The use of financial incentives in workplace wellness or health management programs has been gaining momentum over the past several years. A 2009 survey by Buck Consultants reported that 56% of U.S. employers were currently using financial incentives in their wellness programs and another 26% plan to do so.

The passage of the Patient Protection and Affordable Care Act increases the likelihood that employers will expand their use of incentives. Since this health care reform legislation was enacted, health management companies have seen greatly heightened employer interest in introducing or refining incentive strategies.

Although some of its elements remain controversial, PPACA has the potential to positively impact workplace health in several ways. The legislation shifts the priority in health care from diagnosis and treatment to a focus on prevention and wellness. (Read more about how PPACA will affect wellness and preventive care in a related story on page 38.).

The legislation also shines a light on the integration of incentives into the health plan design and, ultimately, will clarify what employers can do with their incentive strategies.

To ensure the success of this integration and their overall health management strategy, employers need to harness the power of workplace culture to drive employee engagement and health outcomes.

If corporate leadership doesn't actively support employee health, the enterprise will fail to realize the potential of its incentive strategy. Strong cultural support is critical because incentives by themselves only buy compliance, and they may be perceived by employees as an attempt to manipulate their personal behaviors.

In addition, the legislation gives employers more flexibility in structuring their incentive strategy. By encouraging employers to integrate wellness incentives into their health plan design, the legislation provides a mechanism to reallocate - rather than add - costs to the health plan budget.

This is done by varying employee costs for health care coverage through benefit design elements.

The legislation allows employers to tie employee costs to "health status factors" like excess weight or tobacco use, as long as employees are offered a waiver or a "reasonable alternative standard" to earn the incentive if it is either unreasonably difficult due to a medical condition or medically inadvisable for them to satisfy the health standard.

The maximum incentive employers can offer will also increase, with the current HIPAA limit of 20% of the total cost of health coverage growing to 30% on January 1, 2014.

Employers will have more incentive to invest in the health of the broader community in which their employees live.

A great strength of worksite health management is that most employees spend nearly half their waking hours at work; a potential weakness is they spend the other half of their time in their communities where there may be much less support for their health.

Employers with significant community presence can address this challenge by working within their communities to broaden the culture of health beyond the worksite.

As employers intensify their health management and incentive strategies, there will be a need for a focused employee education effort. Helping employees understand their role and getting them engaged in long-term prevention and health improvement efforts will require an understanding of communications best practices.

Participation vs. engagement

The old adage, "you can lead a horse to water, but you can't make him drink," captures the essence of driving participation versus engagement. An incentive will draw the horse to the stream, but he won't drink unless he's thirsty. Likewise, an incentive can get employees to participate in your health management program, but it won't motivate a long-term behavior change.

The most effective way to drive both participation and engagement is to follow best practices for incentive design, including engaged leadership, healthy workplace culture, clear and simple incentive design that moves employees through the stages of behavior change, ongoing communications and strategic use of health assessment data.

As employers increase their investment in health management and become more aware of the increased flexibility health care reform legislation offers, many will consider increasing the size of their incentives to try to drive health improvement more quickly.

However, the requirement for a waiver or "reasonable alternative standard" to earn the incentive for employees who can't meet the health standard substantially increases the complexity of the situation.

This is because offering large incentives for prescribed behaviors creates a compliance mindset and reduces internal commitment or motivation. Employees just play by the incentive rules and declare themselves "done" when the incentive requirement is met.

Employers should keep incentives for each activity modest - just big enough to "nudge" those already contemplating a change to engage in the activity. The challenge, then, is to design a "reasonable alternative standard" that fosters engagement rather than compliance for those who don't meet the health standard.

Requiring the completion of multiple activities from a menu of options personalized to the participant's health needs, and offering the support of a health coach, can guide participants through the process.

If employers structure their strategies right, they can potentially engage employees and produce impressive outcomes. This is still new enough territory that leading-edge employers are learning as they go. Three key tenets of effective incentive design for achieving success include:

1. Remember, a healthy culture is your trump card.

Affinia Group, an automotive parts manufacturer based in Ann Arbor, Mich., made culture the cornerstone of its wellness program by changing its corporate mission statement, asking employees to sign a "Partners in Health Covenant" and offering a substantial premium reduction for participation in the wellness program.

By signing the covenant, Affinia employees agree in writing to support the company's two goals: to make smart use of their health care dollars and to take part in the prevention and wellness program. This approach boosted Affinia's wellness participation rate to 99%.

2. Ease employees into greater accountability.

The success of your health management program relies in large part on creating a mindset of accountability. Alliance Data has shown a steady progression in employee accountability and, as a result, in their program outcomes. When the company implemented its health management program in 2004, they offered a significant premium reduction as an incentive for completing a health assessment.

The following year, they required employees to complete two online learning modules in addition to the assessment. By 2009, employees needed to complete at least four meaningful activities, including the assessment, from a broad menu of options.

This progressive approach helped Alliance Data increase the number of employees at low risk for adverse health conditions from 29% to 42%, with the number at high risk decreasing from 18% to 10%. In addition, Alliance Data saw health care claims due to preventable illness decrease from 41% to 34% of total claims costs and health-related absences decrease by 10.3%.

3. Avoid the sink-or-swim approach.

When implementing an outcomes-based incentive that rewards employees for achieving or maintaining target biometric measures, such as blood pressure and body-mass index, it's essential to educate employees about the rationale for the incentive, with an emphasis on shared responsibility and what's required of them to earn it. Ideally, begin the education process at least a year before the incentive takes effect.

This lead time gives employees enough time to make lifestyle changes (such as losing weight or changing diet to reduce cholesterol levels) that will enable them to achieve targeted health standards when the incentive is initiated.

By focusing on these key principles, you will greatly improve your odds of success. As you evolve your health management program and incentive strategy, work with your health management partner and legal counsel to ensure that your program complies with all HIPAA, ADA, and other relevant laws and regulations.

And, most importantly, remember that success does not come from compelling people to jump through incentive hoops but from creating a culture of shared responsibility for health and using incentives strategically to accelerate individual change. -E.B.N.

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