Unhealthy habits cost you more at work
More companies are adopting a mandatory carrot-and-stick approach with workers in an effort to contain health care costs.
NEW YORK (CNNMoney.com) -- More companies are adopting a carrot-and-stick approach to lowering their health care costs: reward healthy workers and penalize those who maintain unhealthy habits.
"This trend has been increasing over the last three years and what I'm seeing is an evolution in the way companies are now using these incentive programs," said Michael Wood, senior consultant with international HR consulting firm Watson Wyatt.
The firm, which surveyed 453 large employers in 2008, found that 50% are using incentives to encourage their workers to participate in health improvement activities, such as smoking cessation or weight management programs.
That number is expected to jump to 74% of companies in 2009, the report showed.
Given that companies on average are paying $1,503 more per year for health coverage for a "high risk" worker - such as a smoker with high blood pressure who doesn't exercise - versus a healthier employee, the uptick in these incentives programs isn't surprising, Wood said.
To that end, a growing number of businesses are also making it mandatory for employees to take health-risk appraisals -- tests for things such as blood pressure, cholesterol and body mass index (BMI) -- in order to become eligible for health care coverage.
If these tests show that you're healthy, you can get a $50 gift card, or extra money in your Health Savings Account (HSA), or a discount on your monthly premium as an incentive to stay that way, Wood said.
Pepsi Bottling (PBG, Fortune 500) has broadbased incentives to encourage healthier lifestyles among its employees, such as $75 gift cards for completing health risk assessments and an additional $100 for participating in a lifestyle management program.
The company also provides free nicotine replacement therapy to employees who smoke.
Another way the company is bringing down health care costs is through its free "health clinics" which are operated by a unit of Johns Hopkins University at several of its facilities. These clinics offer employees annual physicals and other basic care at no charge, said company spokesman Jeff Dahncke.
Health insurer Aetna (AET, Fortune 500) instituted its healthy living incentives two years ago. Currently 56% of its 35,000 employees participate in these programs.
"This year we've expanded the programs to include spouse and family," said company spokesman Fred Laberge.
Aetna employees and their spouses can each get up to $600 a year, in cash or as a discount on their insurance premium, if they demonstrate that they visit a gym or do some kind of physical activity for exercise on a routine basis, Laberge said.
Employees have to take a risk assessment evaluation in order to qualify for incentives, he said, adding that interest has picked up for the programs given the economic environment and the option to bring down monthly premiums.
If you're managing your health poorly, you won't get the discounted premium or other incentives.
In some cases, such as with smokers, Wood said a few companies have attached a "surcharge" of between $10 to $30 on monthly premiums as a kind of penalty to encourage a healthier lifestyle.
According to Watson Wyatt, 6% of employers are penalizing their workers for not changing their habits.
Wood said publisher Gannett and auto parts supplier TRW Automotive Holdings both offer incentive programs that include lower monthly premiums for non-smokers.
These penalties seem to be working. While health care costs are rising between 6 to 8% annually, businesses that penalize workers for their health status have brought down their health coverage costs considerably, to a flat to 1% increase in 2008, Wood said.
At the same time, Wood cautioned against businesses fining workers without providing a means to change their behavior.
Companies have to be careful to not appear to discriminate against employees who are overweight or aren't properly managing chronic illnesses like diabetes and high blood pressure.
"Imposing fines is an effective measure to lower [health care] costs for businesses but no one measure is a magic wand," said Wood.
"You have to offer people an alternative to change their habits," he added. For instance, offer smokers a discount on their premium for joining a cessation program, he said.
And since co-payments can add up, another incentive is to offer free generic medications to employees in return for participating in a disease management program.
"The message has to be if you do these things, it will translate into lower premiums for you, and not that you're being punished," Wood said.
Seth Serxner, principal with Mercer, a global consultancy specializing in employee benefits, said the key to success for these incentive programs is "participation."
"Historically, this has been a challenge," Serxner said. "Cash incentives and variable premium levels are incentives that are working.
The use of penalties is gaining attention, too, but they're still used infrequently, he said
For his part, Serxner said the most effective incentive methods are those that align rewards - either cash or other economic benefits to employees - with attaining a better lifestyle.
Wood agreed.
"The moral of the story isn't that healthy workers cost companies less money," said Wood. "When you make all workers healthier, overall health care costs consistently start declining." 
