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Should Your Company Add a Wellness Program?

They've been touted as a way to lure talent and save on healthcare costs. But their usefulness remains to be seen.
illustration by Jon Reinfurt

As healthcare expenses consume a growing percentage of business costs, CEOs are clinging to the hope that workplace wellness programs can turn the tide.Wellness has become a $6 billion business, with about 500 U.S. vendors extolling the virtues of their programs. And companies are buying. About two-thirds of U.S. firms with at least three employees that offered health benefits in 2012 also had at least one wellness program, and nearly every company with at least 1,000 employees has a wellness program.

The No. 1 reason businesses invest in these programs is to control healthcare costs, which exceeded $12,100 per employee this year. Smokers cost another $5,800 in medical expenses and productivity losses. Obese men cost an additional $3,800, and obese women about $3,000 more each year.

But there’s a rub: The financial and health improvement of these wellness programs has yet to be proven. Billions are being spent on faith. And programs that offer incentives for good behavior may be rewarding people who are already practicing good health habits.

Few CEOs actually know whether the programs are working. Many simply think it is the right thing to do and don’t particularly care whether there is a return on investment.

Vendors often cite claims of program success and CEOs delight in recounting anecdotes of employees who lost more than 100 pounds and are now running half-marathons. Wellness programs should succeed because they attract highly motivated employees who essentially participate in company-funded self-help programs that pay bonuses for participation or modest success.

Their outcomes inevitably will be compared statistically with those of their unmotivated colleagues who will not take action to improve their health, even when offered money to do so.

That does not stop vendors from doing the math for executives. Al Lewis, co-author of the new book Cracking Health Costs: How to Cut Your Company’s Health Costs and Provide Employees Better Care, contacted three separate vendors who announced on their websites that their programs accomplished a mathematically impossible savings of more than 100 percent. (All three pulled down their claims after Lewis pressed them for more details.)

The Rand Corp. recently released an extensive study on wellness programs commissioned by the U.S. Department of Health and Human Services. It reviewed wellness programs at more than 600 employers and medical claims from the Care Continuum Alliance, a trade association for the health and wellness industry. Researchers compared the results of program participants to nonparticipants, and the results were modest: an average of only 1 pound a year for 3 years; no significant reductions in total cholesterol levels; and only short-term success on smoking cessation.

Consultant Tom Emerick, co-author with Lewis on Cracking Health Costs, has designed and run wellness programs for corporations such as Wal-Mart, Burger King, and BP. He said the Rand Corp. results reflect his experience.

“Medicalizing the workplace is a grand and noble experiment that has not been successful,” he says. “I designed a state-of-the-art anti-obesity campaign. The [participant] results looked good after 6 to 12 months. But when we looked again 2 to 3 years later, it looked like we never did anything.”

Although most employers believe that their programs reduce costs, only half have actually evaluated their impact financially and only 2 percent report actual savings estimates. The Rand Corp. study found cost reductions of 0.5 percent in the first year, increasing to 2.5 percent in the fourth year, but the decreases were not statistically significant. The average annual savings over five years was $157 per employee, compared with the typical program costs about $150 per employee. Essentially, it is a wash.

Baylor Health Care System’s director of health and wellness Leia Spoor said her company has been able to measure the impact of its program using actuaries to analyze its data warehouse of medical claims and demographic information. Medical costs for employees who actively participate rose 1.1 percent annually, compared with 9.9 percent of those who are not active.

Baylor uses both penalties and incentives. If employees are not screened by a physician or do not opt for an annual health-risk assessment, they face a $25 surcharge on their biweekly paychecks. On the other hand, employees who lose weight or maintain weight loss receive a $75 reward quarterly.

Brent Wolfe, director of benefits at Southlake-based Sabre Holdings Corp., said measuring medical-cost savings from wellness programs is difficult.

“What you are trying to capture is cost avoidance,” he said. “How do I know if employees will be as healthy without [wellness]? Our program is developed enough that I know what it costs me. Our employees appreciate the programs, and you can’t put a dollar amount on that.”

Marianne Fazen, executive director of the Dallas-Fort Worth Business Group on Health, said Sabre’s viewpoint is similar to that of other North Texas companies. Nearly all of her organization’s members have a program.

“Companies do it because it’s a good thing to do,” she said. “Their competitors are doing it. You build goodwill among employees and create a culture of health. But unless you are measuring outcomes, there is no way you can know what you are doing is linked to lower health costs.”

BJC Healthcare, a major St. Louis hospital, launched a wellness program in 2005. Employees could receive nearly $1,700 in extra health insurance coverage if they completed a health assessment. Smokers would have to sign up for a smoking-cessation class. Researchers looked at medical costs before and after the program began. There was a reduction in hospitalizations. However, that was offset by an increase in spending on pharmaceutical products and physician office visits.

The Affordable Care Act will expand employers’ ability to reward and penalize employees who do or do not meet health goals in wellness programs in 2014. Under the law, employers will be able to charge up to 30 percent higher premiums to workers who have health issues, and up to 50 percent more for smokers.

UCLA law professor Jill Horwitz examined wellness programs and found evidence that raised doubts that employees with health risk factors, such as obesity and tobacco use, spend more on medical care than healthier employees. Horwitz suggested that charging people with greater health risks more for health insurance could be a potential form of discrimination based on health status.

Employers traditionally have relied on incentive payments and other inducements to encourage workers to participate in wellness programs. However, a rising number of employers are using financial penalties to encourage participation. According to a 2012 survey by Fidelity Investments and the National Business Group on Health, 86 percent of employers were linking incentives to health-related activities in 2013, compared with 57 percent in 2009. A Mercer survey found that among large employers offering wellness programs, 42 percent used a financial reward as an incentive and 15 percent had a financial penalty.

Pennsylvania State University informed its employees this summer that they would face a $100 monthly surcharge unless they and their spouses completed a biometric screening and an online wellness profile and certified that they have had or will have a physical exam. CVS Caremark introduced a similar program, saying employees who get a health screening and complete an online wellness review each year would avoid paying an additional $600 in the current plan year.

Both Penn State and CVS said they would not have access to the health screening results.

It seems employees value workplace wellness programs, too. According to a Virgin HealthMiles survey, nearly 9 out of 10 employees consider a company’s health and wellness offerings when picking a job. And incentives matter. Nearly 2 out of 3 program participants say those incentives are a key reason why they participate.

However, there is a mismatch between what workers want for wellness and what employers are offering. More than 3 out of 4 workers want healthy on-site food choices and fitness centers, compared with only one-third of companies that provide either of these. On the other hand, one-half of workplaces offer smoking-cessation programs, but only 1 out of 8 workers are interested in those.

Emerick suggests CEOs concentrate on creating less stressful workplaces because that has been shown to create healthier workforces. He also urges companies to focus on the 6 percent of employees that typically consume 80 percent of a company’s medical costs.

“These are people with complex conditions who see multiple specialists and lack coordinated care,” he said. “About 10 to 20 percent have been misdiagnosed and about 40 percent are in wrong treatment plans. Companies are seeing hard-dollar payoffs by concentrating on these outliers, rather than spending 90 percent of the wellness dollars on the healthy 94 percent.”