HealthLawProf Blog

Editor: Katharine Van Tassel
Case Western Reserve University School of Law

Monday, May 12, 2008

Employee Health Incentive Plans and Cheating

The Chicago Tribune has been following the recent development of monitoring employee incentive plans and punishing those employees who cheat.  The Tribune's Barbara Rose reports on the troubles at Whirlpool and writes,

Whirlpool Corp.'s suspension of 39 production workers at an Indiana plant who were seen smoking after declaring themselves eligible for a $500 annual tobacco-free insurance discount may signal the end of the honor system that rules most corporate wellness programs, experts said Tuesday. The action also underscores the difficulty of enforcing so-called voluntary programs when fines or incentives grow big enough to encourage cheating and snitching, they said.

"Employers have been using the honor system ever since wellness programs started, and you have to be a little naive to think that people are going to admit they smoke when they know they're going to be penalized," said Lewis Maltby, president of the non-profit National Workrights Institute in Princeton, N.J. "Sooner or later, employers are bound to start checking up. This may be the beginning of the trend."

The workers were suspended after they continued to smoke in designated locations outside the Evansville plant despite enrolling for health insurance in October as non-smokers, 
avoiding the penalty.  The company routinely asks employees to confirm their status as a tobacco user or a non-tobacco user as part of the annual benefits-enrollment process," Whirlpool said in a statement. The company added that it "investigates" employees when there appears to be a discrepancy in their enrollment status and their behavior.

"Falsifying company documents is a serious offense," Whirlpool said. "Those found to have done so are subject to disciplinary action, which could include suspension and termination."
The statement added, "The investigation into this situation is ongoing. Out of respect for the process and Whirlpool employees, the company has no further comment at this time." . . .

Get-tough regimes raise a host of legal as well as ethical issues. Employers are allowed to offer incentives or fines as part of voluntary wellness programs as long as the amount is not more than 20 percent of employees' total cost of insurance, according to federal guidelines that went into effect in January for calendar-year plans. . . .   "This is the first instance I've seen where people said they didn't smoke so they wouldn't get hit with the penalty and then got caught and punished," Maltby said. "My sense is, most employers are still using the honor system" and not checking up. . . .

But, he added, "employers didn't set up the penalty just for the fun of it. They set up penalties because they intend to enforce it. This is a very heavy-handed way to help people get healthy and cut medical costs."  Maltby questions the net savings of having smokers pay more, after employers factor in the cost of enforcement and hidden costs such as the impact on morale.  Jerry Filipiak, a senior vice president in Chicago at consulting firm Hays Benefits, said the Whirlpool action underscores the pressure employers face to control health expenses.  "To me it's a sign of how serious health-care costs are to an employer," he said. . . .

Reporter Barbara Rose further writes about the use of smoking policies in general -Smoking is a lightning rod for controversy, as is the question of whether workers who smoke should have to pay more for their health insurance.

It's no wonder then that Whirlpool Corp. made headlines last week for suspending 39 workers who were seen smoking outside their Evansville, Ind., factory despite enrolling for insurance as non-smokers.  Whirlpool's smokers pay $500 a year more for their employer-provided health insurance—a penalty big enough to increase the likelihood of cheating—but how would the company find out? Internet message boards buzzed last week with speculation about spy cameras and company snitches.   

But truth sometimes is stranger than fiction. It wasn't management surveillance or finger-pointing co-workers that outed the smokers. It was the employees themselves.  A little history is in order.

The workers' union challenged the smoker fees in 2006, citing a state law, and an arbiter ruled the company had to pay back the surcharges collected during a 28-month period through June 2006. The amount was expected to be about $1,000 per employee, according to the Evansville Courier & PressLast month, Whirlpool's suit to overturn the ruling was dismissed in a sealed settlement, setting the stage for rebates.  The suspended workers drew attention to their smoking when they asked for the rebates, prompting the company to check to see whether they had paid the fees. Apparently they hadn't.

Whirlpool declined to comment about what happened. Last week's statement confirming the suspensions said "falsifying company documents is a serious offense" punishable by suspension or termination. Workers are represented by Local 808 of the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers-Communication Workers of America, but the union also declined to comment. . . .

Nobody anticipated the trouble that would ensue from the union's 2007 grievance over the fees. The sheer number of employees suspended last week was unusual. Managers were forced to call back laid-off workers to keep the plant running.  . . .

Some no doubt will say the workers deserve to be punished if they lied on their enrollment forms. I'm tempted to say that companies ought not to ask questions about employees' health-related habits in the first place. Don't ask, don't tell.  On the other hand, I know that some companies help workers lead longer, healthier and more productive lives by offering programs that include questions about smoking and rewards for those who don't. The best of the corporate wellness programs that have been around for more than a decade include incentives for healthy behaviors. . .

The pendulum may be swinging toward the notion that employees who smoke ought to pay more for employer-provided insurance because their health-care costs are higher. Still, a minority of companies have adopted the practice.  A survey by consulting firm Mercer found that only 5 percent of employers with 500 or more workers varied health-care premiums based on smoker status in 2007. Among large employers, those with 20,000 or more employees, the number was 16 percent.  Charging smokers more inevitably raises issues of testing and enforcement. Most companies rely on the honor system. At Whirlpool's Evansville plant, that system seems to have failed.

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