Bigger carrots, bigger sticks: PPACA and wellness incentives

Bloomberg recently reported on one of the less-discussed elements of the Patient Protection and Affordable Care Act (PPACA): the way the law increases the ceiling on incentives and penalties employers can use to encourage participation in wellness programs. The incentives and penalties come in the form of premium increases or discounts. Formerly limited by HIPAA to 20% of premium, the PPACA raises the limit to 30% and leaves the door open to 50% in the future. Financial incentives and penalties can be used in both participation-based (join the gym) and outcomes-based (meet a BMI target) programs.

In the article, a pair of researchers from Georgetown University claim that these incentives, if poorly designed, could end up costing less-healthy workers more and potentially even driving them out of employer-sponsored plans. On the other hand, wellness plan administrators say they make sense as they reduce risk to employers. In any case, employers will want to weigh the implementation of these incentives carefully against the return on investment (ROI) from wellness programs. If less-healthy employees are discouraged from using their health benefits because of high deductibles or a switch to less benefit-rich plans because of high premiums, they may be more likely to let health issues linger until they become more critical and costly.

Milliman consultants have examined the issue of wellness programs from a number of perspectives. Kathryn Fitch and Bruce Pennyson published an article in Benefits Quarterly that covers the breadth of wellness programs, the evidence base for them, how employers should target candidates, and reasonable success criteria. In an interview, Fitch also talked about lessons learned from wellness programs in the private sector. And, Scott Weltz discussed how companies can use evidence-based measures to look at wellness program effectiveness in the early years of implementation when ROI data are very hard to come by.

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