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Employee Wellness Incentives

Country: 
USA
Partner Institute: 
Johns Hopkins Bloomberg School of Public Health, Department of Health Policy and Management
Survey no: 
(15) 2010
Author(s): 
Krista Harrison, Gerard Anderson
Health Policy Issues: 
Public Health, Prevention, Funding / Pooling, Benefit Basket
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes no yes yes no no no

Abstract

Employer-based wellness incentive programs have existed in the U.S. for a number of years, but scope of potential incentive programs were expanded by the recent U.S. health reform legislation. Legislators and employers hope that the use of such incentive plans will improve employee health and reduce the overall cost of providing insurance.

Purpose of health policy or idea

Employer-based wellness incentive programs aim to reduce the overall cost of providing health insurance by giving enrolled employees incentives to follow healthy living habits and meet certain health-related goals, such as reducing body weight or tobacco use.  Incentives include annual premium discounts, waivers of cost-sharing requirements, or benefits that would not otherwise be provided such as gym memberships.

Regulations from the Health Insurance Portability and Accountability Act (HIPAA) of 1996 limited the range of incentives that employers could offer to employees if they participated in these incentives. The total percent of differential premium prices allowed by HIPAA is 20% (so for instance, if the base insurance premium is $100, the lowest insurance premium allowable by law is $80).

The Patient Protection and Affordable Care Act (P.L. 111-148) with amendments included in the Health Care and Education Reconciliation Act of 2010  (H.R. 4872), effective January 1, 2014, increases the limit to up to 30% of the cost of coverage for participating in a wellness program; the limit may be incrased to as much as 50% of the cost of coverage if deemed appropriate. The legislation stipulates that employers must offer an alternative standard for an individual for whom it is unreasonably difficult or inadvisable to participate in the wellness program. No clarification is offered for what "unreasonably difficult" might practically mean. 

The Patient Protection and Affordable Care Act also establishes 10-state pilot programs to allow insurers in participating states to implement similar reward programs in the individual health insuruance market by July 2014. If these demonstrations prove successful as determined by a report due three years after enactment, the demonstrations can be expanded in 2017. 

This legislation will affect self-insured employers and their employees who enroll in their employer's insurance, as well as insurers in the individual market and their customers.

Main points

Main objectives

Employer-based wellness incentives give enrollees rewards for healthy living habits and/or meeting certain health-related standards in an effort to reduce the overall cost of health care.

Type of incentives

Incentives include annual premium discounts, waivers of cost-sharing requirements, or benefits that would not otherwise be provided such as gym memberships.

Both risk and benefit of these programs are taken on by employers and insurers. The 2010 health reform bill merely expanded the existing limit on how much of a reduction employers can offer. However, some grants are available to help small employers start wellness programs.

From now through 2015, eligible small businesses can receive a tax credit of 35-50 percent of their contribution if they pay for at least half of their employees' premiums, with the maximum amount available in 2014 and later for small businesses who purchase insurance through health insurance exchanges. The savings might mean some additional funds available for wellness programs.

More significantly, eligible companies that do not currently have a wellness program can apply for a grant between 2011-2016 to establish one, as long as the proposed wellness program includes: 1) screenings and assessments; 2) methodology to encourage employee participations; 3) "initiatives to change unhealthy behaviors and lifestyle choices" which would include counseling, seminars, and online programs; and 4) workplace policies to encourage healthier lifestyles.

Groups affected

Employers, Employees or individuals purchasing insurance on the individual market, Insurers

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Characteristics of this policy

Degree of Innovation traditional neutral innovative
Degree of Controversy consensual rather consensual highly controversial
Structural or Systemic Impact marginal neutral fundamental
Public Visibility very low low very high
Transferability strongly system-dependent rather system-neutral system-neutral

The policy itself builds upon the popularity of standard-based wellness programs in the private sector over the past few decades. 

The policy should be transferable to any system utilizing employer-based insurance or individual insurance markets.

Political and economic background

The 2008 election cycle (and coincident world-wide recession) brought national attention to the high cost of insurance and the resultant drop in employers offering insurance in the United States. The election of President Obama and a majority of Congressional Democrats changed the political direction of the U.S. to support health reform.

Wellness incentives have been available to self-insured employers for over 15 years, becoming increasingly popular with the exponential growth of medical expenses. The incentives returned to public attention in the context of the 2009 Health Reform efforts with the publication of an op-ed in the Wall Street Journal by the CEO of Safeway Inc.,Stephen Burd. Burd claimed that after creating such an incentive program in 2005 to reward healthy employees, health care costs for the organization had not increased for four years.

Lawmakers have been eager to support and encourage employers to tie premums to employees' willingness to change unhealthy behaviors. As part of the cost-cotnrolling efforts of the health reform bill, Senators Ensign (R-Nev) and Carper (D-Del) sponsored the so-called "Safeway Amendment" added to the  Senate health reform bill in October 2009. The provision was included in the Patient Protection and Affordable Care Act (H.R. 3590) signed by President Obama on March 23, 2010.

Change based on an overall national health policy statement

Wellness incentive program opportunities were expanded in the 2010 Health Reform legislation as part of the Obama Administrations' legislative agenda.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes no yes yes no no no

Origins of health policy idea

Wellness programs have existed for several decades as a mechanism for reducing health insurance costs by promoting healthy behavior, however, these programs were regulated under the 1996 HIPPA regulation.

Title 1 of the 1996 HIPPA  legislation restricts employers from establishing rules for eligibility of any individual based on health status, medical condition, claims experience, reciept of health care, medical history, genetic information, evidence of insurability, or disability. However, in an effort to encourage participation in wellness programs Congress added language to ensure that employers (and individual health insurers)  are allowed to establish premium discounts or relates or deductibles in return for adherence to programs of health promotion and disease prevention.

The regulation of HIPPA issued in 2006 delimited two types of health-plan linked wellness programs: those that require participation only with no requirement for results, and those that require participants to meet a particular standard. Participation-only programs are not additionally regulated, but standard-based programs limit the combined incentive reward to not more than 20% of the total cost of health plan coverage. In addition, standard-based programs must promote health and/or prevent disease, be reasonably capable of improving health or preventing disease in participants, eligible participants must be offered an annual opportunity to qualify for the incentive reward,  alternative standards and waiver opportunities must be offered to individuals for whom it is unreasonably difficult or medically unadvisable to meet the standard, and program materials must disclose the availability of waivers and alternative standards. Incentives allowed under the HIPPA Final Rule include surcharges, lower premium constributions, lower deductibles, co-payments, or co-insurance levels.

The recent popularization of wellness programs in the context of the 2009-10 health reform efforts began with the publication of an op-ed in the Wall Street Journal by the CEO of Safeway Inc. ( a major groucery store), Stephen Burd. Burd claimed that after creating such an incentive program in 2005 to reward healthy employees, health care costs for the organization did not increase for four years. However, closer examination of Safeway's documents show that health care costs did drop in 2006 by 12.5% in concordance with an overhaul of company benefits.  During the period of 2005-2009 the company's health care costs in fact grew 30%.

Nevertheless, in the midst of the 2009 health reform efforts to curb the growth rate of medical expenditures, the potential for wellness programs to reduce costs by encouragin personal responsibility for healthy behaviors appealed to politicians. In October 2009 Senators Ensign (R-Nev) and Carper (D-Del) sponsored the so-called "Safeway Amendment" added to the  Senate health reform bill by the Senate Finance Committee. The provision was created to encourage employers to implement more substantial standard-based wellness programs by expanding the limit for the standard-based programs to 30% of the total cost of the health care plan, and potentially to as much as 50%. The provion also legislates some of the measures included in the HIPPA regulation, such as the waivers and altered standards.

The "Safeway Amendment" was endorsed by President Obama and included in the final health reform legislation, the Patient Protection and Affordable Care Act (H.R. 3590) signed by President Obama on March 23, 2010.

Initiators of idea/main actors

  • Government: Senators Ensign (R-Nev) and Carper (D-Del) sponsored the so-called
  • Patients, Consumers: Not much support or opposition has been heard from consumers, though Safeway Inc. reports participating indivduals to generally support the program.
  • Private Sector or Industry: Employers support this provision in the legislation, which allows them to offer more dramatic incentives as part of wellness programs.
  • Opinion Leaders: Patient and disease advocacy groups say that lowering premiums for some people inevitably means raising them for others, and that those others are usually sicker people.
  • Political Parties: Both parties generally support the provision, though some individuals worry that incentive programs continues the problem of linking price of insurance with health status may be difficult for some individuals.

Approach of idea

The approach of the idea is described as:
renewed: The idea expands upon the 1996 HIPPA legislation and 2006 final regulation.
amended: The so-called "Safeway Amendment" was added to the Senate Finance Committee's version of the health reform bill, and eventually included in the final legislation, the Patient Protection and Affordable Care Act (H.R. 3590).

Stakeholder positions

Private corporations publicized their own support and use of standards-based incentive wellness programs in the context of the 2009 health reform efforts. Senate leaders took notice of this support, as exemplified by Safeway Inc. CEO Stephen Burd, and drafted an addition to the Senate health reform legislation that expanded the existing  incentive limits. President Obama and Congressional leadership endorsed the provosion, despite concern voiced by several patient and disease advocacy group that the provision expressly ties health insurance costs to health status. Nevertheless, the provision was eventually included in the  final health reform legislation, the Patient Protection and Affordable Care Act (H.R. 3590) signed by President Obama on March 23, 2010.

Actors and positions

Description of actors and their positions
Government
Senators Ensign (R-Nev) and Carper (D-Del)very supportivevery supportive strongly opposed
Senate Finance Commiteevery supportivevery supportive strongly opposed
The Senatevery supportivevery supportive strongly opposed
President Obamavery supportivevery supportive strongly opposed
Patients, Consumers
Consumersvery supportiveneutral strongly opposed
Private Sector or Industry
Employersvery supportivevery supportive strongly opposed
Opinion Leaders
American Cancer Societyvery supportiveopposed strongly opposed
American Heart Associationvery supportiveopposed strongly opposed
American Diabetes Associationvery supportiveopposed strongly opposed
Political Parties
Democratsvery supportivesupportive strongly opposed
Republicansvery supportivevery supportive strongly opposed

Influences in policy making and legislation

In October 2009 Senators Ensign (R-Nev) and Carper (D-Del) sponsored the so-called "Safeway Amendment" added to the  Senate health reform bill by the Senate Finance Committee. The provision was created to encourage employers to implement more substantial standard-based wellness programs by expanding the limit for the standard-based programs to 30% of the total cost of the health care plan, and potentially to as much as 50%. The provion also legislates some of the measures included in the HIPPA regulation, such as the waivers and altered standards.

The "Safeway Amendment" was endorsed by President Obama and included in the final health reform legislation, the Patient Protection and Affordable Care Act (H.R. 3590) signed by President Obama on March 23, 2010.

Legislative outcome

success

Actors and influence

Description of actors and their influence

Government
Senators Ensign (R-Nev) and Carper (D-Del)very strongstrong none
Senate Finance Commiteevery strongvery strong none
The Senatevery strongvery strong none
President Obamavery strongvery strong none
Patients, Consumers
Consumersvery strongweak none
Private Sector or Industry
Employersvery strongvery strong none
Opinion Leaders
American Cancer Societyvery strongneutral none
American Heart Associationvery strongneutral none
American Diabetes Associationvery strongneutral none
Political Parties
Democratsvery strongvery strong none
Republicansvery strongvery strong none
Senators Ensign (R-Nev) and Carper (D-Del)Senate Finance Commitee, The Senate, President Obama, Employers, RepublicansDemocratsConsumersAmerican Cancer Society, American Heart Association, American Diabetes Association

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

Private companies will be responsible for implementing new wellness programs or adapting old wellness programs to meet the new standards. No additional incentives for employers are likely to be necessary that the promise of reduced overall costs of health insurance.

The federal departments of Treasury (DOT), Labor (DOL), and Health and Human Services (HHS) will likely be responsible for any additional regulation needed, as these departments issued the final set of rules for the wellness programs and the use of health plan-related incentives as part of the nondiscrimination provision of the 1996 HIPPA legislation.

Monitoring and evaluation

The Patient Protection and Affordable Care Act establishes 10-state pilot programs to allow insurers in participating states to implement similar reward programs in the individual market by July 2014. If these demonstrations prove successful as determined by a report due three years after enactment, the demonstrations can be expanded in 2017. No additional protections, monitoring, or evaluation methods were implemented by the legislation in particular regards to the wellness incentive programs.

Results of evaluation

The review mechanism and evaluation results have yet to be determined.

Expected outcome

Expanding the incentive opportunity for wellness programs will likely promote the creation and expansion of these programs. However, the critics of the original provision likely will be proven correct that indviduals who are less healthy -- for example, who are overweight, have high cholesterol, or smoke -- will either be pushed out of employer-provided insurance to the individual market, or simply discriminated against. The extent to which discrimination is prevented depends upon the ability of the federal government to regulate employers utilizing wellness programs.  

Impact of this policy

Quality of Health Care Services marginal marginal fundamental
Level of Equity system less equitable system less equitable system more equitable
Cost Efficiency very low low very high

In isolation, this legislation might have substantially impacted health insurance in American. However, within the context of the sweeping federal health reform, it is difficult to predict the overall effect.

References

Sources of Information

Author/s and/or contributors to this survey

Krista Harrison, Gerard Anderson

Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health

Suggested citation for this online article

Krista Harrison, Gerard Anderson. "Employee Wellness Incentives". Health Policy Monitor, April 2010. Available at http://www.hpm.org/survey/us/b15/1