The Law, Policy, and Ethics of Employers' Use of Financial Incentives to Improve Health

Journal of Law, Medicine and Ethics

Volumn 39, Issue 3, 2011, Pages 450-468

  Madison, Kristin M ^a   Volpp, Kevin G ^b   Halpern, Scott D ^a  

^a UNIVERSITY OF PENNSYLVANIA   (United States)

^b UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

CONFERENCE PAPER; ETHICS; HEALTH BEHAVIOR; HEALTH CARE COST; HEALTH CARE PLANNING; HEALTH CARE POLICY; HEALTH PROMOTION; HUMAN; LEGAL ASPECT; METHODOLOGY; PERSONNEL MANAGEMENT; REMUNERATION; UNITED STATES;

EMPLOYEE INCENTIVE PLANS; HEALTH BEHAVIOR; HEALTH CARE COSTS; HEALTH PLAN IMPLEMENTATION; HEALTH PROMOTION; HUMANS; PATIENT PROTECTION AND AFFORDABLE CARE ACT; REMUNERATION; UNITED STATES;

EID: 80052015388     PISSN: 10731105     EISSN: 1748720X     Source Type: Journal    
DOI: 10.1111/j.1748-720X.2011.00614.x     Document Type: Conference Paper

References (99)

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10. R. Priester, "Are Financial Incentives for Wellness Fair?" Employee Benefits Journal 17, no. 1 (March 1992): 38-40, at 38 (noting results of 1990 survey); R. Christensen, "Employment-Based Health Promotion and Wellness Programs, "EBRI Notes 22, no. 7 (July 2001): 1-6, at 2 (describing results from the 1999 National Worksite Health Promotion Survey, conducted by the Association for Worksite Health Promotion, William M. Mercer, Inc., and the U.S. Department of Health and Human Services' Office of Disease Prevention and Health Promotion).
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12. See The White House, Fact Sheet: Innovative Workplace Practices: A Discussion with President Obama (May 12, 2009) (describing employer wellness initiatives and stating that "[t]he President hopes that by encouraging more employers to adopt similar programs, we can improve the productivity of our workforce, delay or avoid many of the complications of chronic diseases, and slow medical cost growth"), available at (last visited June 8, 2011); S. A. Burd, "How Safeway Is Cutting Health-Care Costs, "Wall Street Journal, June 12, 2009 (describing Safeway wellness program initiatives and calling on the federal government to raise the ceiling that limits financial incentives); D. S. Hilzenrath, "Misleading Claims about Safeway Wellness Incentives Shape Health-Care Bill, "Washington Post, January 17, 2010 (describing how Safeway shaped legislative debate but suggesting that Safeway's experiences do not demonstrate that incentives prevent health care cost increases).
13. Patient Protection and Affordable Care Act § 1201, to be codified at 42 U.S.C. § 300gg-4. See also id. (Hilzenrath) (referring to the "Safeway Amendment").
14. See 26 C.F.R. § 54.9802-1(f)(2)(i), 29 C.F.R. § 2590.702(f)(2) (i), 45 C.F.R. § 146.121 (f)(2)(i) (regulations imposing 20 percent ceiling); ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(A).
15. ACA § 4303, to be codified at 42 U.S.C. § 280l (technical assistance); ACA § 10408, to be codified at 42 U.S.C. § 280l note (grants for small businesses).
16. ACA § 4108 (allocating $100 million for grants to states to test incentive programs for Medicaid beneficiaries), to be codified at 42 U.S.C. § 1396a note; ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(l) (mandating creation of a 10-state demonstration project involving wellness programs offered by issuers of policies sold in individual markets).
17. See J. Cawley and C. Ruhm, "The Economics of Risky Health Behaviors, "National Bureau of Economic Research Working Paper 17081 (2011), at 99-100 (explaining how financial incentives can "help people help themselves" and observing that cash rewards "may help to solve. problems of salience, immediacy, and time-inconsistency.").
18. See, e.g., D. Laibson, "Golden Eggs and Hyperbolic Discounting, "Quarterly Journal of Economics 112, no. 2 (1997): 443-477. See also Cawley and Ruhm, supra note 18, at 53-57 (describing economic literature on preferences and explaining its relevance to healthy behaviors).
19. While this mechanism is more likely to be at work for rewards directed at very low income individuals, such as conditional cash transfer programs, it is possible that a financial reward for something like blood pressure control could help offset the costs associated with achieving it.
20. Furthermore, in Part III, we raise questions about the extent to which incentive programs redistribute resources.
21. R. M. Henke, R. Z. Goetzel, J. McHugh, and F. Isaac, "Recent Experience in Health Promotion at Johnson & Johnson: Lower Health Spending, Strong Return on Investment, "Health Affairs 30, no. 3 (2011): 490-99, at 490.
22. K. Baicker, D. Cutler, and Z. Song, "Workplace Wellness Programs Can Generate Savings, "Health Affairs 29, no. 2 (2010): 1-8.
23. E. A. Finkelstein, L. A. Linnan, D. F. Tate, and B. E. Birken, "A Pilot Study Testing the Effect of Different Levels of Financial Incentives on Weight Loss among Overweight Employees, "Journal of Occupational and Environmental Medicine 49, no. 9 (2007): 981-989.
24. K. G. Volpp, L. K. John, A. B. Troxel, L. Norton, J. Fassbender, and G. Loewenstein, "Financial Incentive-Based Approach for Weight Loss: A Randomized Trial, "JAMA 300, no. 22 (2008): 2631-2637.
25. Authors of a review of 47 articles published between 1966 and 2002 concerning consumer health incentives concluded that "consumer incentives are effective for simple preventive care and distinct behavioral goals that are well defined" but that there was not "sufficient evidence at this time to say that economic incentives are effective for promoting the long-term lifestyle changes required for health promotion." R. L. Kane, P. E. Johnson, R. J. Town, and M. Butler, Economic Incentives for Preventive Care: AHRQ Publication No. 04-E024-2 (August 2004), Agency for Healthcare Research and Quality, Evidence Report/Technology Assessment No. 101, at vi. A more recent review of the financial incentive literature concluded that "research evidence suggests that incentives can increase adoption of healthy behaviors but that positive effects may diminish over time." K. Sutherland, J. B. Christianson, and S. Leatherman, "Impact of Targeted Financial Incentives on Personal Health Behavior: A Review of the Literature, "Medical Care Research and Review 65, no. 6 (2008): 36S-78S.
26. K. Cahill and R. Perera, "Competitions and Incentives for Smoking Cessation, "Cochrane Database of Systematic Reviews Issue 3 (2008).
27. K. G. Volpp, A. B. Troxel, M. V. Pauly, G. A. Glick, A. Puig, D. A. Asch, R. Galvin, J. Zhu, F. Wan, J. DeGuzman, E. Corbett, J. Weiner, and J. Audrain-McGovern, "A Randomized, Controlled Trial of Financial Incentives for Smoking Cessation, "New England Journal of Medicine 360, no. 7 (2009): 699-709, at 707 (discussing limits of 2005 Cochrane Collaboration review).
28. G. Loewenstein, T. Brennan, and K. G. Volpp, "Asymmetric Paternalism to Improve Health Behaviors, "JAMA 28, no. 20 (2007): 2415-2417.
29. K. G. Volpp, M. V. Pauly, G. Loewenstein, and D. Bangsberg, "P4P4P: An Agenda for Research on Pay-for-Performance for Patients, "Health Affairs 28, no. 1 (2009): 206-214, at 210-211.
30. Harris Interactive, Interactive Survey Finds Drop in Public Support of Higher Healthcare Costs for Smokers or the Obese, Press Release, 2007. A small survey of patients in Philadelphia primary care clinics found a similarly mixed opinion about paying smokers to quit smoking or paying obese individuals to lose weight, although respondents were more supportive of incentive arrangements operated through insurance. J. A. Long, M. Helweg-Larsen, and K. G. Volpp, "Patient Opinions Regarding 'Pay for Performance for Patients, '"Journal of General Internal Medicine 23, no. 10 (2008): 1647-1652, at 1649.
31. J. R. Gabel, H. Whitmore, J. Pickreign, C. C. Ferguson, A. Jain, K. C. Shova, and H. Scherer, "Obesity and the Workplace: Current Programs and Attitudes among Employers and Employees, "Health Affairs 28, no. 1 (2009): 46-56, at 49.
32. See, e.g., B. Rose, "Employers Experiment with Tough Get-Healthy Regimes, "Chicago Tribune (February 10, 2008) ("Few would argue it's OK for employers to dictate workers' lifestyles outside work.").
33. L. Jesson, "Weighing the Wellness Programs: The Legal Implications of Imposing Personal Responsibility Obligations, "Virginia Journal of Social Policy and the Law 15, no. 2 (2008): 217-298, at 266-268.
34. The Americans with Disabilities Act offers some protections for employees' health information. Under 29 C.F.R. § 1630.14, information "regarding the medical condition or history of any employee shall be collected and maintained on separate forms and in separate medical files and be treated as a confidential medical record.".
35. "Annual Smoking-Attributable Mortality, Years of Potential Life Lost, and Economic Costs - United States, 1995-1999, "Morbidity and Mortality Weekly Report 51, 14 (2002): 300-303.
36. E. Finkelstein, I. Fiebelkorn, and G. Wang, "The Costs of Obesity Among Full-Time Employees, "American Journal of Health Promotion 20, no. 1 (2005): 45-51, at 49.
37. K. E. Thorpe, C. S. Florence, D. H. Howard, and P. Joski, "Trends: The Impact of Obesity on Rising Medical Spending, "Health Affairs 23, supp. no. 2 (2004): w4-480-w4-486, at w4-480.
38. See, e.g., S. Okie, "The Employer as Health Coach, "New England Journal of Medicine 357, no. 15 (2007): 1465-1469 (noting that the corporate cafeteria at General Mills "offers many nutritious, low-calorie choices, including a subsidized salad bar").
39. L. Alderman, "Getting Healthy, with a Little Help from the Boss, "New York Times, May 23, 2009.
40. L. Heinen and H. Darling, "Addressing Obesity in the Workplace: The Role of Employers, "The Milbank Quarterly 87, no. 1 (2009): 101-122, at 106.
41. S. D. Halpern, K. M. Madison, and K. G. Volpp, "Patients As Mercenaries? The Ethics of Using Financial Incentives in the War on Unhealthy Behaviors, "Circulation: Cardiovascular Quality and Outcomes 2, no. 5 (2009): 514-516.
42. For an article raising the possibility that employers could use health plan design to encourage sicker employees to seek insurance elsewhere, see generally A. B. Monahan and D. Schwarcz, "Will Employers Undermine Health Care Reform by Dumping Sick Employees?" Virginia Law Review 97, no. 1 (2011): 125-197.
43. See L. A. Fennell, "Willpower Taxes, "Georgetown Law Journal 99 (forthcoming 2011): 16-19 (discussing research on the exercise of willpower and noting that "willpower works like a muscle that can become fatigued with use" and that "self-control seems to share a common, limited, depletable fund with other cognitive tasks, such as decisionmaking").
44. See, e.g., Sutherland et al., supra note 27, at 41S (discussing implications of income for incentive program participation).
45. See Gabel et al., supra note 39, at 52.
46. S. D. Pearson and S. R. Lieber, "Financial Penalties for the Unhealthy: Ethical Guidelines for Holding Employees Responsible for Their Health, "Health Affairs 28, no. 3 (2009): 845-852, at 847.
47. Many commentators have stressed the importance of voluntariness in ethical program design. See, for example, id., at 848-849; Priester, supra note 10, at 39.
48. In discussing the meaning of voluntariness, Priester has pointed to many such barriers: "The mere existence of alternative courses of action. should not count as proof that an individual's unhealthy action is free. Health habits are acquired within social groups (e.g., family, peers) and are often supported by powerful economic, political and cultural elements in the general society (e.g., advertising). In some instances, psychological factors may also preclude or impede authentic, reasoned choices."Id. (Priester), at 39. See also D. Wikler, "Who Should Be Blamed for Being Sick?" Health Education Quarterly 14, no. 1 (1987): 11-25.
49. See Pearson and Lieber, supra note 55, at 847-849.
50. While the ACA does not mandate individual-specific standards for all employees, such standards would be consistent with the ACA's requirements for a "reasonable alternative standard" for individuals for whom "it is unreasonably difficult due to a medical condition to satisfy" or "it is medically inadvisable to attempt to satisfy" a health status factor-related standard. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(D).
51. R. W. Jeffery, P. D. Thompson, and R. R. Wing, "Effects on Weight Reduction of Strong Monetary Contracts for Calorie Restriction or Weight Loss, "Behaviour Research and Therapy 16, no. 5 (1978): 363-369 (weight loss study).
52. See Volpp et al., supra note 29, at 706 ("Members of the incentive group who participated in a smoking-cessation program had significantly higher rates of cessation than did members of the control group who participated in such a program (46.3% vs. 20.8%, P=0.03).").
53. See Gabel et al., supra note 39, at 52.
54. See, e.g., W. K. Mariner, "Social Solidarity and Personal Responsibility in Health Reform, "Connecticut Insurance Law Journal 14, no. 2 (2008): 199-228, at 217-218 (discussing experience of Clarian Health).
55. See M. M. Mello and M. B. Rosenthal, "Wellness Programs and Lifestyle Discrimination - the Legal Limits, "New England Journal of Medicine 359, no. 2 (2008): 192-199, at 197 (noting that "sponsors may be able to gain traction by framing wellness incentives as penalties rather than rewards"); see Sutherland et al., supra note 27, at 40s (discussing loss aversion in the context of incentive programs). An early contribution to this area of research was D. Kahneman and A. Tversky, "Prospect Theory: An Analysis of Decision Under Risk, "Econometrica 47, no. 2 (1979): 263-291.
56. R. A. Dudley, C. Tseng, K. Bozic, W. A. Smith, and H. S. Luft, "Consumer Financial Incentives: A Decision Guide for Purchasers, "AHRQ Publication No. 07(08)-0059 (2007), at 17 ("There is no specific evidence from health services research to address whether consumer financial incentives should be structured as rewards, penalties, or a combination of the two.").
57. See National Business Group on Health and Towers Watson, supra note 11, at 16.
58. H. Schmidt, K. Voigt, and D. Wikler, "Carrots, Sticks, and Health Care Reform - Problems with Wellness Incentives, "New England Journal of Medicine 362, no. 2 (December 30, 2009): e3(1)-e3(3), at e3(3).
59. See, e.g., Stanford Encyclopedia of Philosophy, s.v. "Coercion, "available at (last visited June 9, 2011).
60. C. Grady, "Money for Research Participation: Does It Jeopardize Informed Consent?" American Journal of Bioethics 1, no. 2 (2001): 40-44, at 40 (citing T. Beauchamp and J. Childress, Principles of Biomedical Ethics, 4th ed. [New York: Oxford University Press: 1994]: at 165).
61. A. Wertheimer and F. G. Miller, "Payment for Research Participation: A Coercive Offer?" Journal of Medical Ethics 34, no. 5 (2008): 389-392, at 390.
62. This assumes that the employees would collectively bear the full costs of their own health care. Assuming that the employer bears a particular percentage of these health care costs would not fundamentally alter the analysis.
63. See legal analysis in Part IV.
64. This analysis does not completely eliminate the possibility of health benefit-related coercion. Consider health risk assessments (HRAs), which collect information about employees' current health status, health risks, and health history, and serve as a foundation for many wellness programs. (See National Business Group on Health and Towers Watson, supra note 11, at 16.) The Americans with Disabilities Act (ADA) limits employers' ability to engage in disability-related inquiries, but allows "voluntary medical histories" as part of an employee health program. (42 U.S.C. § 12112(d)(4).) The Equal Employment Opportunity Commission (EEOC) has suggested informally that the ADA would forbid a penalty in the form of denial of insurance benefits to an employee who declines to respond to a health risk questionnaire containing questions seeking disability-related information. (Letter from Peggy R. Mastroianni, EEOC [March 6, 2009], available at [last visited June 9, 2011].) The implication is that the EEOC views the provision of benefits as an appropriate baseline, such that a threat to deprive someone of these benefits if they refuse to complete an HRA has the potential to be coercive, rendering the medical history "involuntary.".
65. J. Bhattacharya and M. K. Bundorf, "The Incidence of the Healthcare Costs of Obesity, "Journal of Health Economics 28, no. 3 (2009): 649-658.
66. See, e.g., E. J. Emanuel, "Ending Concerns About Undue Influence, "Journal of Law, Medicine & Ethics 32, no. 1 (2004): 100-104; S. D. Halpern, "Financial Incentives for Research Participation: Empirical Questions, Available Answers, and the Burden of Further Proof, "American Journal of the Medical Sciences (forthcoming 2011); and Wertheimer and Miller, supra note 71.
67. Emanuel also identifies a third concern, exploitation, which refers to "the unfair distributions of goods that arise from an interaction" because of weakness in bargaining power. Id., at 101. Wertheimer further explains that for an exploitative agreement to exist, the content must be "unfair or wrong" in some way, perhaps involving an unfair price, or the exchange of a good that should not be exchanged, or a degrading activity. A. Wertheimer, "Remarks on Coercion and Exploitation, "Denver University Law Review 74, no. 4 (1997): 889-906, at 898. To the extent that incentive programs are designed to improve health, exploitation would not seem to be a concern.
68. See Emanuel, supra note 81, at 101.
69. See Wertheimer and Miller, supra note 71, at 391.
70. See Halpern, supra note 80.
71. Emanuel acknowledges this implication of his framework: "[m]onetary inducements for an ethical, legal, and reasonable activity are deemed 'due' no matter how high." See Emanuel, supra note 80, at 101.
72. See Halpern, supra note 81 (reviewing studies).
73. S. D. Halpern, J. H. T. Karlawish, D. Casarett, J. A. Berlin, and D. A. Asch, "Empirical Assessment of Whether Moderate Payments Are Undue or Unjust Inducements for Participation in Clinical Trials, "Archives of Internal Medicine 154, no. 7 (2004): 801-803.
74. C. Cryder, A. J. London, K. G. Volpp, and G. Loewenstein, "Informative Inducement: Study Payment as a Signal of Risk, "Social Science and Medicine 70, no. 3 (2010): 455-464.
75. See Wertheimer and Miller, supra note 71, at 391.
76. See Wertheimer, supra note 81, at 896, 899 ("The crucial question, after all, is how certain specific characteristics of proposals and acceptances are related to certain specific moral judgments and not whether we call them coercive or exploitative.").
77. See, e.g., Mello and Rosenthal, supra note 64; Jesson, supra note 41, at 241-292; M. A. Rothstein and H. L. Harrell, "Health Risk Reduction Programs in Employer-Sponsored Health Plans: Part II-Law and Ethics, "Journal of Occupational and Environmental Medicine 51, no. 8 (2009): 951-957; J. S. Bard, "Public Health and Privacy Collide: Conflicts Between PPACA's Expansion of Employer Wellness Programs and GINA's Prohibitions Against Requiring Employees to Disclose Their Family Medical History, "Journal of Law, Medicine & Ethics 39, no. 3 (2011): 469-487.
78. HIPAA of 1996, 110 Stat. 1936, Pub L. 104-191; 26 C.F.R. § 54.9802-1, 29 C.F.R. § 2590.702, 45 C.F.R. § 146.121.
79. See, e.g., 29 C.F.R. § 2590.702(f).
80. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(2).
81. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(A).
82. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(B).
83. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(C).
84. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(D).
85. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(E).
86. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(A).
87. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(A).
88. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(a) (applying nondiscrimination requirements to a "group health plan and a health insurance issuer offering group or individual health insurance coverage").
89. See supra Part III.
90. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(A).
91. See ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(A).
92. The Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits 2010, at 1, available at (last visited June 9, 2011).
93. Notice of Proposed Rulemaking for Bona Fide Wellness Programs, 66 F.R. 1421 at 1422.
94. ACA § 4303, to be codified at 42 U.S.C. § 280I and § 280I-1.
95. See 29 C.F.R. § 2590.702(b)(2)(i)(B).
96. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(3)(D).
97. See 29 C.F.R. § 2590.702(d).
98. ACA § 1201, to be codified at 42 U.S.C. § 300gg-4(j)(1)(A).
99. See K. Jochelson, Paying the Patient: Improving Health Using Financial Incentives, King's Fund (2007), at 3, available at (last visited June 9, 2011) (giving examples of insurer incentive programs in England, South Africa, and Germany).