Health Reform and the Use of Financial Incentives in Wellness Programs

Paul E. Terry, PhD

The Affordable Care Act codified the worksite wellness exemption to the federal medical underwriting provisions in the group health plan market. This means companies are allowed to use an “outcomes-based” incentive model that provides financial rewards for those who satisfy a prescribed health standard such as a BMI of less than 30 or who meet a “reasonable alternative standard” or obtain a waiver from their physician. What some see as “rewards” others view as penalties or surcharges and, given the absence of evidence to confirm the role of such incentives in actually improving population health, the new provisions have unleashed a debate about the ethics and putative effectiveness of the new provisions.

Many view the current and more common use of participation-based incentives as too easily exploited and insufficient to break intractable health habits. Others see the emerging trend toward use of outcomes-based incentives as draconian and a subterfuge for insurance cost shifting. I think the wisdom is in the middle and, with my colleague David Anderson, have argued that we need move beyond these opposing views by proposing an alternative "progress-based" incentive model that we believe can increase employee accountability and engagement while preserving fairness and equity in the use of incentives: “Finding common ground in the use of financial incentives” (

In contrast to the commentaries from the American Heart Association and the American Cancer Society in the above link that argue that incentives should be confined to participation only, we believe that a “progress-based” incentive strategy will provide a participant-centered, risk-adjusted and safer approach to achieving population health goals.

In a “progress-based” model, the attainment of a reasonable individually-tailored health goal, such as losing 10 percent of body weight, offers participants who fail to satisfy the health standard with an opportunity to earn incentives regardless of how far from the recommended health standard they begin their journey. Confining rewards to only those who hit the outcome target risks alienating those at highest risk who have the furthest to go and generate the highest costs to the organization. A “progress-based” approach, on the other hand, has the potential to engage everyone in setting achievable, measurable targets that yield health improvements.

What are your thoughts on the best use of financial incentives? The new provisions of the Affordable Care Act seem to signal a conviction that employees' accountability for their health should be bolstered. Has Congress inadvertently put employers in the role of insurance cost shifting?

Paul E. Terry, Ph.D., is CEO, StayWell Health Management

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