Using carrot or stick for healthy behaviour

Could use of penalties – such as higher premiums – in U.S. migrate to Canada?
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 06/04/2012

The use of financial incentives to encourage a healthier staff population is on the rise. One-quarter (26 per cent) of 335 Canadian employers surveyed by Towers Watson in 2011 said they planned to offer this type of reward in 2012 — up from the 13 per cent that already did so.

But, on the flip side, disincentives around undesirable employee behaviour are also on the rise — at least in the United States. The use of penalties more than doubled from 2009 to 2011, increasing from eight per cent to 19 per cent, and is expected to double again by 2012 when 38 per cent of the survey respondents plan to have penalties in place.

Walmart, the retail giant based in Bentonville, Ark., says it will charge tobacco users higher premiums but also offer free smoking cessation programs, according to media reports. And grocery chain Safeway has employees tested on tobacco usage, weight, blood pressure and cholesterol, says David Willows, vice-president of strategic market solutions at Green Shield Canada in Toronto. Workers specifically receive premium discounts for each level and if they pass all four, they could have premiums reduced up to $800 per individual or $1,500 per family. If they fail, they can be retested in 12 months.

There has been more of a migration when it comes to incentives, leading to the use of an orange-coloured stick, says Russell Robbins, principal and senior clinical consultant at Mercer Health and Benefits in New York. A few years ago, an employee might receive an incentive for participating in a program, such as biometric screening or smoking cessation, but now she might have to show actual results within a normal or target range to become eligible.

Could the use of penalties gain traction in Canada? While there is talk about taking this kind of approach — such as requiring employees to participate in a health-risk assessment to gain access to group benefits or dollars in a flex account — it’s less likely, according to experts.

“Culturally, we’re not there. That would be a radical shift,” says Willows. “But, who’s to say, over the next five to 10 years as costs go up, more people won’t be asking questions and looking south and saying, ‘Are these things we need to consider?’”

Green Shield is not necessarily recommending disincentives, he says, but one option for plan sponsors involves a smoking cessation program that only covers smoking cessation drugs if they are combined with counselling through a pharmacist. Research shows quit rates are much more successful if combined with therapy, says Willows.

“We’re not looking to punish you if you have this issue,” he says. “I saw that as the more classically Canadian approach — put your arms around people and help them rather than try to punish them for certain adverse behaviours.”

Sandra Pellegrini, health and productivity practice leader at Buck Consultants in Toronto, says she hasn’t seen much in the way of disincentives in Canada, other than the cost of programs being more expensive, such as for smokers or non-smokers.

“You do see different types of ratings for some benefits that have been around for a long time. But most of that has to do with attaching the cost to the risk in question, so people understand if it’s an optional life benefit and if you’re… a female and non-smoker, typically the rates are going to be lower,” she says. “People understand that more in the sense of, ‘OK, I’m paying for a profile that I fall into and if I’m younger versus older,’ as opposed to being an incentive versus a disincentive. People just understand, ‘OK, it costs me more.’”

It would be good if that kind of thinking fell into health benefits, says Pellegrini. “It’s difficult because the mix of health benefits includes things that people simply can’t control, so that’s where it gets very difficult and sensitive.”

In Canada, there are a number of privacy and human rights obstacles to employers implementing some of these incentives or disincentives, according to Holly Reid, a lawyer in the labour and employment group at Blakes in Toronto. Privacy legislation restricts which personal health information employers can collect, use and disclose and in some jurisdictions, the personal information collected has to be related to the individual’s ability to do the job.

“Canadian employers might not be in a position to collect the information necessary to administer the type of incentive and disincentive programs they have in the U.S.”

And if an incentive or penalty adversely impacts someone with a disability in Canada, the employer may face a human rights complaint, she says.

“Although it’s not entirely clear in Canada, smoking and obesity may constitute disabilities under the legislation, in some circumstances, where there’s an underlying illness or something like that. So employers in Canada tend to not ask employees or job applicants for information that might be related to a disability.”

While there are, understandably, certain expectations when it comes to insurance policies and smokers, for example, “that’s different than an employer’s decision that it wants to cut its costs by penalizing employees who have a disability,” says Reid.

Wellness initiatives are viewed positively by employees but it’s the difference between providing programs that employees can voluntarily choose to participate in, such as a subsidized gym membership, and requiring employees to prove they’ve engaged in an activity, such as having them go to a gym, she says.

The U.S. has a bit more leeway than Canada, but there are at least three different laws that challenge incentives and disincentives south of the border, says Julie Stich, senior information/research specialist at the International Foundation of Employee Benefit Plans in Brookfield, Wis.

The main one is the Health Insurance Portability and Accountability Act of 1996 that has health privacy provisions and non-discrimination provisions stating employers are not allowed to discriminate against an individual based on a health-risk factor.

“That caused a lot of consternation among plan sponsors in the United States, whether or not they could even offer incentives,” says Stich.

Then, in 2007, the government came out with directives that said employers could have a premium differential for smokers as long as certain factors or requirements were met.

“That gave employers a little bit more reassurances that we could do this without running afoul of that particular law,” she says.

There are also a couple of other laws, the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act, so a focus on penalties around weight loss or body mass index (BMI), for example, is tricky, says Stich.

“There’s still evidence that this could be something that’s not necessarily lifestyle-related, could be genetically related, so trying to penalize people who are overweight is more of a slippery slope. So, it’s not something that’s very prevalent in the United States.”

There’s also talk about using penalties based on biometric screening results, such as cholesterol levels, but that can also be a dangerous path, she says, as some medical issues have a genetic component.

While it may be hard for Canadian employers to look at incentives or disincentives that might be considered “radical or contingent,” says Willows, there are some basics in the U.S. in terms of benefit plan management and cost-containment strategies that are far ahead of Canada.

Fifty-eight per cent of Canadian drug plans are wide-open formularies where everything is covered, he says, citing a 2011 Mercer study of 420 employers, but you would not see that in the U.S. And Canada’s rate of generic substitution on drugs is 46.8 per cent compared to more than 70 per cent in the U.S.

“While we talk about incentives and disincentives, we’re still behind in what I consider more of the basic, older school plan management strategies,” says Willows. “Some Canadian employers are not seriously considering some of these things that are considered commonplace south of the border.”

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