Cut health costs: 4 ways to mix penalties and rewards

An increasing number of employers have been relying on penalties to help control rising health costs — and soon they’ll be able to take this tactic up a notch.

That’s because in just a few short months, you’ll be able to bump up the penalties on workers for not hitting certain health-based goals.

On Jan. 1, 2014, calendar year health plans can penalize participants up to 30% of the cost of premiums for failing to hit certain goals.

And smokers can be charged up to 50% more for health care than non-smokers (although there are certain problems with that reg).

While disincentives are definitely an effective way to fight rising health costs, relying only on the stick could do more harm than good.

From tiers to ‘soft incentives’

What works better: A well-designed mix of rewards to offset any ill-will caused by the penalties. Here’s a four-step guide on how to do it:

1. Specific goals are a must. Whether you’re offering a discount for an individual’s drop in blood pressure or imposing a surcharge on employees who fail to meet a key health goal, individual benchmarks should be a cornerstone of your wellness program.

Giving staff an incentive for simply filling out a questionnaire isn’t a strategy that will promote real change.

2. Set up different reward tiers. This helps motivate employees to take wellness to the next step. You may consider the lowest reward tier for employees who simply get regular preventive screenings, and the next tier could be for completing a detailed biometric screening.

3. Spread out rewards over time. Many wellness programs offer a lump-sum payout. But offering small, incremental incentives every couple months is generally more effective – and helps ensure workers will continue the positive behaviors after the program or contest is over.

4. Don’t forget “soft incentives.” These perks are centered around recognition, whether it’s from upper management or employees’ peers and can be done in public or via company intranets or newsletters.