Wellness programs are a $6 billion industry in the United States with an estimated 500 vendors selling them. According to a Rand report, 59% of employers with 50 or more employees have one.
In a Kaiser survey 71% of companies are "overwhelmingly" confident that wellness programs reduce medical costs. Trade publications, conference presentations and vendor studies are full of case studies claiming impressive savings.
With that being said, there is background noise brewing and growing louder. Reasons?
1) Rigorous research is showing that cost savings are statistically negligible
2) Lawsuits are being filed over company imposed penalties
3) There are conflicting regulations between the Affordable Care Act (ACA) and the EEOC.
Rigorous studies done in the past 5 to 6 years tend to find that wellness programs don’t save money and, with few exceptions, do not appreciably improve health. One reason for lack of savings is because additional health screenings built into the programs encourage overuse of unnecessary care which pushes spending higher. Whether that would continue long-term is anybody’s guess. It would likely be impossible to track given turnover and other change factors.
A RAND study has concluded that cost savings are not “statistically significant.” Other studies have come to similar conclusions, including one by the University of California that reviewed hundreds of programs.
In 2009 the Congressional Budget Office said: “Researchers who have examined the effects of preventive care generally find that the added costs of widespread use of preventive services tend to exceed the savings from averted illness. Slightly fewer than 20% of the services that were examined save money, while the rest add to costs.”
Despite a lack of cost savings through health improvement --- which is the goal of wellness programs --- cost savings can be achieved in a different way. It’s done by companies shifting higher costs of care onto employees. Companies have used the “carrot” giving employees financial incentives to participate, such as discounts on health insurance. Now, more and more companies are penalizing employees who choose not to participate by making them pay more of the medical premium.
A 2012 survey by Towers Watson and National Business Group on Health of 595 companies shows that 80% of employers are using rewards for program participation and 38% are using penalties for non-participation.
Some companies have faced workplace discrimination lawsuits over the use of financial penalties. The EEOC has filed several lawsuits against companies --- including Orion Energy Systems. Orion started a wellness program in 2009 and asked its employees to take a “health risk assessment.” Employers don’t usually insist their employees participate but it’s common for them to give incentives to participate. Orion, however, exerted undue pressure by saying that it would no longer cover any of the insurance premiums for employees who did not take the assessment.
The EEOC ruled that Orion violated the American Disabilities Act (ADA) by requiring employees to participate or suffer a penalty. The EEOC has always held that employer medical exams, testing or assessments had to be voluntary, job-related and consistent with business necessity.
To complicate matters, The Affordable Care Act (ACA) actually encourages this approach. It allows employers to reward employees’ efforts to get healthier with discounts of up to 30% of their health-care costs. They are also allowed to penalize employees who either don’t participate or fail to meet health goals by the same amount—a provision that could be abused to weed out sick workers.
Where do you draw the line? Could a plan violate the ADA, even if it’s authorized by the ACA? The EEOC has been gathering comments from the public and is supposed to issue guidance on this question by the end of 2015.
Wellness programs will not likely end because of legal issues. But they do underscore just how tricky it is to get them right.
Should companies penalize employees for non-participation? Is the stick as much of a motivator as the carrot?
What do you think?
Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources. In her current role she works with start-ups and multinationals on both domestic and international HR issues including compensation, learning/development, talent acquisition, workforce planning and mergers and acquisitions. Jacque has an M.S. in Psychology and an MBA from Southern Methodist University. She has been a speaker at conferences in the U.S., Asia and Europe. She is also a regular contributor to various HR and talent management publications and conducts frequent webinars.