Corporate Wellness Programs: Pros and Cons
Maxwell J. Mehlman, J.D.
Within the past 12 months, Prof. Mehlman reports no commercial conflicts of interest.
Albert Einstein College of Medicine, CCME staff and interMDnet staff have nothing to disclose.
Release Date: 06/13/2016
Termination Date: 06/13/2019
Estimated time to complete: 1 hour(s).
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Workplace wellness programs are all the rage. In a study mandated by the Affordable Care Act for the Department of Labor, the Rand Corporation reported that, in 2012, “about half of employers with at least 50 employees, and more than 90 percent of those with more than 50,000 employees offered a wellness program.”(1) Moreover, a 2011 Aon Hewitt employer survey found that “nearly 47 percent of employers without a wellness program planned to add one in the next three to five years.”(2) Employer interest has spawned a huge industry that operates the programs for employers; currently 5,600 vendors report annual revenues of $8 billion.(3)
Types of Wellness Programs
Corporate wellness programs take different forms. One major distinction is between programs that merely expect employees to participate, such as by attending weight loss or smoking cessation sessions, seeing their physician to obtain a personal wellness plan, or going to the gym, and wellness programs that measure outcomes, such as changes in blood pressure, cholesterol and weight. Another major distinction is between programs that emphasize screening and lifestyle changes and those that primarily manage manifested diseases and conditions. Rand found that in 2012, 77% of programs were lifestyle and screening types.(4)
Some wellness programs mainly provide health screening, others disease prevention, still others disease management and some all three. Wellness programs also vary by how robust their services are; while some offer comprehensive services in all three service categories, most programs, especially the ones offered by smaller employers (50-100 employees), are more limited.(5)
Another main difference among wellness programs is whether or not employers provide financial incentives to employees to encourage them to participate and/or to achieve outcome goals. A 2014 Rand study found that 75% of employers offer some sort of incentive.(6) There are three types of financial incentives: reductions in the premiums that employees pay for employer-sponsored health insurance; premium increases, known as surcharges or penalties; and lump sum payments. (My university, Case Western Reserve, offers physical activity, weight management, stress management and tobacco cessation programs, and gives employees who fulfill the requirements of one program a $100 bonus at the end of the year and employees who complete two programs $200.)
It is important to understand that the financial impact on the employee is the same for all types of incentives: employees simply make more money if they meet the requirements of the employer’s program, regardless of whether it is as a result of receiving a reward, such as a reduction in insurance premiums or avoiding a penalty. However, it can make a big difference how the incentive is styled in terms of participation: companies report only a 20% to 40% increase in employee participation if the incentive is designed as a reward, compared with a 70% increase if the incentive is a penalty or surcharge.(7)
Not all employers have the same experience, however; Rand found that PepsiCo only increased participation in its smoking cessation program by 8.5% after it imposed a $600 annual health insurance surcharge on smokers.(8) Moreover, Rand found that in 2012, only one-fifth to two-fifths of eligible employees participated in wellness programs,(9) so what may sound like large increases in employee participation as a result of incentives may be less impressive in terms of the change in the actual number of participants.
Most of the quantitative information about the programs is compiled by vendors or corporate program managers with a stake in the results.
Benefits of Wellness Programs
Employers maintain that they provide wellness programs to “improve employee health,” “control health care costs,” “increase productivity” and “reduce absenteeism.”(10) How well do the programs fulfill these expectations? Unfortunately, it is not easy to tell, since most of the quantitative information about the programs is compiled by vendors or corporate program managers with a stake in the results. There have been a few independent investigations, however, that shed some light on the answers.
Do Wellness Programs Improve Employee Health?
The evidence is mixed about whether wellness programs improve health. For example, Rand states that it found “statistically significant and clinically meaningful improvements in exercise frequency, smoking behavior, and weight control, but not cholesterol control.”(11) However, another account of the same Rand study describes the behavioral changes as “small and not clinically significant”: “Wellness-fitness program participants were found to increase the number of days per week during which they exercise at least 20 minutes by 0.15 days, compared to nonparticipants. Participants in wellness-weight control programs were found to lose about one pound over the first three years, on average, compared to nonparticipants.”(12) Furthermore, a randomly controlled experiment in which obese persons were offered a $550 incentive to lose five percent of their weight found no significant differences after one year between the experimental group and a control group that received no incentives.(13)
Do Wellness Programs Improve Productivity and Reduce Absenteeism?
A 2010 literature review by Baicker et al. reported that wellness programs saved $2.73 in absenteeism costs for every dollar spent on the programs.(14)
Do Wellness Programs Save Employers Money?
Employers adopt wellness programs in the hope it will improve their bottom line by reducing absenteeism and increasing productivity and, for those employers who provide health benefits to their employees, by reducing employee health care costs. The employer mandate in the Affordable Health Act (ACA), which penalizes larger employers who do not offer employee health benefits, has exacerbated employers’ health care cost concerns. But wellness programs have their own costs in the form of administrative expenses and the fees charged by program vendors. The key question for employers, therefore, is whether savings in health care expenditures exceed the costs of the wellness programs themselves.
The 2010 literature review by Baicker et al. mentioned earlier gave a tremendous boost to the wellness industry by reporting that wellness programs saved an average of $3.27 in medical costs for every dollar spent. In 2011, Johnson & Johnson chimed in with the claim that it obtained a return on investment of between $1.88 and $3.92 for every dollar it spent on wellness programs.(15) These reports have been questioned, however, because of methodological weaknesses, including the problem mentioned earlier that the underlying data may have been furnished by self-interested program vendors.
The best evidence about cost savings, therefore, is likely to come from more objective investigations, such as the one conducted in 2012 by Rand for the Department of Labor. According to Rand, lifestyle management programs generally did not reduce medical costs for participants and did not save employers money, since the costs of the program outweighed any savings from improved health. This finding held true for high- as well as low-risk participants.(16)
In another study, Rand found that PepsiCo’s lifestyle management programs returned an average of $.46 per dollar invested in terms of the impact of combined costs of health care and absenteeism, and that disease management programs returned an average of $3.78 per dollar invested (largely by reducing hospital admissions).(17) Rand therefore recommends that employers concentrate on disease management wellness approaches rather than on the predominant lifestyle management type of program.
Concerns Raised By Wellness Programs
In spite of the above evidence that wellness programs may produce some improvement in employee health and decrease absenteeism, and that disease management programs can yield economic benefits for employers, the programs have their detractors. Critics argue that they compromise employee privacy and the confidentiality of medical information, interfere with the relationships between employees and their physicians, and are unfair to some employees such as those who earn less and those who cannot readily alter their health status.
Corporate wellness programs seek to obtain a substantial amount of information from employees about their health and lifestyle. Employees typically have to undergo biometric and/or medical examinations and complete questionnaires called Health Risks Appraisals (HRAs).
One of the most common HRAs is from the University of Michigan Health Management Research Center. Among the questions that it asks are: “Are you pregnant? When did you have your first menstrual period? How often do you examine your testicles for lumps? How often do you use drugs or medication (including prescription drugs) which affect your mood or help you to relax? How many times in the last month did you drive or ride when the driver had perhaps too much to drink? Would you agree you are satisfied with your job? In general, how strong are your social ties with your family and/or friends? Have you suffered a personal loss or misfortune in the past year? (For example: a job loss, disability, divorce, separation, jail term or the death of someone close to you)? How often do you feel tense, anxious, or depressed? How many hours did you take off from work over the past 2 weeks to take care of sick children, parents or other relatives? (This might include taking children to doctor's appointments, staying home with a sick child or parent or calling doctors or health insurance companies.) What is your household income?”(18)
Clearly the information that these questions seek is private and highly sensitive. One wonders, for example, what gives any employer the right to know if a woman is pregnant or when she had her first menstrual period. Yet some wellness programs require that employees answer every question in order to avoid adverse financial consequences.
Disease management programs returned an average of $3.78 per dollar invested
In the case of the University of Michigan HRA, the answers supposedly go only to the University of Michigan Health Management Research Center, and while the Center gives employers aggregated response data, the only identifiable information the employers are supposed to receive is a list of which employees completed the questionnaire. But wellness program and HRA vendors have different data policies and practices, data privacy and security are only as good as the vendors make them, and some employers operate their own programs and collect their own data.
There are many statutory protections to maintain the privacy and confidentiality of employee medical information and to prevent discrimination in employment or health insurance on the basis of information about health status, including the Employee Retirement Income Security Act (ERISA), the Americans with Disabilities Act (ADA), the Genetic Information Nondiscrimination Act (GINA), the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA). Yet all of them contain exceptions for wellness programs.
The ADA, for example, prohibits employers from asking employees medical questions unless the information being sought is job-related or justified by business necessity, and these conditions are not deemed to be satisfied by the objectives of wellness programs, namely, improving employee health, reducing absenteeism and lowering health care costs. However, the ADA contains an exception for wellness programs that are “voluntary,” and regulations adopted on May 16, 2016 by the Equal Employment Opportunity Commission, which enforces the ADA, provide that wellness programs are voluntary so long as they do not impose financial penalties on employees greater than 30% of the total cost of an employer’s health insurance plan. (If the employer offers more than one plan, the maximum penalty is 30% of the lowest-cost plan.)(19) The ACA caps employee health plan expenses at 9.5% of the employee’s annual income, but with the median household income in 2014 at $53,657, the 30% penalty could reach about $5,000 a year, a hefty price tag that hardly seems consistent with voluntary participation.
A salient example of how wellness programs can invade employee privacy was the abortive attempt by the Pennsylvania State University to establish a wellness program in July of 2013. The program required employees get a check-up from their doctor, submit to several biometric tests and complete an online questionnaire that asked, among other things, “their plans to become pregnant, about how frequently they drank too much alcohol, and about whether they had experienced problems with violence, depression, or a divorce or separation.”(20) Failure to answer any question or fulfill the other requirements of the program would cost the employee $1,200 per year. Penn State faculty protested about the invasion of their privacy and the university abolished the penalty two months later. (21)
A survey of employees who declined to participate in wellness programs reported that 33% cited fears that employers would learn personal health information.(22)
Disruption of the Patient-Physician Relationship
Many corporate wellness programs require that employees create compliance plans with their physicians and that the physicians report noncompliance to the employer. As one commentator points out, “using physicians to monitor patients' compliance raises troubling issues. It intrudes on the doctor-patient relationship and creates conflicts of interest for doctors, both of which may undermine patients' trust in their physicians.
Obligating doctors to report patients' health behaviors to their employers' wellness plan administrators can conflict with doctors' ethical and professional obligation to protect patients' health. A doctor faced with a noncompliant patient would face a choice between falsely verifying her patient's compliance or accurately reporting the patient's noncompliance and risk adversely affecting her patient's health (e.g., by reducing the benefits for which the employee qualifies or raising the cost of the employee's health coverage). Moreover, when patients (rightly) perceive their doctors as agents of their employers, they may be less inclined to disclose important health information to their physicians.”(23)
Another group of commentators notes that “when the German Parliament passed a law making lower copayments conditional on patients' undergoing certain cancer screenings and complying with therapy, medical professionals rejected it, partly out of concern about being put in a policing position. American physicians expressed concern when West Virginia's Medicaid program charged participating doctors with monitoring patients' adherence to the requirements set out in the member agreement.”(24)
Reintroduction of Risk-Based Health Insurance
One of the supposed accomplishments of the ACA was prohibiting health plans from refusing to insure individuals based on their health status or risk factors or charging them less than healthier enrollees. (HIPAA already had prohibited this practice in the case of group health plans such as those offered by larger employers; the ACA extended the prohibition to individual and small group plans.) But the ACA has an exception that allows employers to charge employees who do not fulfill the requirements of outcome-based wellness programs 30% more for their health insurance (50% more if the program includes smoking objectives), up to the 9.5% annual income ceiling. (The ACA has no incentive limit for wellness programs that merely require participation rather than achieving wellness goals.) In effect, this exception allows employers to make employees with higher health risk factors pay more for their health insurance than employees with lower risk factors. As one critic points out, “wellness incentives and the increased option of cost shifting have the potential of reintroducing medical underwriting by the back door, something that would be hard to reconcile with the overall spirit of the 2010 health reforms, which sought to improve access to affordable care for all Americans.”(25)
Burd’s arguments were so persuasive that President Obama endorsed them...[they] were misleading, to say the least.
A 2010 story in the Washington Post describes how this stratagem was built into the health reform law. Prior to passage of the ACA, Department of Labor regulations issued in 2006 allowed employers to impose a 20% incentive on employees to meet wellness targets. The ACA increased the incentive limit to 30% (and 50% for tobacco use) largely on the basis of arguments advanced by the CEO of Safeway, Steven Burd, who analogized health insurance to automobile insurance and pointed out that permitting all employees to pay the same for health insurance regardless of their behavior would be like making good drivers subsidize bad drivers.(26)
Burd also touted his company’s success in reducing health insurance costs by charging employees more who flunked tests for weight, blood pressure and cholesterol, or who used tobacco, and claimed that, as a result, Safeway’s health insurance costs were flat between 2004 and 2009, a period in which most companies saw increases of 38%. During the crafting of the ACA, Burd’s arguments were so persuasive that President Obama endorsed them, Congress accepted them and the 30% incentive limit, which became known as the Safeway Amendment, was added to the ACA. Unfortunately, Burd’s representations about Safeway’s successes were misleading, to say the least; the flat insurance costs that he reported between 2004 and 2009 were not due to the company’s outcome-based wellness program because that program didn’t begin until 2009.(27)
In short, the wellness penalty reintroduces a substantial degree of risk-based health insurance. As the Kaiser Family Foundation points out: “In 2015, the average annual cost of group health plan coverage was $6,251 for an individual and $17,545 for a family. Variation around the average is substantial; for example, 25% of covered workers are enrolled in plans that cost more than $7,000 for single coverage and $20,000 for family coverage. As a result, the maximum wellness incentive could reach thousands of dollars.”(28)
It is also clear that wellness penalties disproportionately impact certain types of employees. Lower-income workers have a larger proportion of their pay at risk. Single parents, predominantly women, may not be able to go to the gym after work because of child-care duties. Some minorities have less access to affordable and healthy foods or to safe places in which to exercise.(29)
Another question is how much of any reported savings in employer health care expenditures is attributable to better employee health or to penalty payments. Harald Schmidt, at the University of Pennsylvania, observes that “program savings may not, in fact, derive from health improvements. Instead, they may come from making workers with health risks pay more for their health care than workers without health risks do.”(30) In an earlier article, in fact, Schmidt and co-authors noted that some high-risk employees may be led to opt out of employer-based health insurance altogether to escape paying the wellness penalty. (31) The result is to shift any higher costs of health care for these employees from their employers to insurance plans purchased on health exchanges.
In the same vein, the question arises how much of an employer’s purported savings from healthier employees stem not from changes in employees’ lifestyles but from the makeup of the employer’s workforce as a result of wellness program policies. For example, some employers refuse to hire certain higher-risk employees; the Cleveland Clinic, for example, does not hire anyone who tests positive on a cotinine test for smoking (although it will pay for them to attend a smoking cessation program and reconsider their application if they subsequently test negative). It is likely, moreover, that some higher-risk job applicants decline to apply to employers with high-penalty wellness programs; at the same time, those employers would be likely to attract lower-risk applicants. These workforce impacts perversely hurt those higher-risk individuals most in need of wellness program health benefits.
The Illusion of Self-Control
The underlying assumption of wellness programs is that, given the right incentives, people can control their health. (A corresponding viewpoint is that those who fail are morally defective.) But not everybody actually can succeed. As mentioned earlier, some individuals face external obstacles, such as food deserts, time constraints, and personal and family stressors. Others are confounded by their genetic endowment and physiology. As Schmidt points out, “if people could lose weight, stop smoking, or reduce cholesterol simply by deciding to do so, the [rationale behind wellness programs] might be appropriate. But in that case, few would have had weight, smoking, or cholesterol problems in the first place.”(32)
By penalizing people with conditions that they cannot substantially change, wellness programs unfairly treat them as if they were able to make those changes but simply chose not to. (33) By the same token, such programs reward those “who already have healthy lifestyles or who are healthy despite their lifestyle.”(34)
A case in point is weight loss. It is well-known that “most diets, for example, do not result in long-lasting weight reduction, even though participants want and try to lose weight.”(35)Four comprehensive weight loss reviews show little significant loss—particularly over longer periods of time, such as twelve months. For example, a review of long-term, multicomponent weight management programs identified twelve trials, four of which included incentives. The review’s conclusion: Incentive-based interventions promoted weight loss, but participants tended to regain the weight.(36)
Employers might do better to concentrate on making it easier for people to be healthier.
Yet the Rand Department of Labor study reported that 77% of employers conducted lifestyle wellness programs, and that weight loss was their primary target, even more than smoking cessation (79% of programs compared with 77%).(37) In short, as Schmidt argues, “some people with genetic mutations will always be obese, regardless of how much they exercise or control their energy intake.”(38) Yet they could pay much more for their health insurance.
Proponents of wellness programs point out that the 2006 federal regulations for wellness programs provide an exception: when “achieving outcome incentive standards is ‘unreasonably difficult due to a medical condition . . . [or] medically inadvisable,’ a reasonable alternative standard must be provided, so that individuals can qualify for reimbursements.”(39) Schmidt notes, however, that “providers are not required to offer alternatives proactively; rather, people who feel challenged must request them. People with self-efficacy problems may be disadvantaged by this requirement. Petitioning may also be experienced as embarrassing or humiliating.”(40) Schmidt’s caveat is well-taken: at the Cleveland Clinic, one of the most zealous advocates of corporate wellness, only 31 persons claimed an unreasonableness exception out of 101,000 employees.(41)
Given the serious concerns raised by wellness programs, employers might do better to concentrate on making it easier for people to be healthier, rather than impose on them outcome-based programs accompanied by large financial incentives that reintroduce risk-based health insurance. For example, employers could make exercise areas attractive and conveniently located, and help employees have the time to use them. The essence of wellness programs should be facilitative, not punitive.