carolina State Health Plan web site reveals that tobacco cessation services and medications are also covered (they’re cheaper than cigarettes by the way) and that enrollment, not just quitting, qualifies for the higher coverage insurance plan. Ditto obesity treatment coverage, including diet instruction, medications and (if the person qualifies) bariatric surgery. What’s more, the obesity requirement doesn’t kick in until 2011. Last but not least, it wasn’t the ‘employer’ that technically imposed this, but the democratically elected State Legislature.

What’s there to conclude?

1. Worksite wellness programs are rarely imposed ‘top down,’ without the input of the employees themselves (or in the case of North Carolina, the voters’ representatives). Smart employers listen to their workforce and use their insights to develop programs that reflect local needs and preferences. Health promotion architects should have the ability to create locally meaningful financial incentives, including a 30% premium differential. While many might distrust Federal instrusion into health care, raising the incentive ceiling to 30% of premium expands the amount of employer (and their employees’) flexibility. That’s good.

2. Do higher cost incentives translate into higher participation outcomes? On this point, the published literature is less clear, but I believe employers and their employees will sort that out - if Congress gets out of the way and raises the ceiling. Instead of taking the New England Journal’s word for it, employers typically study their program results very carefully. If they find higher out of pocket expenses translate into less use of needed medical services or an unhappy work force, they’ll adjust. What’s more, keep in mind that higher participation rates leading to increased incomes means lower insurance costs, which also benefits all the employees.

3. While obesity and tobacco abuse disproportionately affect persons who are socioeconomically disadvantaged, the upside financial incentives (less out of pocket costs/lower premiums) that are built into wellness programs also have far greater marginal utility for that group - meaning lower income families benefit proportionately greater compared to their more affluent coworkers.

4. Health promotion services are not cheap. I suspect that any increased out of pocket costs are more than made up by the increased value of the redesigned health insurance benefit package. Note that in the North Carolina case outlined above, smoking and weight loss drugs were covered along with bariatric surgery. Perhaps a more correct way of looking at this is to ask if the out of pocket costs borne by the non-participants is really making up for the increased cost of the additional high value services. If that were the case, they’d be foolish to not take advantage of them.

5. As the son of a union man, I also have to wonder if a blanket anti-incentive view may not only on the wrong side of the rank and file union members, but of the American electorate. Since there is increasing wariness over merits of health reform, a bill that emphasizes a requisite amount of personal responsibility may be more likely to make it to the President’s desk.


(I am very pleased to post this reply from the authors of the New England Journal of Medicine article reviewed above, Harald Schmidt, Kristin Voigt, and Daniel Wikler)

As authors of the NEJM Perspective to which Jaan Sidorov refers we would like offer three comments.

First, it is incorrect and a misrepresentation to say that we argued against all forms of incentive programs. We take up the two categories set out in the relevant regulations, and hence differentiate between programs that offer reimbursements for meeting targets and those that offer them for simply participating in a wellness program. We raise substantial concerns regarding the former, but we note the value of the latter and emphasise that the focus of efforts should shift to devising equitable participation incentive programs.

Secondly, it is incorrect to say that we do not cite any examples supporting our claims, see reference 4 in the paper, also found here.

Thirdly, the principal policy conclusion we draw is that there is no need to increase incentive levels from 20 to 30 or 50%. According to Jaan Sidorov, these increases should be introduced. We are not aware of any evidence that would demonstrate that the current levels are exhausted, or that health can only be improved further or more effectively, if reimbursement levels are increased. If the author is aware of such evidence, perhaps he would like to share it with the readership of this blog.

Harald Schmidt, Kristin Voigt, Dan Wikler, Boston, 12 January 2010


(and in reply……)

First off, Jaan Sidorov would like to thank the NEJM authors for offering up their additional insights for posting in this blog. As mentioned in separate correspondence, my ultimate desire is to help readers discern the truth. Taking the time to provide the clarifications above importantly serves that purpose in an important area of health reform.

The authors are correct that the original posting didn’t point out the important difference between ‘participation’ incentives and ‘attainment’ incentives. This is a subtle and important point that is the victim of blogging brevity. I personally read the literature, but I also know that there is virtue when all readers ‘trust but verify’ for themselves.

To clarify, I agree there are business entities that are offering up ‘attainment’ progams. What I continue to look for are examples, or better yet, science, i.e, reports that show that these attainment programs systematically hurt employees in some measurable way.

Like the authors, I’m also unaware of any peer reported science that argues against increasing incentive levels from 20 to 30 or 50%. Ultimately, the lack of any research that conclusively shows that there is patient harm could argue in favor of high differentials. Alternatively, the lack of any research that demonstrates patients have NOT been disadvantaged argues in favor of prudence. The blogger in me says it will be up to the readers and the policy makers to decide. The researcher in me says ‘more research is needed.’ In the meantime, there are employers and insurers who want to try it. Given the understandable urgency with which they want to do something, who can blame them?

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by jaansidorov