Published on June 9, 2014

PERSONNEL MATTERS: Firms revamping employee wellness programs

By Steven Ross Johnson, Crain News Service

CHICAGO (June 9, 2014) — For years, Barb Kildow, 55, wanted to lose 10 to 15 pounds. But she never got motivated to eat healthier or exercise regularly even though her employer has an on-site fitness center.

About a year ago, Ms. Kildow, assistant vice president of communications at Chicago-based Equity Residential, began participating in the company’s employee wellness program run by the Vitality Group. She received a health risk assessment survey asking her about smoking, alcohol consumption, and eating and sleep habits. Based on her answers, she received recommendations to help her meet her health goals. She increased her workouts in the company gym from “maybe once or twice a week” to four or five times a week during her lunch break.

She credits the program’s assistance on nutrition and stress management and the on-site gym with helping her lose 27 pounds and drop her body mass index from 24 to 21. A major motivating factor was the $500 annual discount on her health insurance premium for completing the survey, with the promise of additional reductions for meeting specific fitness goals. “That (discount) certainly is a driver for me,” Ms. Kildow said.

Equity Residential is one of a growing number of U.S. employers that have implemented wellness programs with a goal of improving employee health and productivity and reducing healthcare costs.

While such programs have been used by most large companies over the past decade, they have spread to smaller firms, driven by employers’ desire to lower the cost of their health plans and avoid the 40 percent excise tax starting in 2018 on high-cost plans under the healthcare reform law. Companies also have been persuaded to launch wellness programs by marketing from the burgeoning industry of wellness providers.

But experts question these programs’ effectiveness in improving health and reducing costs, and some employers are rethinking their approach. A RAND Corp. study last year found that such programs are only cost-effective when they focus on helping employees manage chronic health conditions and that efforts focusing on health habits among otherwise healthy people produce little return on investment in the short term.

Some employers are working on more effective ways to engage employees in increasing physical activity, making healthy food choices and stopping smoking and excessive alcohol consumption. A number of firms also have made environmental changes in the workplace, such as adding walking paths, increasing nutritious food choices in cafeterias and adding on-site fitness centers.

“Employers have moved from just a programmatic focus to actually creating a view of health as a strategic value to the organization,” said Shelly Wolff, a leader of the health and group benefits unit at Towers Watson.

MH Takeaways

A RAND study last year found that wellness programs are only cost-effective when they focus on helping employees manage chronic health conditions.

Still, some experts are dubious. “Wellness has been a noble experiment,” said Thomas Emerick, president of Emerick Consulting, an employer health-benefit consultant based in Fayetteville, Ark. “But the jury is in and it doesn’t work.”

Employers themselves have doubts about the effectiveness of wellness programs. In a 2013 survey of nearly 900 large employers in 15 countries conducted by consulting firm Towers Watson and the National Business Group on Health, less than half of benefit managers surveyed ranked their wellness program as successful. Most saw the problem as low employee engagement. According to the survey, 50 percent of workers in U.S. companies completed a health-risk questionnaire and 41 percent received a preventive screening. But only 13 percent took part in a disease-management program.

The survey also found that half of employers with a wellness program lacked a clear strategy for how to increase employee engagement or improve health outcomes. But 59 percent planned to develop a strategy over the next three years, and 84 percent planned to increase their investment in wellness programs over the following two years.

A 2013 survey by the Global Corporate Challenge of health and wellness managers from 378 organizations around the world found that 86 percent said the main reason employees don’t take part in wellness initiatives is a lack of time. The report said it’s essential for companies to better integrate wellness initiatives into the daily lives of workers and make them more fun.

Despite their doubts, employers “are desperate to do something about healthcare spending,” said Marianne Udow-Phillips, director of the Center for Healthcare Research and Transformation in Michigan.

Financial incentives

In 2012, half of all U.S. employers with at least 50 employees had a wellness initiative, according to RAND. Larger companies are more likely to have such programs, with 79 percent of employees in companies with 50 or more workers having access.

The typical wellness program offers a health-risk assessment and provides screening for hypertension and high cholesterol. Programs often provide health and nutrition education and weight management support through an on-site gym or discounted membership to a fitness club.

Many companies are offering discounted health insurance premiums and cash bonuses to increase employee participation in programs. Employers planned to spend about $594 per employee on wellness incentives in 2014, up from $521 in 2013 and more than double the average of $260 per employee in 2009, according to Fidelity Investments and the National Business Group on Health.

Critics say such incentives have the potential to unfairly shift the cost burden to workers in poorer health who don’t participate or can’t meet targeted health outcomes. A rule issued last year by the CMS set maximum financial rewards and penalties for wellness programs.

But Renee-Marie Stephano, president of the Corporate Health and Wellness Association, an industry trade group, defended the use of incentives. “We all live in a world of sticks and carrots,” she said. For employers that provide company-paid health benefits, it’s reasonable for employers to ask workers to engage in healthy behaviors and penalize them if they do not, she added.

Some companies have made wellness a part of their overall business strategy, aligning a healthier workforce with greater productivity. Johnson & Johnson began promoting better health among its workers in 1978 and is regarded as one of the leaders in employee wellness, running its own program.

Dr. Fikry Isaac, the company’s vice president of global health services, said J&J’s employee wellness program has maintained a participation rate of nearly 90 percent among its more than 31,000 U.S. employees since the introduction in 1995 of a $500 credit toward the annual premium for those who complete a health assessment; it offers an additional $100 to $250 reduction for employees who meet specific health goals.

The company has generated a return on investment of up to $4 for every dollar spent on wellness, he said. “Not all wellness programs are the same,” Mr. Isaac said. “When it becomes part of the business imperative, it makes a huge difference versus when it’s just an add-on.”

Unlike J&J, most employers hire a wellness vendor to design and manage the program. It costs an employer an average of about $150 per member a year, said Soeren Mattke, a RAND senior scientist who authored the 2013 report on wellness programs.

Financial boon for wellness vendors

The growing interest in employee wellness has given a boost to wellness vendors. Estimates of the size of the industry range from $2 billion to $6 billion. Annual revenue growth was 5.6 percent between 2008 and 2013 and is projected to grow an average of 9.4 percent annually over the next four years, according to a 2013 report by market research firm IBISWorld. The firm reported that the provider with the largest market share, at 6.6 percent, is Minneapolis-based Health Fitness Corp., with an estimated 2013 revenue of $144 million.

Overall, the wellness industry is composed of small local and regional providers. The four largest on IBISWorld’s list—Health Fitness, Healthways, Healthtrax and Viverae—compose only about 12 percent of the market share. The number of vendors now totals more than 8,000.

Despite employers’ growing investment in wellness programs, the evidence is mixed on whether such programs produce short-term return on investment. A 2010 study in Health Affairs found that medical costs were reduced by an estimated $3.27 for every $1 spent on wellness programs, and that costs associated with absenteeism fell by $2.73 for each dollar spent.

Last year’s RAND study found the overall return on every dollar invested in a wellness program was $1.50. It found there were significant savings from the disease-management component of these programs, with savings up to $3.80 for every dollar spent, including a 30 percent reduction in hospital admissions. But features that focused on tobacco cessation, weight loss and lowering stress were found to save only about $0.50 for every dollar spent.

Mr. Mattke said the best programs are reasonably effective in helping workers with smoking, weight reduction and diet. “What they don’t do, at least from what we have seen from our data, is reduce healthcare costs,” he said. Part of the problem, he said, is that some employers expect immediate cost savings rather than looking at the longer-term impact.

“Strategically, it’s been a mistake by the wellness industry to let themselves be judged based on whether there’s a return on investment,” said Dr. Kevin Volpp, a professor of medicine and healthcare management at the University of Pennsylvania. “The real question should be whether or not you improve health at a price that’s reasonable compared to what we’re spending for treatment.”

The bottom line is that employers need to develop better ways to engage their workers in improving their own health, experts say. “Worksite wellness programs are great programs and they can be reasonably cost-effective,” Ms. Udow-Phillips said. “I just think people have to be careful about not overselling what they can actually accomplish.”

This report appeared in Crain’s Modern Healthcare magazine, a Chicago-based sister publication of Tire Business.

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