In the shadowy corners of the incentive debate — eclipsed by overstated cases for and against wellness incentives’ capacity to evoke change — lurk equally important tales of intrigue, greed, conspiracy, fraud, and hubris. They are tales that have been told only in bits and pieces, without context, concealing by omission a wellness pitfall of unknown depth.
It was the middle of the 2012 holiday season when many of us first heard about it, in headlines like, Workers Indicted for Defrauding Employer-Sponsored Wellness Program. Upon closer examination, we learned that six Kansas City (Missouri) employees and one from Jackson County were indicted for defrauding the wellness incentive program provided, through their employer, by their health plan. The program awarded gift cards and debit cards to employees who self-reported, on the plan’s website, completion of wellness activities. According to many initial reports, these employees collected $310,960 by falsely claiming they had completed triathlons, marathons, and other strenuous events. But there was more to it than that.
Employers and health plans frequently pay out wellness incentives, in one form or another, based on the good word of employees. Sometimes the employees are required to do nothing other than claim they completed an activity — as in the Kansas City case. But even employers less inclined to place blind faith in their employees’ self-reported fitness achievements are likely to take their word in a manner only slightly more formal — for example, having them submit an attestation saying they don’t smoke in exchange for a discounted health insurance premium.
The Affordable Care Act allows employers to offer wellness incentives up to 30% of the total cost of an employee’s health insurance; up to 50% for incentives related to not smoking. In 2013, large employers with wellness programs offered an average incentive of $594 per year. Even at that rate, you might wonder how seven people could possibly collect $310,960. Read on.
One of the Kansas City employees — we’ll call her Mrs. Green — had collected more than $185,000 over a two-year period. We got our first glimpse into the underlying truth when we learned that this wellness high-roller had submitted a claim on behalf of someone else, saying that this other person had completed two duathlons, three half marathons, and four triathlons. Who was this super athlete? A three-year old child.
Indeed, after the initial headlines of the scandal simmered down, an uglier truth emerged. There were others in cahoots with the Kansas City Seven. Lots of others.
After the indictments, the Kansas City Manager said, “We are very saddened with the allegations brought upon a small group of city employees. These alleged actions do not represent the majority of city employees who adhere to the city’s ethical standards.”
A “majority” of city employees? Perhaps not. Let’s just say… a great many. When you first heard that Mrs. Green collected $185,000 in wellness incentives, you’re instinct, just like mine, probably was to gloss over the accused and to focus, instead, on the health plan and the incompetence it demonstrated by failing to cap the potential incentive a participant could earn. But we eventually learned that the plan did cap the amount. Each employee could collect a maximum of $250 per year. Each of their dependents also could collect $250 per year. But, at that rate, you’d still need to have a mighty large family to pull down $185,000.
Contrary to the hopes and dreams of the Kansas City Manager, this scheme did not just involve a “small group of city employees.” As it turns out, the employees had some collaborators. According to the Department of Justice, “The indictment alleges that all of the defendants…solicited their co-workers to engage in the fraud scheme as well. According to the indictment, they submitted false activity entries on behalf of a co-worker or a co-worker’s dependent, and in exchange they would keep a portion of the $250 award (usually $50), while the co-worker received the remainder.”
Just how many other employees collaborated with the seven indictees? A DOJ news release reports that Mrs. Green — an employee of the Kansas City municipal court — submitted claims on behalf of 383 other employees. Another DOJ news release reports than one defendant submitted claims on behalf of 51 employees and a third defendant submitted claims on behalf of 62 employees.
Of course, one prominent case of large-scale fraud hardly qualifies as an epidemic. But there’s another, equally illuminating, case of incentive connivery, in which the perpetrators make the Kansas City Seven look like criminal geniuses.
The trouble occurred at a major midwestern appliance manufacturer. Every year, during open enrollment, this employer asked employees to sign a document attesting to whether they smoked cigarettes. If they said they were a non-smoker, they got a $500 per year discount on health insurance. In 2008, the company made headlines by suspending 39 employees. According to most news reports, the employees had attested in October of 2007 that they did not smoke, but in April 2008 they were caught lighting up in designated smoking areas outside the company’s office.
Lying in order to get a reduced health insurance premium is bad enough. But, as the Chicago Tribune reported, these alleged liars outdid their alleged selves:
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 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.
That’s right: Not only did 39 employees, according to this report, smoke after attesting that they were nonsmokers, but then they tried to collect rebates of a smoking penalty they had never paid!
The Tribune quoted the president of the National Workrights Institute as saying:
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. Sooner or later, employers are bound to start checking up. This may be the beginning of the trend.
But, on the contrary, the only trend has been continued use of the honor system for the increasingly common practice of tiering health insurance premiums based on tobacco use. A 2012 survey showed that use of tobacco differentials — as they are commonly called — were on the rise, and 84% of employers relied on the honor system.
It would be all too easy to dismiss wellness incentive cheating as the result of dysfunctional workplace culture. “Create a culture of integrity,” HR pundits will tweet, “and employees won’t cheat.” If only corporate culture was really as simple as it’s made out to be by people who aren’t part of one.
Dan Ariely, author of The Honest Truth About Dishonesty, quipped in the Wall Street Journal that employers can show a 50% decrease in their smoking prevalence overnight, just by threatening to penalize employees who admit they smoke. Ariely — who believes that only a few people cheat a lot, but a lot of people cheat a little — has identified several conditions that grease the dishonesty skids. Ultimately, his research shows, some version of rationalization facilitates cheating with a clear conscience. “Everybody else is doing it, so I can do it,” employees tell themselves, or “Cheating a little bit isn’t going to hurt anybody,” or “This big organization owes me, so I’m just taking what’s rightfully mine.” And because their conscience is clear, the fact that they may be employed by a caring and competent employer presents no conflict. (Ariely also posits that acceptance of cheating spreads through social networks. There may be no better example of this than the Kansas City case.)
Following the indictment of the Kansas City Seven, a local news broadcast paraphrased Mrs. Green as saying she didn’t think she was doing anything wrong, “just taking advantage of an insurance benefit.” She, along with five other city employees, ultimately pleaded guilty to at least one count of wire fraud. According to the indictment, they each faced up to 20 years in prison and fines up to $250,000. (At last report, one had been sentenced to three years of probation and $17,600 in restitution.)
After the indictment was unsealed, the defrauded insurer announced it was replacing its existing program with an incentive design that only credited outcomes and “verifiable” activities.
Indeed, the potential for fraud may be an important factor driving employers to adopt “outcomes-based” wellness programs, in which incentives are tied to achieving specific values for biometrics like blood pressure, cholesterol, and body mass index. A recent survey found that 41% of employers currently include, or intend to include, outcomes-based metrics as part of their incentive scheme.
Unfortunately, employer zeal for outcomes-based incentives grows despite the absence of evidence supporting their effectiveness and despite the likelihood that their ultimate effect ultimately will likely be to undermine employee morale and, consequently, well-being.
Dan Ariely proposes a handful of remedies to reduce cheating. Chief among them is to craft incentive strategies that don’t open the door to deception, luring participants into succumbing to their powers of rationalization.
In the absence of incentive strategies proven to be both effective and above-board, here are four key takeaways for employers.
- Offer wellness programs that employees want to do, rather than programs you have to pay them to do.
- Recognize that there is scant evidence demonstrating that financial incentives facilitate lasting behavioral change and some evidence that incentives undermine motivation.
- Consider more cost-effective models for incentive designs, such as sweepstakes in which everyone who completes an activity is eligible.
- Conceptualize employee wellness as a product of the work environment rather than employee behavior. Change the workplace; not the workforce.
Until we are prepared to upend our conventional approach to wellness, employers should accept accountability for incentive strategies that may have little impact other than to seduce employees into unscrupulous, and possibly unlawful, behavior.