Employee Benefits eLine
Thursday, August 16, 2007—Vol. 6, No. 8

Biometric-Based Health Plans: Is the Latest Innovation in Health Plans Right for You
By David Flotten, JD, SPHR, Associated Financial Group

Biometric: “The measurement and analysis of unique physical or behavioral characteristics.”
Merriam-Webster Dictionary

The consumer-driven health plan trend is well underway as employers and insurance companies strive to create financial incentives to make employees more savvy consumers of healthcare services. At the same time, we are seeing greater emphasis on employee wellness, on the theory that healthier employees have fewer claims, thereby reducing health plan costs.

Biometric-based health plans are the next logical step, combining features of both consumer-driven models and wellness by providing financial incentives for employees to make healthy lifestyle choices. Recent regulatory guidance has given clearer direction regarding the legality of such plans, and insurance companies and vendors have begun offering products and services to allow employers to realistically implement them. So you will be hearing more and more about biometric plans in the coming months.

What Are They?

The primary feature of a biometric-based plan is that participants have the opportunity to earn financial incentives for meeting specified targets on certain biometric measurements. They differ from traditional wellness plans in that most wellness plans merely encourage or reward participation, for example, by offering an incentive for agreeing to have a health risk assessment or regular visits to a gym. In contrast, a biometric-based plan provides rewards for achieving specified health outcomes—for example, having a body mass index or cholesterol level below some specified maximum.

A typical biometric plan has three key components (although other structures are certainly possible):

  1. A major medical plan with a high deductible provides catastrophic coverage.
  2. An outsourced vendor conducts biometric tests on plan participants. Testing may be limited to employees or may be expanded to include spouses and other dependents enrolled on the major medical plan.
  3. Participants receive a financial incentive for each biometric target achieved. Most often that financial incentive consists of funds that can be used to offset the deductible on the major medical plan.

Plan Design Options and Legal Constraints

From that basic concept, there are a range of possible plan design options. For example, the employer can choose which biometrics to measure as well as the targets that must be achieved to earn the incentive. Commonly measured biometrics include:

  • Tobacco Use
  • Body Mass Index (BMI)
  • Cholesterol
  • Glucose
  • Blood Pressure

The employer also has flexibility (with certain legal limits) in determining the amount of the incentive as well as the form of those incentives. For example, the employer may choose to make contributions to a participant’s Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA) for each biometric target achieved. Alternatively, a participant may be entitled to increased employer premium contributions on the major medical plan for each biometric goal they achieve.

Another common option is providing alternative standards for employees who do not or cannot meet a specific biometric target. For example, the plan might provide $200 for achieving a specified BMI but also allow participants who don’t meet the BMI target to earn the incentive by agreeing to a regular exercise regimen and showing progress in improving their BMI. Or participants who don’t reach the BMI target may earn a partial reward for being within a certain specified range. In some cases, an alternative standard may be legally required. But even where it is not required, having alternative standards may be important to encourage employees who are not healthy to try to improve their scores and not simply give up.

There are certain legal requirements that biometric-based plans must satisfy. For example, employers generally do not receive individual employee test results in order to avoid problems under HIPAA Privacy and the Americans with Disabilities Act (ADA), although the employer may receive aggregate data on all employees’ test results.

Most biometric plan designs must also comply with the HIPAA Wellness Program rules (with the notable exception of plans where the incentive consists of employer HSA contributions). While HIPAA Wellness imposes several constraints, the most significant are:

  • The total incentive cannot exceed 20% of the total cost of single coverage on the overall health plan; if the spouse or dependents can earn incentives, the reward can increase to 20% of the cost of the applicable family coverage.
  • Participants who are unable to meet a specific target because it is unreasonably difficult or medically inadvisable to do so due to a medical condition must have the opportunity to earn the incentive through an alternative standard.

Other Considerations

Besides the legal issues, there are several important strategic, cultural, and communication issues an employer should consider before implementing a biometric-based plan. Ideally, a biometric plan is the end step of a phased introduction of consumer-driven concepts and wellness programs. For example, an employer might start by implementing a comprehensive wellness program with rewards to participants who agree to participate in biometric testing. The next year, participants may be able to earn rewards either for reaching certain biometric targets or by participating in education, exercise plans, or other programs designed to improve overall health. The following year, the incentives may only be available for reaching the biometric target, with alternative standards available where legally required. This phased approach allows the employer to gather data as well as giving employees time to get used to the concept and take steps to improve their health before being hit with a financial consequence.

Keep in mind that employees are likely to have a range of reactions to this type of plan. Some will be very positive, viewing any effort to improve health and hold people accountable for their choices as a good thing. Other employees will likely have a negative reaction, feeling such a plan is intrusive or unfair. It’s important to know your employees and corporate culture to anticipate how employees are likely to react and plan your communication efforts accordingly.

Finally, it’s important to consider the financial aspects of a biometric-based plan. There will be hard costs associated with implementing such a plan, including the cost of testing and funding the rewards, which will vary depending on the testing vendor, the number and type of biometrics measured, the amount of the incentive, and the funding mechanism chosen. On the other hand, depending on the type of plan you currently have in place, implementing a high deductible plan may result in some immediate premium savings. But of course the real savings from a biometric plan are expected to be more long term—healthier employees should mean fewer claims, lower costs, and increased productivity—but whether the incentives built into the biometric plan will in fact lead to the desired healthier behavior is harder predict.

Employers interested in learning more about biometric-based plans and the options available can contact an AFG benefits consultant at 800.258.3190 or info@associatedfinancialgroup.com. AFG is also conducting a series of free informational seminars entitled Biometrics: The next step in wellness and consumer driven health plans in Minnesota and Wisconsin. Go to www.associatedfinancialgroup.com/hrseminars for dates, times and to register online.