Carrots Vs. Carrot Sticks & Your Company Wellness Program

Wellness programs across the US have been gaining in use to reduce company borne healthcare costs and improving the wellbeing and engagement of its employees. After four years of arguing, the Affordable Care Act (also known as the ACA and pejoratively as Obamacare) went into law and gave companies, the primary means of coverage for working age adults (and their dependents) incentives and penalties to participate in health coverage. Those companies are in turn offering them to their employees. Which is more effective, the “carrots” or the “sticks” and will companies prefer to offer the stick as they can regain money they would otherwise spend on their employees?

Behavioral Economics is the study of the psychological, emotional, social and cultural factors that influence economic decisions of individuals and institutions and is as old as the idea of money itself. It is also used to determine what financial levers can be used to affect a behavioral change. In this case get employees to participate in company wellness programs. The ACA has given employers the ability to use financial levers and approximately two-thirds of them are.



From the chart above, we can see that 22% are using the “stick”, financial penalties, and 44% are using the “carrot”, financial incentives.

Which wellness programs incentive works better?

I think this question is to vague and is going to be debated for the next several years and will be defined differently by the two major political parties.  If we want to know which method gets more people to sign up for employer-provided wellness programs or which provides greater financial savings to companies, those can be answered more easily.

Financial penalties for not participating are greater than savings if they DID participate, will they start to push employees to NOT signup?

Here are some of the incentives taken from corporate programs. Like with New Year’s Resolutions, these are terrible goals for several reasons. They are vague, people (doctors too) have trouble defining exactly what an improvement in these numbers will be and “quitting” smoking penalizes non-smokers by missing out on that benefit.

  • Improve cholesterol – Cholesterol is a necessary part of a functioning human body and has been given too much blame for the excess sugars that we consume (not actually from eggs and butter like most people think).
  • Lose Weight – Without a specific number target most people will give up before reaching where they wish to be. Also, focusing on weight and not fat discounts muscle gained during exercise and has less to do with health and more to do with vanity.
  • Quit Smoking – Changing this to “non-smoker” would give a baseline benefit to all employees who don’t smoke and would give the incentive to smokers to quit.

At come companies, the penalties are quite stiff (as is usually needed to affect change), in some instances even more than the expected savings on healthcare expenses by the company creating an incentive for the company to get their employees to opt-out of the wellness program rather than participate.

Kevin Covert, deputy general counsel for human resources, acknowledged it was too soon to tell if Honeywell’s wellness and incentive programs reduce medical spending. But it is clear that the company is benefiting financially from the penalties. Slightly more than 10 percent of the company’s U.S. employees, or roughly 5,000, did not participate, resulting in savings of hundreds of thousands of dollars.

The article also said that Honeywell employees who did not participate in the program had to pay an extra $500 in premiums. At 5,000 employees, that is a $2.5M bump to the bottom line, not an insignificant forcing factor for the company.

It is too early to tell exactly the effect that these new financial levers are having one way or the other, but two takeaways we CAN work with right now are:

1) Company HR departments need to help their employees set clear wellness goals if they want them to be achieved

2) If the number of companies using penalties increase AND the number of employees participating in the wellness programs decrease then we will need to reexamine this incentive for employee health vs a new revenue stream.


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Ravi Mikkelsen

Ravi Mikkelsen is the CEO and cofounder of jobFig, an HR focused behavioral analytics startup in San Francisco, CA. A lifelong entrepreneur and nomad, he has been involved with startups in three countries on two continents and has lived in 9 different cities. Connect with Ravi.


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