Maryland officials approved $16 billion in contracts Wednesday that are intended to change the way state employees use health care by offering rewards for taking steps to stay well — and imposing penalties for refusing to comply.

Rewards would come in the form of free doctor visits and procedures, while penalties for failing to follow medical advice could go as high as $375.

Most coverage changes start in January. The contract award, believed to be the largest in Maryland history, is projected to save the state and its employees $4 billion over the next decade. The health benefits plan covers about 255,000 state workers, retirees and dependents.

The three-member state Board of Public Works voted unanimously to approve the contracts with CareFirst of Maryland, United Health Care and the Kaiser Foundation Heath Plan. Comptroller Peter Franchot expressed misgivings over the length of the contracts and the potential risk to taxpayers.

"I'm a little skeptical about the ability of the state to administer it," he said. "Not because the state is incompetent but because this exercise is so huge."

Gov. Martin O'Malley focused on the potential benefits, both to employee wellness and to the state's fiscal health.

"We are on a path to spend $20 billion instead of $16 billion," the governor said.

Officials said other states and private employers have adopted plans based on rewards and penalties.

Maryland's program was developed by the Department of Budget and Management at the urging of the board. Members called for a greater emphasis on wellness efforts than in the current contract, awarded five years ago.

Anne Timmons, director of the department's employee benefits division, told the board that low use of preventive care programs and poor compliance with treatment plans for persistent ailments cost the state an estimated $700 million a year.

The new plan, Timmons said, will involve the use of carrots and sticks to persuade members to make healthier choices.

Under the plan, a state employee will be expected to choose a primary care physician, undergo a health assessment and discuss the results with the doctor during the plan's first year.

Once he or she is signed up with a doctor, the employee will have all laboratory and X-ray work covered with no co-pay. Co-pays also would be waived for visits with the primary physician and generic drugs for some chronic conditions, such as high blood pressure.

Patients who fail to choose a doctor or have a health assessment could face a premium surcharge of $50 annually, or roughly $1 per week, starting in 2016. That surcharge would rise to $75 in 2017 and could go higher after that.

Members who are diagnosed with a chronic condition such as diabetes or elevated cholesterol but fail to follow through on recommended treatments will have to pay an extra $250 in 2016 and $375 in 2017.

State Budget Secretary T. Eloise Foster said the plan complies with federal health privacy law. Officials say plan administrators are routinely informed about a patient's diagnosis and treatment plan, and can monitor compliance by examining claims for treatment.

If a patient isn't submitting claims for recommended treatments, the administrator will tell the benefits department of the employee's agency — not his or her supervisors — that the member is not in compliance and should be charged the penalty.

The state will not be told the employee's diagnosis or treatment, officials said.

Among the conditions likely to be identified in the initial screening are smoking and being overweight. Officials said members who smoke would be offered free smoking-cessation treatment, while those who are obese would be offered nutrition counseling at no cost.

Department officials said smokers would not face surcharges until they completed three rounds of smoking-cessation courses without quitting. They said members would not be penalized for being overweight as long as they stayed in treatment.