Should companies pay employees to lose weight?

Approximately 80% of large employers in the US now offer some sort of financial incentive to employees to improve their health.

As Susan, L. Averett notes in her IZA World of Labor article on obesity and labor market outcomes, “there is growing evidence that obese people receive lower wages and are less likely to be employed than non-obese people.” She warns that “[o]besity threatens to become an increasing burden on all taxpayers as a result of the associated higher medical costs, lower productivity and wages, and reduced probability of finding employment.” Governments and employers therefore “have a compelling interest in finding ways to reduce obesity levels and discrimination against obese workers.”

In the US, the Affordable Care Act has encouraged financial incentive programs by significantly increasing the amount of money—in the form of a percentage of insurance premiums—that employers can reward (or take away) to their workers to improve factors such as body mass index, blood pressure, and cholesterol, as well as for stopping smoking.

An article in a recent issue of Health Affairs tested the effectiveness of such programs, investigating whether the promise of $550 off next year’s health insurance premium, paid out over the course of that year, could motivate employees to lose weight. After one year, employees that received no financial incentive saw no change in their weight. But, neither did employees who were offered the premium reduction.

So, why were the rewards ineffective? Possibly because they were provided too far in the future: you lose weight today but you don’t receive any reward until next year. Also, a premium discount of $550 may sound motivating, but in reality it is only about $45 per month, perhaps not enough to really encourage weight loss.

Does this mean that workplace financial incentives to promote health can’t be effective? Not necessarily. It does, however, suggest that incentives need to be designed better.

Alternative research has found greater success when workers are assigned to groups, with only those who succeed in achieving a monthly weight-loss goal being rewarded.

Another study reveals that higher incentives delivered more frequently could be the answer.

And finally, a paper that studied the use of bonuses versus penalties reveals that workers are more likely to succeed at their health goals when penalised for not doing so rather than when rewarded for success.

In the UK this week, the government’s finance minister George Osborne announced a sugar tax on the soft drinks industry as part of his 2016 Budget, an alternative approach to the fight against obesity.

The estimated £520million a year raised from the tax is to be spent on doubling funding for sport in primary schools and therefore battling the early causes of obesity. Secondary schools will meanwhile be encouraged to offer more sport as part of longer school days.

Only time will tell whether these measures will be successful.

Related articles:
Obesity and labor market outcomes, by Susan L. Averett
Employee incentives: Bonuses or penalties?, by Daniele Nosenzo
Youth sports and the accumulation of human capital, by Michael A. Leeds
The impacts of shortening secondary school duration, by Stephan L. Thomsen