Tying Financial Incentives to Healthy Behavior Isn't So Easy

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Incentives in employee wellness programs, especially penalties, can hurt morale and lead to legal action. But without incentives, there's no guarantee the employer will see healthcare savings and return on investment.

From the trends in corporate wellness spending, to the announcement that the life insurer John Hancock will offer discounts for health data, the quest to get Americans to eat better and exercise has revealed a few things: offering rewards may work, but penalties will cause trouble.

The federal government is at odds with itself when it comes to whether employers have the right to require wellness among employees. The Affordable Care Act allows employers to connect up to 30% of health plan premium to wellness initiatives, and the CDC has just unveiled a major effort to find people with prediabetes and intervene before it progresses.

At the same time, another agency—the Equal Employment Opportunity Commission—has sued 3 companies over the design of their corporate wellness programs, saying they violated anti-discrimination laws by coercing employees to take part.

It’s all about the difference between penalties and incentives. Rewards can include gift cards, premium discounts, or contributions to a health spending account.


A survey by Fidelity Investments and the National Business Group on Health found that 80% of employers are offering health improvement programs at an average cost of $693 per worker, with large companies spending even more. However, while typical features include incentives for physical activity programs (54%) or biometic screenings (72%), only 6% use disincentives for not taking a health assessment, down from 11% in 2014.

The Health Enhancement Research Organization found that tying financial incentives, especially penalties, to participation in a corporate wellness program can affect employee morale, invite legal challenges, and harm a company’s reputation—when “wellness” should be a feel-good word that invites positive feedback. However, offering programs without incentives makes them options that employees can take or leave. Then, the programs don’t necessarily lead to lower healthcare costs to the employer, which is the return on investment that makes them worthwhile in the first place.

Who takes part in such programs? The Fidelity survey found less than half of employees used them to their full extent, earning all incentives, while 26% earned some incentives.

There must be a market for some Americans willing leverage their healthy behavior for financial gain: on Wednesday, John Hancock announced it would partner with the global wellness company Vitality to tie discounts to life insurance products for customers willing to wear a Fitbit and share information about workouts, physical exams, and even their mood.

The question is whether efforts like these will go beyond those who are relatively healthy, or bring real behavioral change to the less healthy Americans who account for most healthcare spending.

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