Financial Incentives for Healthy Lifestyles:
Who's Doing It, What's Legal and Where's the Evidence?

In an effort to contain health care costs and increase productivity at the workplace, employers are increasingly offering incentives for healthy behavior. Often these incentives are financial and include premium discounts or waivers, financial credits for behavior change such as weight loss or smoking cessation or gift cards for the completion of a wellness program. According to the 13th Annual National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care, more than half of all employers use financial incentives to encourage employees to participate in one or more types of health improvement activities, and 24% more plan to do so in 2009. The chart on page 22 of the survey report explains these findings in more detail.

While incentives have become quite popular and often work well, they must be carefully designed to avoid several pitfalls. For example, employers must be sure to comply with a range of federal and state laws; in particular, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) imposes privacy requirements on health plans, and the portability provisions prohibit health plans from discriminating against enrollees on the basis of health status. In addition, the Americans with Disabilities Act (ADA) and federal tax laws must be considered.

This toolkit provides information about how to offer financial incentives while complying with the law. It also provides evidence of what incentives appear to be the most effective based on the limited research that is available. Finally, the toolkit presents examples of companies offering incentives to illustrate how this can be done successfully.

Toolkit Components

• Financial Incentives: How to Avoid Five Common Pitfalls. A quick look at common mistakes made by employers when offering financial incentives for healthy behaviors.
• Summary of the Current Evidence Base: What (and How) Incentives Work. Based in large part on a report published by the Agency for Healthcare Research and Quality (AHRQ), this section outlines what evidence is available supporting the use of financial incentives to bring about lifestyle changes.
• Healthy Lifestyle Program Outcomes. A chart highlighting financial and other outcomes reported by employee health improvement programs. All examples are selected from Platinum level winners of the Best Employers for Healthy Lifestyles award, a recognition program of the National Business Group on Health.
• Healthy Lifestyle Program Incentives. A chart showing the types of financial incentives given to support healthy lifestyles offered by National Business Group on Health member companies. All examples are taken from Gold and Platinum level winners of the Best Employers for Healthy Lifestyles award; data on participation and completion rates provided where possible.
• Legal Considerations for Employer-Sponsored Health Improvement and Incentive Programs. A detailed look at HIPAA, ADA, federal tax laws and state laws, with examples of how companies can offer incentives and be in compliance with these laws.
• Q&A: HIPAA Eligibility and Premium and Contribution Rules. Using a question-and-answer format, this section explains HIPAA eligibility to participate in health plans and the application of the premiums and contributions rules.
• Designing Health Improvement Programs in Compliance with HIPAA Nondiscrimination Rules. A chart summarizing potential plan designs that encourage healthy behavior, with an assessment as to whether they violate HIPAA nondiscrimination rules. If the plan design is in violation of HIPAA, the chart includes viable alternatives.
• Promoting Physical Activity at Work: Incentives, Program Development and Costs. This Issue Brief suggests strategies for setting up physical activity promotion programs and incentives to help make them work.
• About the Institute. Information about the Institute on the Costs and Health Effects of Obesity.