Smoking, Obesity, Health Insurance, and Health Incentives in the Affordable Care Act
Kristin Madison, PhD, JD; Harald Schmidt, PhD; Kevin G. Volpp, MD, PhD
One fundamental reform of the Patient Protection and Affordable Care Act (ACA) was to weaken the link between health status and insurance coverage. Issuers of individual policies will no longer be able to charge higher premiums to the seriously ill or turn away unhealthy enrollees. By adding these protections, the ACA brings individual policies more in line with other forms of insurance. Neither Medicare nor Medicaid charges higher premiums for individuals in poor health, and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits group health plans from conditioning employee eligibility or premiums on health status–related factors such as cancer, heart disease, or diabetes.1
But HIPAA did not render health factors completely irrelevant, and neither does the ACA. In fact, the ACA could be considered to strengthen the link between health status and insurance coverage terms in one respect. Under the HIPAA exception for “programs of health promotion and disease prevention,” employers are permitted to tie premiums or co-payments to tobacco use, body mass index (BMI), or other health factors as long as certain requirements are met.2 The ACA continues and expands on this policy, supporting the use of outcome-based health incentives within both public and private insurance.
The ACA's health incentive initiatives vary, however, depending on coverage type. This variation raises questions about the ideal mix of rating restrictions and health incentives. In this Viewpoint, we describe the ACA's health incentive initiatives and explore their implications.
EMPLOYER HEALTH INCENTIVES BEFORE THE ACA
Employers have long been interested in tying rewards and penalties to health-related behaviors and outcomes. HIPAA allowed employers to pursue this interest but in a constrained way. The 2006 HIPAA regulations permitted health plans to offer financial incentives for achieving health-contingent standards such as BMI or blood pressure targets as long as these standards were part of a wellness program. Programs were required to meet a number of conditions, including that they have a “reasonable chance” of improving health and not be “overly burdensome.” Programs' health-contingent incentives could not in aggregate exceed 20% of insurance coverage costs. For example, if the cost of coverage were $5000, which is close to the average cost of employer-sponsored individual coverage, a plan could give a reward equal to $1000 to nonsmokers or, alternatively, impose a $1000 surcharge on smokers. Programs were also required to offer a “reasonable alternative standard” or waiver for those for whom it was “unreasonably difficult due to a medical condition” to meet a program standard.
THE ACA'S SUPPORT FOR HEALTH INCENTIVES
The ACA continued along the health incentives path forged by HIPAA. It maintained HIPAA's basic incentive program conditions but increased the incentive ceiling to 30% of coverage costs and gave regulators (Secretaries of Labor, Health and Human Services, and the Treasury) the authority to further increase the ceiling to 50% if “appropriate.”1 In recently issued final rules, regulators increased the ceiling to 50% as long as any incentives beyond the 30% threshold targeted tobacco use.3 The higher ceiling means that tobacco-using employees could face surcharges of up to 50% of the cost of coverage, a level comparable to the tobacco use premium adjustments allowable under the ACA in the individual and small-group markets.4
The ACA also expanded the use of incentives in public insurance, mandating a 10-state Medicaid demonstration project involving the use of incentives to reduce chronic disease; states have incentivized weight loss and smoking cessation, among other health-related goals.5 In Medicare, regulators used ACA-granted waiver authority to permit accountable care organizations to give patients in-kind items or services to advance clinical goals, such as adherence to treatment regimens.
THE VARYING LIMITS ON HEALTH INCENTIVES
The same provisions that point to the ACA's support for incentives also highlight the limits of that support. Regulators allowed in-kind inducements within Medicare accountable care organizations but rejected the use of co-payment waivers or other financial incentives for the same purpose.6 The ACA mandated a Medicaid demonstration project but did not call for widespread adoption of Medicaid health incentives.
The ACA raised the employer incentive ceiling, but regulators expressed concern about “health-contingent wellness programs that provide little to no support to enrollees to improve individuals' health.”7 The final wellness program rules seek to strengthen this support.3 They require that plans basing rewards on health outcomes such as specific biometric measurements provide a “reasonable alternative standard” for qualifying for the reward. The rules supply some detail on what constitutes a reasonable alternative standard, but still allow for considerable flexibility. Plans might establish standards that are relatively easy to meet (eg, signing up for a smoking cessation or weight loss program) or more difficult to meet (eg, signing up for and participating in a smoking cessation or weight loss program for 6 months), with correspondingly different effects on the likelihood of changes in behavior.
The ACA allowed premiums of small-group policies to vary depending on tobacco use, but regulators permitted these adjustments only in connection with a wellness program, which regulators noted “effectively allows tobacco users to reduce their premiums to the level of non-tobacco users by participating in a tobacco cessation program or satisfying another reasonable alternative.”4 They applied no such limitations to the individual market, however. Unless states impose additional restrictions, smokers buying individual policies may face higher premiums without the benefit of these protections.
CONCLUSIONS
One factor behind the variation in approaches to health incentives across time and coverage types is uncertainty about the effects of incentives. If incentives induce individuals to take steps to reduce health risks, health plans will have successfully redirected resources from treating the ill to preventing disease. The result could be improved health for broad segments of the population, including lower-income groups that have disproportionately higher rates of poorly controlled chronic diseases.
If incentive programs are poorly designed, however, they may do little to change health outcomes. A reward based on achieving a BMI of 25 might lead to weight loss among individuals with BMIs of 26 or 27 but not among those with BMIs of 36 or 37. Research on recurring errors in individual decision making suggests that premium adjustments may be less effective motivators than incentive programs that incorporate immediate and frequent feedback as well as highly visible and salient rewards and that harness behavioral motivators such as anticipated regret.8 If incentives fail to change behavior, higher-risk individuals may be left in a worse financial position, undermining the ACA's efforts to weaken the link between health status and insurance costs and potentially threatening distributional equity. Even though some employers might be satisfied with simply having higher-risk employees pay more for insurance in accordance with their risk, from the standpoint of enhancing the health of the US population this would be a lost opportunity.
Given the increasing interest in health incentives, more evidence of their effects is needed. Regulators have acknowledged that “insufficient broad-based evidence makes it difficult to definitively assess the impact of workplace wellness on health outcomes and cost,” and a similar point could be made with respect to other forms of coverage.7 The ACA took a step toward filling the information void by calling for reports on workplace wellness initiatives and mandating incentive demonstration projects in connection with both individual and Medicaid coverage.1,5,9 Careful design, testing, and evaluation will be essential to ensuring that the potential for both private and public incentive programs to improve the health of insured populations is realized.
