Corporate Wellness Programs: Pros and Cons

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) And a 2011 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)

All this employer interest has meant that corporate wellness has become a huge industry that operates the programs for employers. Currently there are 5,600 vendors of corporate wellness programs who report annual revenues of $8 billion.(3)

Corporate wellness programs take different forms. Some 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. Other wellness programs measure outcomes, such as changes in blood pressure, cholesterol and weight.

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.

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.

PepsiCo was able to increase participation in its program to get employees to stop smoking by 8.5% only after it imposed a $600 annual health insurance surcharge on smokers.(8) But since in 2012, only one-fifth to two-fifths of eligible employees participated in wellness programs,(9) the seemingly 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.

Employers maintain that they provide wellness programs to:

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. A few independent investigations, however, do shed some light on the answers.

The Affordable Care Act (ACA) penalizes larger employers who do not offer employee health benefits, and this has increased 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, then, is whether what they save in health care expenditures exceeds the costs of the wellness programs themselves.

The literature review mentioned above that noted savings in terms of absenteeism also gave a tremendous boost to the wellness industry. It reported that wellness programs saved an average of $3.27 in medical costs for every dollar spent. Johnson & Johnson claimed 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 self-interested program vendors may have supplied the underlying data.

The best evidence about cost savings, therefore, is likely to come from more objective investigations, such as the one conducted in 2012 for the Department of Labor. It found that 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, 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 disease management programs returned an average of $3.78 per dollar invested (largely by reducing hospital admissions).(17) The recommendation therefore is that employers concentrate on disease management wellness approaches rather than on the predominant lifestyle management type of program.

Even with the above evidence that wellness programs can produce some improvement in employee health and decrease absenteeism, and that disease management programs can yield economic benefits for employers, wellness 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.

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.

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.

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.

A telling 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)

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… 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)

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.(24)

But the ACA has an exception that allows employers to charge employees 30% more for their health insurance (50% more if the program includes smoking objectives), up to the 9.5% annual income ceiling if they do not fulfill the requirements of outcome-based wellness programs. It has no incentive limit for wellness programs that merely require participation rather than achieving wellness goals.

In short, the wellness penalty reintroduces a substantial degree of risk-based health insurance.

Before the passage of the ACA, employers could 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 likened 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. He 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)

“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.”

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) 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.

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 medical ethicist Harald Schmidt put it, “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)

When they penalize 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) And they reward those who either already have healthy lifestyles or who are healthy despite their lifestyle.(34)

Employers could make exercise areas attractive and conveniently located, and help employees have the time to use them.

Reviews of weight loss programs find that few people manage significant weight loss — particularly over longer periods of time. For example, a review of long-term, multicomponent weight management programs identified twelve trials, four of which included incentives. Its conclusion: Incentive-based interventions promoted weight loss, but participants tended to regain the weight.(36)

Over three-quarters of employer-run lifestyle wellness programs have weight loss as their primary target, slightly more than smoking cessation (79% of programs compared with 77%).(37) But people with genetic mutations who will always be obese, regardless of how much they exercise or control their energy intake, could pay much more for their health insurance.(38)

The 2006 federal regulations for wellness programs do provide an exception. For people for whom “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)

But the burden is on employees — providers are not required to offer alternatives. Instead, those who find the wellness programs set forth by their employers too challenging must ask to be released from them.

It's easy to imagine that people who already feel inadequate when it comes to meeting health goals will be disadvantaged by this requirement. Having to petition to be released from corporate health goals could easily be experienced as humiliating.(40) 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.