Don’t Ignore ‘Reasonable Alternative Standard’ When Offering Outcomes-Based Incentives

Friday, March 15th, 2013
This post was written by Jessica Fornarotto

Companies contemplating outcomes-based health incentives shouldn’t ignore the portion of the population that can’t meet predetermined health standards, advises John Riedel, the president of Riedel & Associates Consultants, Inc. Reidel defines outcomes-based incentives, explains the role of risk-adjustment in these programs, and shares some recent data on incentives use among other companies.

We’re individualizing health goals based on where a person is on their health continuum as well as on their interest continuum. Based on behavioral economics principles, you also want to appeal to what people are most interested in, what will get them engaged in some sort of change. This is setting a risk-adjusted target. And so that you’re not presuming that all employees can meet a predefined set of health goals, you’re making this more individually targeted.

For instance, if someone is morbidly obese, or has cholesterol levels that are so high that it is unrealistic to bring them down to the health goal that you’ve already set, risk-adjust it and help people create the incentive program that will work best for them; get them on the right path.

When you offer outcome-based incentives in your company, you’re tying financial awards to whether or not the employees are within healthy ranges that you have set with them, which could be blood pressure, cholesterol, body mass index, or any other biometric measures.

The Affordable Care Act (ACA) requires a ‘reasonable alternative standard’ because there are people who can’t meet an outcomes-based incentive. If they have an unreasonably hard time meeting a goal, you must provide them a reasonable alternative standard. The law on that is fairly open-ended. Incentives are becoming more common and the requirements are getting tougher. In other words, they’re being moved more toward outcomes-based incentives.

According to Towers Watson Staying@Work Survey, over half of U.S. respondents are currently providing financial rewards for participation in health programs. Rather than simply rewarding program enrollment, about a third of employers are requiring employees to complete multiple activities to receive a reward or avoid a penalty. That reward could be a progress-based incentive or an outcomes-based incentive. About 23 percent plan to impose this kind of requirement.

In other data, Hewitt Associates found that the use of cash payouts for HRA completion doubled between 2009 and 2010, up to almost two-thirds. Also, the Kaiser Family Foundation Annual Survey of Employee Benefits Plans shows that large employers are reducing premiums for engaged employees. For instance, a company with 1,000 to 5,000 employees will reduce premiums by 17 percent.

Clearly, incentives are becoming more common.

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