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Negatives vs. Positives: Companies Try Penalties to Change Behavior, Trim Costs

For years, companies have dangled incentives — such as money, gift cards and merchandise — in front of employees, hoping the cash and prizes would push workers to improve their health and ultimately create health care savings for employers.
Now, many employers have grown tired of playing nice.

More companies are using financial penalties to strong-arm employees into a better lifestyle, according to a new survey sponsored in part by the National Business Group on Health (NBGH). According to a report on the survey by CCH, the number of companies using penalties more than doubled from 2009 to 2011 and is expected to double again in 2012, when 38 percent of poll respondents said they expect to have penalties in place.

While the study notes that positive incentives are still playing a large part in employers’ strategies, it also shows that penalties are becoming more pronounced as employers look for new ways to keep spiraling costs under control. Examples of such penalties include higher premiums for smokers or for workers who can’t keep their weight or cholesterol levels under control.

Some industry critics worry that these tactics might lead to oppressive policies that might violate employees’ rights, but employers say they are tired of waiting for workers to get on board and hope penalties will be the tipping point for many employees.

“Nothing else has worked to control health trends,” LuAnn Heinen, vice president of NBGH, told Reuters. “A financial incentive reduces that procrastination.”

As companies increasingly opt for the stick over the carrot, some employers are making a more dramatic move by trying to completely alter the way workers use health care through health “consumerism,” which includes high-deductible health plans and other consumer-driven programs.

Apart from the savings created by cost-shifting with these types of plans, consumerism might actually lead to better health, which can create even more savings, according to an article in the American Journal of Health Promotion. The journal reported on a new study that found that employees who enrolled in “activated consumer” training — which taught them how to successfully evaluate providers and take advantage of preventive services — achieved equal health results compared with those who enrolled in a traditional program focused on nutrition education and exercise.

Perhaps the biggest cost-containment hurdle — one that penalties and consumerism are designed to clear — is that many employees remain clueless about how much their health care actually costs. A recent analysis by Kelton Research found that only 35 percent of workers with employer-sponsored care were aware of the amount of their plan’s deductible and only 33 percent knew how much they contributed to their premiums, according to a PLANSPONSOR report.

By actively encouraging employees to change their behavior — either through positive incentives, penalties or consumerism — companies can tighten the leash on some of the cost pressures from health care, experts said.

“This is the next evolution in trying to squeeze costs out by not incurring them in the first place,” Sean Slovenski, chief executive of the firm that oversees the rewards program for Humana, told the Los Angeles Times. “It’s not the holy grail, but it’s a giant leap forward in bending the health care cost trend.”