Toward a Healthier Bottom Line

The concept of "guaranteed ROI" is central to the appeal of health incentives, IncentOne President and CEO Michael Dermer says.

• By Jerry Laws
• Sep 15, 2008

Employers increasingly use incentives to motivate their workers to participate in health and wellness programs.Participation is only half of the story, however: A greater variety of incentives is being offered, and more of them are awarded for completing a program (such as weight loss, smoking cessation, or a health risk assessment) than in the past.

These key findings come from the June 2008 “Employee Health & Productivity Management Programs: The Use of Incentives” survey of members of the National Association of Manufacturers and the ERISA Industry Council, which sponsored the survey with IncentOne, a Lyndhurst, N.J., incentive company that is among the leaders in health and wellness incentives. Health2 Resources conducted the Web-based survey in April and May 2008,with 281 respondents representing 225 companies participating in it.

Their responses indicate 77 percent of the companies offered health and wellness programs this year, up from 72 percent last year. The companies’ use of incentives as a component of their health and wellness and also disease management programs rose from 62 percent in 2007 to 71 percent in 2008.

“While a water bottle and T-shirt were reward enough for participation in health & wellness programs a decade ago, incentives now mirror the sophistication, depth and breadth of the programs they reward and the audience they are trying to motivate,” states the report of the survey’s results. This is borne out by a surge in the use of gift cards, which were the leading choice among employers who used incentives for health and wellness and disease management in 2008, according to the survey. The top choice in 2007, reduction in the worker’s health care premium, fell to second place this year.

Respondent programs offering incentives this year are spending an average of $192 per participant per year on those incentives; only one in five respondents said their company is spending more than $300 per person. And among respondent companies that estimated the return on investment of their incentive-aided health and wellness programs this year, 83 percent said they achieved an ROI of greater than 1:1.

‘Incentives Are a Cornerstone’
IncentOne’s president and CEO,Michael Dermer, said his company saw an opportunity about five years ago to provide incentives aligned to the behaviors that drive health care costs for self-insured employers and health plans. Seventy percent of the targeted behaviors are driven by preventable, chronic conditions; the incentives will motivate a woman to follow her prenatal care, for example, or a man to get preventive screening and subsequent treatment if necessary, he said.

“We would talk at the C-level of large employers to decide what was the appropriate value to give to somebody for, let’s say, following your prenatal care, and then letting that individual select the appropriate reward,” Dermer said. “[Pricewaterhouse Coopers] came out with a study last year that said 84 percent of large companies’CEOs believe that incentives are the number one tool to drive health care costs.”

This study concluded few workers participate in corporate health and wellness programs, and executives believe incentives are the best way to boost participation. Dermer said after many programs were launched in 2005-2008 without incentives, their participation levels were below 25 percent.

“Now, CEOs understand about incentives,”he said. “Number one, without them, [the health programs they offer] don’t work.Maybe more importantly, and the great thing about incentives: You don’t write the check until somebody does what you want them to do. Unlike building the gym or having 24-hour nurse lines, where you incur the costs, but it’s not what we would call a guaranteed ROI. I think that’s what makes it compelling for CEOs. Incentives are a cornerstone for that very reason.”

Clients’ results back this up:

• 75 percent of eligible employees at Baystate Health of Springfield,Mass., completed a health risk assessment (HSA) within 50 days of the launch of its gift card incentive program. Sixty-two percent completed at least one health-related activity, and 13 percent reached the goal of completing four or more wellness activities.

• 66 percent of eligible employees at Kellogg Co. of Battle Creek, Mich., completed their HSAs, and 54 percent of participants in a smoking cessation program were declared smoke-free.

•More than 7,000 employees have completed HSAs at Providence Health & Services, a Seattle-based not-for-profit health system.

“Self-funded employers absolutely know the health conditions that drive their costs,” Dermer added. “They are spending significant dollars on health care. It probably continues to be a top five CEO issue. Last year, it was probably number one. This year, it is probably number one or number two, with energy.

“They purchase a series of programs, either directly through health providers or through their health plans, and in fact challenge their health plans to deliver programs and services, like smoking programs, and nurse coaching, and disease management, to address those specific conditions,” he continued. “For example, I might have a nurse line that calls a diabetic and reminds that diabetic to stay on their medication, monitor their glucose, and go for regular checkups. Large employers are very adept at purchasing those services. What we do is provide the incentives delivery mechanism aligned to the various services, for whoever they might purchase them for.”

“It’s not just incentives; it’s really a keen understanding of what the drivers of health care are,”he said.“When you’re talking about health care and the complex delivery mechanism here in the United States, value-added expertise is something that large employers and health plans demand.”

Employers’ health plans often cover employees’ family and dependents, and the incentives can work in the same way, he said. “It’s anything that hits their bottom line,” said Dermer, noting that family health issues can reduce workers’ productivity. “For your readership, that translates directly into things like absenteeism, presenteeism, worker’s comp issues, [and] safety issues,” he said. “One of the big cost drivers for large employers is back pain, and it relates to safety incidents, productivity, and things that land on the CFO’s desk.”

Calculating ROI
There are two components to return on investment: the ROI employers get on their incentives and the ROI they get on their health and wellness and disease management programs, said Dermer. “We try to look at it from a ‘guaranteed ROI’ basis,” he explained. “If we get 10 women to follow their prenatal care, we know that if those women don’t follow their prenatal care, two of them are going to have some incident, such as an emergency C-section that’s going to cost $50,000. So those 10 women that don’t get their prenatal care are going to cost $250,000. Ten women do get their prenatal care, and let’s assume you used $25,000 of incentives. They don’t cost $250,000; they cost $25,000. So it becomes a very clear, one-to-one relationship between the use of incentives and the return on investment.”

He noted plenty of data is available quantifying the impact of failing to follow recommended prenatal care, failing to maintain a healthy weight, and engaging in behaviors targeted by the employers’ programs. Regardless of the state of the U.S. economy, reducing workers’ compensation costs is always a goal for employers, he said. In fact, he said, Americans’ use of health care services increases when the economy is bad.

“Remember, so much of the cost here in the United States is driven by lack of prevention. And when your economic dollar is tighter, it’s even more difficult to get people to take preventative measures,” Dermer said. “So aligning incentives to those key things that are on the CFO’s desk is critically important.”

This article originally appeared in the September 2008 issue of Occupational Health & Safety.