Dieting for Dollars

In their upcoming book "Nudge," authors Richard Thaler and Cass Sunstein describe a bet that two economists made during graduate school after trying and failing to lose weight on their own. The pair signed a contract, each pledging to pay the other a substantial amount of money if he didn't lose 30 pounds in nine months. The bet worked. Both economists lost the weight. But within weeks they found that the number on the scale was creeping back up. So they agreed on a second contract. On a day's notice one could call the other for a weigh-in. If either was above his target weight, he'd owe his friend an agreed-upon sum. In four years, as the authors recount, there were several weigh-ins. But only once was either over target, and he immediately paid the full fine. The financial penalty, Thaler and Sunstein argue, was enough to deter both from allowing their weight to increase again. The two University of Chicago professors' point: even when we want to improve our health, it often takes a strong financial incentive to prompt us to take action.

That theory is now being tested on a much larger scale in companies across the nation. In an effort to rein in mounting health-care costs (employer health insurance premiums increased an average of 6.1 percent last year, more than twice the rate of inflation), hundreds of employers are using financial rewards and, increasingly, penalties, too, to persuade employees to take demonstrable steps to improve their health and reduce their health insurance costs, and absenteeism in the bargain.

Garry Mathiason, a lawyer at Littler Mendelson, a national employment and labor law firm, says his firm has already advised more than 300 companies, both large and small, that are planning to implement some form of incentive program to improve their employees' health habits. And a report out this month from the National Business Group on Health and consulting firm Watson Wyatt Worldwide found that a little more than half of 453 large employers surveyed are now using financial incentives to encourage employees to participate in at least one activity to improve their health-from completing health risk assessments to joining a smoking cessation program. An additional 24 percent of those employers plan to do so in 2009.

Employers started focusing on employees' health habits after research began linking a growing number of diseases-from diabetes to lung cancer-with unhealthy lifestyle choices like smoking and overeating. One report in the Journal of the American Medical Association found nearly half of all deaths in the U.S. in 2000 could be attributed to preventable behaviors.

And the economic impact goes beyond health-care costs. A survey of nearly 29,000 workers, published in the Journal of Occupational and Environmental Medicine in 2003, found that health-related lost productivity time-from missed days, reduced work hours, and so-called presenteeism (going to work sick and being markedly less productive)-costs employers nearly $226 billion a year, or about $1,685 per employee. Improve employees' behavior, the thinking goes, and you can improve their health and productivity and lower the costs of health care.

"If it didn't affect costs, companies could probably care less if someone smoked at home. But given their vested interest, they often feel they have no choice but to get involved," says Miguel Quiñones, professor of management and organizations at Southern Methodist University's Cox School of Business.

That was the case for Ridgeview Medical Center, a Minnesota-based health-care network. Six years ago, in an effort to cut costs, it began switching its nearly 1,300 employees over to a high-deductible health insurance plan with an employee spending account. The move helped reduce the rate of increases in the company's health insurance premiums. But CEO Bob Stevens wondered, were employees actually improving their health or just finding ways to spend less on health care in the short-term by doing things like switching to generic medications? "I asked, 'What can we do to encourage employees to actually change behaviors-particularly if we know that otherwise they'll likely be a higher utilizer of health services in the future?'"

To find out, Stevens hired RedBrick Health, a Minneapolis-based health services firm. A growing number of companies are using outside health consultants like RedBrick to push the get-fit message in a personalized way without invading employee privacy. Consultants collect and keep data from health risk assessments that measure factors like employees' BMI, cholesterol and blood glucose levels (a sign of diabetes) and blood pressure, and run employees' health maintenance and improvement programs.

The health assessments at Ridgeview were voluntary, but employees who completed it within a six-week period got $75. Nearly half the employees got the assessments. They were then encouraged with further financial rewards to work with a health coach (provided again through RedBrick Health) and to join programs to help quit smoking, lose weight, or better manage a chronic disease. A smoker who could prove that he quit and remained smoke-free for a year could earn up to $300 in cash payments. Smoking is a natural focus of the program, because smokers usually cost more health-care-wise. Approximately 12 percent of Ridgeview's workforce smokes now-and they represent about 20 percent of the company's total health-care costs, says Stevens.