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Can coaxing employees to live healthy lives help keep the bottom line in shape?
Ilan Mochari, CFO Magazine
February 22, 2005
Corporate wellness programs are hardly new. As far back as the 1920s, Japanese workers started their day with a round of calisthenics. But with the cost of health-care plans soaring, and increased recognition of the relationship between lifestyle choices and costly chronic conditions, the plans have gained credence as a tool for reducing health-care expenses.
Modern programs go well beyond calisthenics. Companies may hire personal coaches and offer on-site nurses or Internet checkup tools to encourage employees to eat right, exercise, and quit smoking. Employees may be rewarded for meeting certain health goals or just for participating.
For corporations, the goal is to reduce the hospitalizations, doctor visits, and pricey prescriptions associated with poor heath habits. The programs target diabetes, heart disease, and other ailments related to obesity, poor diet, and inactivity. A healthier workforce can mean not only lower direct health-care costs but also reduced absenteeism and higher productivity.
Theoretically, the impact can be huge. Some companies claim to have earned returns of as much as 300 percent on investments in encouraging healthy living in the workplace. Little wonder that wellness plans have become so popular. "Every major corporation is now working on adopting some form of health improvement," insists Helen Darling, president of the National Business Group on Health, a Washington, D.C., nonprofit group that represents employers on health-care issues. "PepsiCo just rolled out a huge health-improvement plan, and IBM and Sears are developing them."
But they are proceeding with caution. Despite the appealing prospect of shrinking waistlines along with health costs, there are two problems with wellness programs. First, returns can be difficult to measure. Second, the programs raise some ethical questions: how involved should employers be in the nonwork habits of employees? When does gentle prodding cross the line into intrusion into their personal lives?
Despite these issues, Fairview Health Services, a health-care system based in Minneapolis, decided to work on improving the health of not only its patients but also its 13,000 benefit-eligible employees. In 1996, it offered employees at one of its sites a frozen-yogurt cone to complete a health-risk assessment (HRA). This test identified high-risk factors like obesity and unhealthy habits like smoking or a sedentary lifestyle. From there, the company helped employees target the risk areas identified in the HRA. The employees responded so well that the company decided to roll out the program companywide.
Today, Fairview has a comprehensive health-management program. Each year, staff members complete a new HRA and mark progress against prior evaluations. StayWell Health Management, the vendor hired to administer the HRAs, provides health coaches who discuss ways to improve overall health and develops programs in areas including depression, nutrition, and exercise. Employees also learn how to reduce stress and manage health conditions like arthritis and diabetes.
Currently, 80 percent of Fairview's employees participate in the program, thanks in part to the incentives offered. Instead of a yogurt cone, employees who enter the program now receive a $25 gift certificate for the company store. They also receive a $50 credit at the store for completing any health behavior-change program and $100 for completing a disease-management program.
The incentives are just a small part of the cost of administering the program, which runs $2.3 million annually. "Every year we are scrutinized" by senior leadership, says Barbara Eischen, director of health and benefits services at Fairview. To obtain continued funding, the administrator must provide good data on the return on investment. So far, the results have been encouraging. In 1996, employees averaged 4 health risks each. By 2003, that number had dropped to 3.1, says Eischen. The improvement translates into an average cost saving of $464 per employee—$282 in medical-plan expenses, $75 in reduced absenteeism, and $107 in workers' compensation costs—or $5.6 million for the entire company.
Most of those savings come from keeping health-premium hikes to a minimum. Over the past 30 months, health-care premiums jumped an average of 10.9 percent at other Minneapolis-area companies, while the premium increased just 5.6 percent at Fairview. The positive results earned Fairview a C. Everett Koop National Health Award, which is given annually to organizations that document the fiscal and physical results of improved corporate wellness. (The 2004 winners were General Motors Corp. and the International UnionUAW.)
Go It Alone
Florida Power & Light Co., a $9 billion power company in Juno Beach, Florida, has enjoyed an even better rate of return on its health-management program. Andrew Scibelli, who runs the program, says the company achieved a 325 percent rate of return over five years because Scibelli, a former adjunct professor of exercise science at Florida Atlantic University, created the program himself. "There's no question that we save by not having a primary vendor," he says.
FP&L boasts an 84 percent participation rate despite nominal incentives. "We give participants gym bags, T-shirts, and pen and pencil sets," says Scibelli. He attributes the participation largely to a lead-by-example company culture in which senior executives can be spotted working out at the gym or standing in line at health screenings. CEO Lewis Hay and CFO Moray Dewhurst are visible participants in the program. "Employees feel comfortable devoting part of their workday to exercise when [senior managers] are regularly seen jogging or lifting weights," says Scibelli.
FP&L does rely on vendors—Jupiter Medical Center in Jupiter, Florida, and Whole Health Management in Cleveland—to provide health-management services so that employees feel assured of their privacy. WebMD provides an Internet interface that gives employees options for dieting and behavioral-change programs.
Despite these claims, quantifying the savings from a wellness program can be difficult. If their programs don't show a positive return, companies rarely own up to it, says Ron Goetzel, vice president of Medstat, a health-care information and research firm in Ann Arbor, Michigan. And most reported that results are anecdotal rather than based on scientific studies. "Today there still is no standardized method that's accepted for measuring the ROI across the health continuum," says Sue Willette of Mercer Human Resource Consulting.
Another problem is that "employees represent only 50 percent of your health-care costs," observes Dee Eddington, director of the Health Management Resource Center at the University of Michigan. "Spouses and dependents are covered by plans, too," although they don't participate in the health-management programs, Eddington says.
Nevertheless, most companies see tangible savings on health insurance if they run good health-management programs. Steven Aldana, a professor at Brigham Young University in Provo, Utah, says that of 32 studies looking at health-care savings through health-promotion programs, only 4 failed to show positive results.
The size and timing of the results are debatable. Aldana estimates that every dollar spent on health-promotion programs will yield $3.50 in avoided future health-care costs before 3 years. Other estimates aren't as bullish. Watson Wyatt's Bruce Kelley pegs the ROI at $1.50 for every dollar spent in the first 3 years, with the ratio cresting at $3-to-$1 between years 5 and 10. Joe Marlow, senior vice president at Aon Consulting, puts it at $2-to-$1 between years 3 and 5. Some vendors also tie the cost of the programs to performance guarantees. As much as 40 percent of the cost can be tied to meeting certain fiscal goals, says John Harris of Harris HealthTrends Inc. "It used to be 5 percent, but it has gone up lately," he says.
One of the difficulties is that results can take years to materialize and affect only a small portion of the workforce. "If the average overall risk score decreases by 6 to 12 percent per year of the program, that's a great total," says James F. Fries MD, director of the Koop awards and professor of medicine at Stanford University School of Medicine. But if executives expect overnight improvements, they will be disappointed. "Real health changes can take up to a year, and the financial impact takes longer to see—from two to four years," he says. Fries has identified five areas that he believes generate the most immediate results (see sidebar, above). He suggests, for example, that corporations purchase prenatal-care programs. "Low-birthweight babies cost $500,000 each. If you can prevent even one or two, that's a huge savings," he says.
The Privacy Issue
But some employees bristle at the prospect of their employers keeping tabs on their health if it doesn't affect their work. What if employers started requiring workers who smoke or are overweight to pay higher health-care premiums? Could the health status of a worker be used as a deterrent to promotion?
To allay these concerns, most companies with health-management programs have made participation in them voluntary. And most rely on third-party providers to collect health information and to keep it private. "In their initial communication to employees, companies make it clear that the contractual relationship precludes the vendor from sharing information," says Watson Wyatt's Kelley.
So far, employers seem to be doing a good job of handling the privacy issue. "With the Health Insurance Portability and Accountability Act bona fide wellness-program guidance still in proposed form, there have currently been no published cases focusing on discrimination issues with regard to employer-sponsored workplace wellness programs," says Amy Gordon, a partner at law firm McDermott Will & Emery LLP in Chicago. However, she adds, those cases could take years to show up in the court system.
The popularity of wellness programs could also get a boost from Congress. A bill proposed by Sen. Tom Harkin (D Iowa) would provide employers with a 50 percent tax credit of up to $200 per employee for implementing health-promotion programs. (With the focus in Congress on Social Security, the bill faces an uphill climb toward passage.)
In the meantime, the need to soften the pain of soaring health-care costs remains urgent. Whether health-management programs will truly ease that pain is one of the most pressing benefits questions today.
Ilan Mochari is a freelance writer based in Cambridge, Massachusetts.
Five Areas to Target For Quick Health-Care Savings.
1. Doctor-Visit Guidelines:
Provide employees with guidelines on when to see a doctor. By steering employees to doctors when they should go, you could head off more serious problems later. Encourage regular checkups to avoid the neglect that often leads to the enormous future expense of surgical procedures.
Get your employees to think positively about themselves and taking charge of their own health. If employees start monitoring their own health, they may begin to lead lifestyles that offer the fiscal advantages of preventive medicine.
3. High-Risk Employees:
If an employer can reach employees who are at heightened risk of a heart attack or lung cancer in the first year of a program, the cost savings will be immediate.
4. Disease Management:
Target employees with chronic diseases, such as diabetes, heart failure, asthma, and emphysema. Early intervention minimizes surgeries and hospitalizations.
5. The First Year Of Life:
The medical intervention necessary for low-birthweight babies averages $500,000. Good prenatal programs can help prevent that.