Employers peg insurance premiums to health

MarketWatch

July 29, 2010, 12:01 a.m. EDT

Shape up or pay up

More employers peg workers' insurance premiums to health

By Marla Brill

SCOTTSDALE, Ariz. (MarketWatch) -- Employees have a new reason to drop the donuts and stop smoking before benefits enrollment season begins in a few weeks.

As companies put the final touches on their health care plans for 2011, more of them say they are planning to penalize workers who decline to participate in disease management or lifestyle behavior programs, who smoke, or who do not take part in voluntary health screenings offered by an employer.

"The economy and continued escalation of health care costs have driven many employers to be a little more bold and demanding of their employees, making disincentives an increasingly attractive option," said Cathy Tripp, a principal in Health Management Practice at benefits consulting firm Hewitt Associates.

"As companies learn more about their workforce," she added, "they're realizing that some people may be more motivated to take action if they risk losing $100 versus gaining $100."

According to a Hewitt survey released earlier this year, almost half of large U.S. employers say they currently use or plan to use financial penalties over the next three to five years for employees who do not participate in certain health improvement programs. Such penalties will likely take the form of higher health insurance premiums or deductibles, or higher out-of-pocket expenses than employees who are deemed healthy must pay.

Cost-saving exercises

The trend comes at a time when employers are turning over every possible stone to save money on escalating health care costs, which have doubled over the last decade. Those costs are likely to rise even more as the new health care law takes affect.

So far most companies still focus on incentives, such a reward of $100 or $200 for agreeing to fill out a health assessment. But a growing number are favoring sticks over carrots. For example, some companies automatically move someone into a high-deductible plan if they do not fill out a health questionnaire or charge a higher premium for someone with an identified health risk, Tripp said.

At other times, penalties come indirectly in the more subtle form of forfeited incentives. A company might raise health insurance deductibles for all employees to $2,000, for example, but offer a $500 credit to those who get screened for cholesterol, tobacco, or other health risks.

Business groups say such measures are necessary to help offset the high cost of insuring at-risk employees. "Companies might charge a smoker few hundred dollars more a year in premiums than someone who doesn't smoke, but that's just a fraction of what the person is likely costing in medical claims," said Helen Darling, President of the National Business Group on Health.

Employees with health problems can take part in health or wellness programs that allow them to qualify for premium discounts or avoid penalties. For example, a life-long smoker at a company that offers a 10% premium discount to non-smokers could qualify for the discount through enrollment in a smoke-cessation program.

Nonetheless, some companies have taken a bolder stance by charging higher premiums for those with conditions such as high body-mass-indexes or high levels of cholesterol, and those premiums would not come down until the employee's health profile improved.

"These outcome-based penalties and incentives are one of the more aggressive models we're beginning to see," Tripp said.

In sickness and in health

The public is on board with such measures -- but only to a certain extent. According to a WorkTrends survey by Rutgers University, 47% of workers say employers should be allowed to charge more health insurance for people who smoke, and 43% favor higher premiums for those who drink too much alcohol. But only 26% feel the same way about charging more for people who are overweight.

"Drinking alcohol and smoking may be identified by correspondents as more controllable behavior, while being overweight is distinguished as less about self-control," the report noted.

Other issues are sure to surface as more companies take steps to get a handle on employee health care costs.

Consumer advocacy groups for people with chronic diseases worry that tying premiums to health standards are a way to bring preexisting conditions through the back door and shift costs to less-healthy employees, according to Timothy Stoltzfus Jost, a law professor at Washington & Lee University.

Others warn that premiums will go up across the board, and that discounts will only be available to the healthiest employees. If that happens, the gap between what employees with different health profiles pay could widen.

Darling, of the National Business Group on Health, said employers are not aiming to exclude employees with chronic diseases or drastically raise their premiums. But they do have an incentive to monitor employee health and encourage them to participate in wellness programs.

"People who continue to draw a salary while they are sick or in a hospital bed cost companies a lot of money," she said.

Still, Jost sees plenty of gray area when it comes to pegging premiums to health criteria.

"Let's say I can't participate in a wellness program because I have severe asthma," he asked. "Is it fair for me to pay more for my health insurance than the guy in the office next to me?"