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2012 Voluntary Benefits Special Report

Outcome-based incentives

The secret sauce for wellness programs?

By Len Strazewski

Wellness programs, in one form or another, have been used by employers for more than a dozen years. These programs promote activities and organizational policies that are designed to support healthful behavior inside and outside the workplace, and to ultimately improve health outcomes. Overall, they have gained significant traction over the last three or four years as employers struggle to find ways to reduce the cost of medical care for their employees. When properly structured, wellness programs, in theory, align economic incentives of both the employer and the employee. Obviously both have a financial stake in encouraging and engaging in more healthful behaviors that should help drive the cost of health care down.

A number of recent studies have demonstrated employers' increasing interest in using wellness programs as an important component to a comprehensive cost containment strategy. This has become even more pronounced over the last year or two. For example, Towers Watson's annual employer survey finds increased usage in workplace wellness programs this year over prior years. Plus, it also notes that even more implementation of these programs is in the works for 2013. A similar study was completed by the Society for Human Resource Management (SHRM), and the results were presented at their 2012 Annual Conference in Atlanta earlier this year. The SHRM study concluded that more employers are offering benefits that encourage employees to improve their health. Over the last five years, SHRM notes, benefits that reward employees for improving their health have jumped significantly.

The SHRM study goes on to point out that employers have quickly recognized that providing employees with the opportunity to improve their health can actually increase morale, confidence and productivity.

SHRM also notes a trend whereby employers have been consciously shifting more of the primary responsibility and control for these types of benefits to employees. For example, the study says that more employers are now offering defined contribution retirement savings plans than defined-benefit pension plans in 2012. Obviously this puts the impetus on employees to better manage their own retirement savings instead of relying on employer-provided pensions. The same kind of shifting of the primary responsibility is occurring in health care as well.

Carrot or stick?

One of the newer approaches to wellness programs has come by way of using outcome-based results. The crux of these workplace wellness programs is either incentives that reward employees who engage in healthful behaviors or alternatively penalize those who don't. While there are many approaches to the "carrot/stick" issue, most of the "carrots" revolve around decreasing some aspects of the employee's health insurance costs. On the other side of the coin, some of the "stick" approaches include setting higher deductibles or premiums for those who don't meet certain body mass indices or do not quit smoking. It would seem that both types of approaches to wellness are gaining traction as they are increasingly being utilized by programs throughout the country.

On the surface, either approach would appear to be appealing to both employer and employee; however, a number of consumer advocates state that some of the "stick" approaches could become a way of discriminating against a sector of employees who don't meet a given matrix. In an attempt to head this off, a recent guidance has been published in the Journal of Occupational and Environmental Medicine. It is intended to ensure that workplace wellness programs that utilize "stick" incentives are effective and fair to all employees and ultimately improve health results. What's unique about the guidance is that it represents the collaborative thinking of several well-respected organizations with diverse stakeholders. Among the participating organizations are: the Health Enhancement Research Organization, the American College of Occupational and Environmental Medicine, the American Cancer Society, the American Diabetes Association, and the American Heart Association, to name just a few.

It's clear at this point that employers play a significant role in influencing the health behavior of their work force. What is also clear, is that a healthy workforce can reduce health care cost disability and absenteeism, all while increasing productivity. Obviously this should be a goal that is subscribed to by all employers. But the concern arises as employers seek new ways to engage employees in programs that change health behaviors, thus creating an increased interest in outcome-based results and a concomitant concern by the advocacy group.

It should be noted that the collaborative group is not recommending outcome-based programs but rather stating that, if they are adopted, these guidelines should be used. What they have tried to do is provide the tools and opportunities to improve health and wellness, but they are extremely apprehensive that they could be used in ways that undermine an employee's ability to obtain adequate and affordable insurance coverage. They are concerned that these unintended consequences be avoided at all costs.

At the end of the day, outcome-based incentives represent a relatively new incentive design where employees receive either direct financial reward for meeting specific outcomes or a reduction in premium, deductibles, or co-pays. Obviously, there is also a penalty that may be imposed for failure to meet these standards. The collaborative notes that, if not implemented carefully, incentives such as these can also operate as penalties imposing financial or other burdens on employees. In the long run, this could be counterproductive. The goal of providing the guidance was to offer employers a framework for helping employees make healthful lifestyle changes, while providing proper protection and accommodation for those with disabilities or other barriers. The organizations also note that to be effective, incentive strategies such as these must be part of a comprehensive workplace health improvement plan.


Many of the wellness programs that are being marketed today are recent entries into this arena. One of the more experienced companies that has been offering wellness training since 2002 is Wellness Coaches USA. Recently, Wellness Coaches provided information on results in its 2011 Employer Outcome study. The study details how their employers promote engagement and health risk factor improvement over a three-year period 2009 to 2011. The company indicated in a press release that the results were achieved through implementation of their proprietary process, which incorporates a powerful engagement focus that includes an on-site wellness coaching methodology. This methodology can provide a large-scale improvement in many employee health risk factors. They point out that consistent results can be achieved and outstanding improvements flow from the integration of two critical elements. The first element is that exceptionally high employee engagement levels must be established. The second element is a state-of-the-art, on-site, face-to-face wellness coaching process that has been developed to accommodate logical requirements of on-site delivery.

The study summarizes data that cover approximately 50,000 eligible lives at more than 300 client locations in 30 states. The comparative group of 50,000 are longer-term clients and thus available for comparison over the past three years. Some of the results provided by Wellness Coaches are quite impressive.

One of the most impressive aspects of the program is that they have coached 90-plus% of all eligible employees or in excess of 45,000 employees per year during each of the past three years. In addition they also had 500,000 one-on-one coaching interactions per year during that same three-year period.

The improvements in comparable employee population health risk factors were favorable and are as follows:

• 56,000 health risk factors were improved—this compares to 41,000 in 2009

• 1.2 health risk factors improved for every eligible employee compared to 0.9 in 2009

• 24,000 employees improved their blood pressure compared to 19,000 in 2009

• 16,000 employees lost a combined 173,000 pounds compared to 12,000 employees losing 119,000 pounds in 2009

• 9,200 employees increased their weekly exercise compared to 6,500 in 2009

One can quickly see the dramatic results that Wellness Coaches was able to generate in the three-year period from 2009 to 2011. The company utilizes highly trained, on-site instructors that are focused on engaging their client's employees.


There is little doubt that wellness programs offer employers a significant opportunity for savings when employees are fully engaged in the process. A search of the literature on the subject indicates that wellness programs reduce health care costs, with reductions for larger firms averaging $3.27 for every dollar spent on wellness. In addition, studies have shown that health promotion programs at organizations of all sizes result in overall reductions of about 25%, not only in health care costs but in reducing sick leave and improving workers compensation and disability outcomes as well.

The newer approach to wellness programs, which tie incentives to actual outcomes, still lacks meaningful statistics. However, it does appear that if these programs can be implemented on an equitable basis, providing incentives to those employees who work to improve their health and, thus, reduce the overall cost of health care for the company, they offer new hope for employers.

One would expect to see significant involvement with wellness programs over the next several years. Not only are outcome-based incentives making a big splash in this area, a number of features incorporated within the Patient Protection and Affordable Care Act also deal with wellness. While these do not become mandatory for another year or two, employers will still need to consider them going forward.

While the primary objective of wellness programs obviously is to reduce the overall cost of health coverage, there are significant byproducts from these types of programs. In addition to reducing cost, these programs do improve morale and ultimately increase productivity—all of which are noble goals for any corporate program.


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