Sun Oct 30, 2011 11:19pm GMT (Reuters) - Like a lot of companies, Veridian Credit Union wants its employees to be healthier. In January, the Waterloo, Iowa-company rolled out a wellness program and voluntary screenings.

It also gave workers a mandate: Quit smoking, curb obesity, or you'll be paying higher health care costs in 2013. It doesn't yet know by how much, but one thing's for certain — the unhealthy will pay more.

The credit union, which has more than 500 employees, is not alone.

In recent years, a growing number of companies have been encouraging workers to voluntarily improve their health to control escalating insurance costs. And while workers mostly like to see an employer offer smoking cessation classes and weight loss programs, too few are signing up or showing signs of improvement.

So now more employers are trying a different strategy — they're replacing the carrot with a stick and raising costs for workers who can't seem to lower their cholesterol or tackle obesity. They're also coming down hard on smokers. For example, discount store giant Wal-Mart says that starting in 2012 it will charge tobacco users higher premiums but also offer free smoking cessation programs.

Tobacco users consume about 25% more health care services than non-tobacco users, says Greg Rossiter, a spokesman for Wal-Mart, which insures more than 1 million people, including family members. "The decisions aren't easy, but we need to balance costs and provide quality coverage."

For decades, workers — especially with large employers — have taken many health benefits for granted and until the past few years hardly noticed the price increases.

But the new policies could not only badly dent their take home pay and benefits but also reduce their freedom to behave as they want outside of work and make them resentful toward their employers. There are also fears the trend will hurt the lower-paid hardest as health costs can eat up a bigger slice of their disposable income and because they may not have much access to gyms and fresh food in their neighborhoods.

"It's not inherently wrong to hold people responsible," says Lewis Maltby, president of the National Workrights Institute, a research and advocacy organization on employment issues based in Princeton, New Jersey. "But it's a dangerous precedent," he says. "Everything you do in your personal private life affects your health."

Overall, the use of penalties is expected to climb in 2012 to almost 40% of large and mid-sized companies, up from 19% this year and only 8% in 2009, according to an October survey by consulting firm Towers Watson and the National Business Group on Health. The penalties include higher premiums and deductibles for individuals who failed to participate in health management activities as well as those who engaged in risky health behaviors such as smoking.

"Nothing else has worked to control health trends," says LuAnn Heinen, vice president of the National Business Group on Health, which represents large employers on health and benefits issues. "A financial incentive reduces that procrastination."

Lack of jobs

The weak economy is contributing to the change. Employers face higher health care costs - in part - because they're hiring fewer younger healthy workers and losing fewer more sickly senior employees.

The poor job market also means employers don't have to be as generous with these benefits to compete.

They now expect workers to contribute to the solution just as they would to a 401(k) retirement plan, says Jim Winkler, a managing principal at consulting firm Aon Hewitt's health and benefits practice.

"You're going to face consequences based on whether you've achieved or not," he says.

And those that don't are more likely to be punished. An Aon Hewitt survey released in June found that almost half of employers expect by 2016 to have programs that penalize workers "for not achieving specific health outcomes" such as lowering their weight, up from 10% in 2011.


But not all programs are as well constructed and effective, says Mark A. Rothstein, a lawyer and professor at the University of Louisville School of Medicine. The wellness programs may be well-intentioned, he says, but there's not strong empirical evidence that they work and getting a weekly call about your weight or smoking habits, which is offered by some programs, could be humiliating for participants.

"What might be seen as a question to one person may be an intrusion to another," he says. That's one reason that lower-paid janitors at his school participate but, "the professors on campus consider it a privacy tax so we don't get some stranger calling us about how much we weigh."

And there are also those that no matter how much they exercise or how healthy they eat can't lose weight or lower their blood pressure or body mass index. "There are thousands and thousands of people whose paycheck is being cut because of factors beyond their control," says Maltby from the National Workrights Institute.

The programs could be especially burdensome for low-income workers, who are more likely to fail health assessment tests and less likely to have access to gyms and healthier fresh produce, says Harald Schmidt - a research associate at the Center for Health Incentives and Behavioral Economics at the University of Pennsylvania.

"We want to use provisions to help people and not penalize people for factors beyond their control," Schmidt says. "Poorer people are often less healthy and this constitutes a potential double whammy. They are likely to face a higher burden in insurance premiums."

 (Reporting by Jilian Mincer in New York. Editing by Martin Howell in New York)

© 2010 Thomson Reuters. Click for Restrictions.

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