Scott MacStravic, PhD
A recent ruling by federal agencies that regulate the practice of paying incentives to employees for better health status or behavior makes it necessary to pay those who do nothing different. With three different agencies involved (Departments of Health & Hospital Services, Labor and Treasury), it is probably no wonder that some strange regulations have emerged, but this may be one of the strangest – though it also may also make sense.
The new rules recently announced require employers to manage their incentive programs in ways that give every employee equivalent opportunities to earn incentives. This includes employees that have no health problems to begin with, and those that make no health progress despite participating in a wellness effort – in other words, employees who do nothing that could improve their health and thereby deliver any value to their employer.
When employers offered a $250 incentive just to smokers, for example, for participating in a smoking cessation program, this motivated a number of their non-smoking peers to take up the habit merely to qualify for the incentive. Smokers who participate, but cannot seem to quit due to the strength of their addiction, deserve being paid the incentive for trying, says the government.
Given the addictive nature of overeating, plus possible genetic causes for overweight, the government has ruled that employees who try, but fail to gain weight, or gain it back once lost, still deserve the incentive for trying. Healthy employees should be able to gain rewards just for staying healthy, as well, while unhealthy ones should not be shut out if they try but fail to make progress. [MP McQueen “Wellness Plans Reach Out to the Healthy” Wall Street Journal Mar 28, 2007 D1, D3]
How Stupid Is This?
Normally, employers understandably focus on employees who have significant risk/reward potential because of their health status, risk behaviors or conditions, or existing chronic diseases. But increasingly employers are looking to relatively and even perfectly healthy employees as well, to keep them from becoming at risk and contracting chronic or acute conditions that would cost the employer money. And that is a significant risk.
It has been shown many times that, left alone, employees tend to increase their risk status and contract disease over time, even if they start out healthy. Some of this may be due to aging, but often it is simply the result of employees tiring of healthy behaviors and giving up on efforts to maintain their health, absent new or increased motivation. If their peers are eligible for and obtain rewards for reducing their levels of “unhealth”, healthy employees may report that they have a risk merely to become eligible for similar rewards, and HIPAA regulations prohibit the sharing of individually identified health information, so such reports cannot be verified.
Quest Diagnostics promoted participation of its employees in an annual health risk assessment (HRA) survey, with an 18-page individualized report and recommendations for change to each participant. If found that at the end of the first year of this program, 37% of employees had reduced their risk level from high to low. But 13% of employees had increased their risk level from low to high in that same year. [S. Solovich “Employers Market Good Health to Cut Insurance Costs” East Bay (CA) Business Times Mar 9, 2007 (eastbay.bizjournals.com)]
Not only is health risk status unstable, the sheer number of health risks employees have makes a big difference to their productivity, as well as their health care costs. For example, one analysis found that employees with no health risks at all had an average productivity impairment of 1.8%, while those with eight or more risks had an impairment of 24.2%. On average, adding one risk increased impairment by 2.8% each. [W. Lynch “Evidence of the Expanded Economic Value of Good Health” Controlling Costs through Effective Human Capital Investment Integrated Benefits Institute Conference Nov 19-23 2003 (www.ibiweb.org)]
Since the average compensation of employees in hospitals is roughly $60,000 per year, this means that each risk added represents a productivity impairment cost of 2.8 % of $60,000 = $1680. With the average multiplier effect (reflecting the impact that the absence or lower productivity of one employee has on peer productivity) of 1.4 for nurses, the major employee category in hospitals, this means a total impairment effect of 1.4 x $1680 = $2352 per risk factor. And if the true value to the organization is as little as two times the compensation paid each employee, the negative value impact would be 2 x $2352 or $4704 per risk factor per employee per year.
While there is no way to determine what combination of factors might cause the kind of significant risk increase reported by Quest Diagnostics (whose employees are similar to those in hospitals) in just one year, its example illustrates the logic of focusing at least some attention on healthy employees, just to keep anything bad from happening. When the “gaining” one risk factor can reduce productivity as much as 3 percent, and cost the organization as much as $5000 per risk added per employee per year, it is surely worth plenty to pay employees merely to maintain their health/risk status where it is. Hence, there is some logic to “paying them for nothing”.
Of course, if HCOs wish to avoid paying incentives merely for trying or participation, with no evidence of positive change or effects, they have the option of creating a performance-based compensation system, or even bonuses for attendance vs. absence. Since improved employee health is known to improve their productivity and other performance measures, by paying only when these improve, HCOs can avoid the paying for nothing problem. Since healthy high-performing employees are at risk for becoming unhealthy, offering them wellness programs for maintaining their health may succeed even without extrinsic rewards, as long as employees see the connection between their health and their compensation.
