No shocker here: Smokers and obese employees are the highest risk group for developing the sorts of chronic health problems that send costs through the roof.

A small, but rapidly growing number of employers are taking desperate measures to avoid the costs associated with these employees. The step can be broken down into three levels of aggressiveness and potential risk/reward.

Level one: The employer installs a wellness program in which non-smoking employees and those who commit to maintaining a healthy weight receive financial incentives that lower their share of monthly insurance premiums.

Level two: The employer disqualifies job candidates who smoke or are significantly overweight from hiring consideration. Alternatively, some firms require new hires to undergo a health risk assessment as a condition of being hired.

Level three: The employer docks pay or fires employees who fail to control their lifestyle-related health risks. Example: A company called Clarian Health has sent notifications to employees that starting in 2009, workers who smoke or chew tobacco will be charged $5 per paycheck.

Are these strategies legal? At level one, the answer is a qualified yes. HIPAAs non-discrimination rules permit such incentives under several conditions.

Wellness incentives walk a fine line in terms of HIPAAs non-discrimination rules. It is legal to reward employees for wellness participation but its illegal to punish those who fail to improve their health.

Example: If an employee follows a weight-loss program in good faith but fails to lose weight, you can’t withhold the incentive. Likewise, if an employee fails repeated tries to quit smoking, you’re still legally obligated to give them another shot next year.

Also keep in mind that, by law, the size of the reward or penalty under your wellness program cant exceed 20% of the total cost of coverage.

The other two are still largely uncharted waters in the courts. Employers considering these policies should proceed with extreme caution.  Keep in mind that the question of “can you do it” (i.e., is it legal?) is different from “should you do it?” (i.e., is it good business?).