More Stick, Less Carrot in Employer Health Plans

Policies imposing financial penalties on employees have doubled in the last two years to 19 percent of 248 major American employers recently surveyed.  Towers Watson, the benefits consultant that conducted the survey, said the penalties practice was expected to double again next year among employers with at least 1,000 workers.  This marks a shift toward penalizing unhealthy lifestyles instead of rewarding good health habits.  Employers are demanding that workers who smoke, are overweight or have high cholesterol bear a greater share of their health care costs.

In another survey released by Mercer, which advises companies, a third of employers with 500 or more workers were trying to coax them into wellness programs by offering financial incentives, like discounts on their insurance.  Companies including Home Depot, PepsiCo, Safeway, Lowe’s and General Mills have sought the higher premiums from some workers, like Wal-Mart’s recent addition of a $2,000-a-year surcharge for some smokers.  The companies note the higher health care costs associated with smoking or obesity and utilitize the charges as “more stick, less carrot.” 

Current regulations allow companies to require workers who fail to meet specific standards to pay up to 20 percent of their insurance costs. Under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), that amount can be raised to 30 percent in 2014 and, potentially, to as much as half the cost of a policy.

Critics contend that particularly punishing penalties such as Wal-Mart’s surcharge may have the effect of forcing people to opt for less expensive plans or persuade them to drop coverage altogether.  Surcharges and stringent health targets might have the opposite effect and harm those whose health was already in the high risk category.  An employee faced with up to $178 extra a month (Wal-Mart’s cost) would potentially choose to forgo their current health plans in an effort to contain costs.

The American Cancer Society and the American Heart Association warned federal officials about giving companies too much latitude, because the changes would provide a means for policies to potentially discriminate against unhealthy employees.  Unfortunately the government does not define wellness programs that may be offered in conjunction with health care penalties and companies looking to cost shift are not as inclined to address the oversight.