The Art and Science of Health Incentives
The concept of paying an employee to get healthy once struck many employers as counterintuitive. Why, they reasoned, would we reward our workers for doing something they ought to do anyway — especially if it calls for participating in activities that might distract them from their jobs?
Then those employers got their health plan bills.
They noticed medical premiums costing them an average of $7,523 1 a year for individual coverage. They grew tired of average annual premium increases at least doubling and in some instances tripling the annual rate of inflation, with no end in sight.
They saw that chronic disease was costing them money — with high-risk individuals costing them an extra $3,000 to $5,000 a year in premium costs alone, not to mention missed work days due to illness
and resulting loss of productivity. They also learned that up to 70 percent of chronic illness is impacted by
behavior.
Employers began to see that managing health and productivity carried a financial benefit, and explored ways to implement a health and productivity mindset into corporate cultures. Suddenly, the notion of
providing employees with a small carrot for engaging in healthy behavior didn’t seem so strange; incentives became a tool in the arsenal for investments into producing a healthier, more productive workforce.
Hard data is beginning to provide evidence. In a recent survey by PricewaterhouseCoopers of 135 top executives at large U.S.-based multinational companies, 76 percent said they see a link between their employees’ health status and their productivity. 2
A recent survey of 450 major U.S. employers by Hewitt Associates indicates that 70 percent of companies offer or plan to offer tools, resources and/or programs to help employees manage their health better.
3 According to one recent investors report, “incentives have evolved from a ‘nice to have’ to a critical component in an effective population health management program.”4 Indeed, in the past decade, incentives for achieving or maintaining health goals have grown in popularity to the point that the number of very large employers who do not use incentives to motivate healthy behavior is dwindling.
Employers are seeing the payoffs — a healthier workforce, fewer sick days, lower health premiums. Put simply, incentives — including prizes, gift cards, health premium credits, gym memberships and cash — are paying dividends.
But as the healthcare marketplace in general has matured — along with information technology offerings and employee expectations — the concept has grown more complicated. Where it once was considered acceptable simply to offer a gift card to all employees who promised to lose weight, today’s market has grown so sophisticated as to demand multi-tiered, complex, integrated health and productivity management programs — featuring incentives.
Things to Consider
While incentives are clearly growing in popularity, many employers, especially mid-sized companies, are only now beginning to consider them. They face a dizzying array of choices. Monetary or non-monetary awards? How much do we reward, and for what? How do we know what our employees’ health
challenges are? Which way to turn?
When implementing an incentives plan there are several issues to consider. Experts caution that these issues should be explored carefully before commencing an incentives program.
“There is an art and a science to this,”cautions Sue Willette, Principal and National Leader of Mercer Health & Benefit’s Health and Productivity Management Specialty Practice.
1 Identify what type of behavior you’re trying to incent
Why are you considering an incentive program in the first place? To drive participation in a health management program? To encourage actual behavior change? Has your claims data revealed a specific problem that needs to be addressed?
“Clearly defined goals are critically important,” says Sue Lewis, Senior Vice President of Health and Productivity Solutions for IncentOne. “A company needs to identify what exactly it’s trying to achieve and why.”
In considering and evaluating an incentives program, due diligence requires that you analyze the health
and wellness status of the employee population. Many employers start with a health risk assessment (HRA) to achieve this, but it is clear that even encouraging employees to complete the HRA requires an incentive.Willette advises,
“Stakeholder input is important so you may wish to survey your employees or convene focus
groups to figure out what exactly their health and wellness concerns are.”
You can start small — you don’t need to have a fully integrated health and productivity management program in place to encourage healthy behavior, Lewis advises, “That incentivized HRA can and often does become a critical foundation in building a program.”
For health and productivity management program purposes, Lewis classifies consumers into one of three categories: high-risk, at-risk, and low-risk. Incentive programs can be designed to address all three
risk categories.
“The strategic goal of health incentives aligns with those of HPM programs, which is to help keep
the low risk population at low risk and keep the at-risk and high-risk group from moving into higher, more costly risk categories. The incentive models are starting to differ by risk segment as well,” Lewis adds.
As you begin to understand the needs of your employees and design a health program accordingly, figure that your incentives goals will change over time.
“Incentives should not be considered a static thing,” Willette says.
For instance, in a brand-new program, simply completing the HRA may be the goal; in Year 2, the goal may shift to engaging in a disease or health management program based on information gleaned from the HRA and claims; in Year 3 and beyond, goals may evolve to include reinforcing sustained engagement in the disease or health management program and compliance with treatment regimens.
2 Understand what will motivate your employees — and what won’t
Do incentives work? Yes, but some incentives work for some employees better than others. Understanding what will drive behavior change among your employee population is critical. For instance, Mercer’s experience and industry data indicates that a company trying to get its employees to complete
an HRA without incentives may achieve up to 20 percent participation; a well-executed incentives program giving rewards of approximately $100 per employee, coupled with a solid communications strategy and some workplace activities associated with it can drive participation rates up to 50 percent.
Increasing the threshold to $250 per individual has driven participation rates above 70 percent. However, and this is where it gets difficult, not all employee populations are the same. Some employees will find great value in a $100 gift card; others will more likely appreciate a $250 contribution to a Health Savings Account.
It depends upon the needs, corporate culture and often education level of your employees. Gift cards have traditionally been a popular incentive for health and wellness programs.
“They’re very well understood by consumers,” Lewis says.
That said, contributions to medical premiums and medical premium discount models are rapidly growing in popularity. Lewis offers some common rules of thumb:
•Immediate gratification is more powerful than a delayed reward. When possible, provide some
portion of the incentives at the point when the person is taking or completing action, not at the end of the
quarter or year.
•Incentives below $100 per participant generally do not have the impact on participation to affect the
overall HPM program objectives of population risk reduction. Disincentives — punishing employees for
noncompliance — generally do not work well and they tend to sour employees’ experience.
3 Identify your preferred method of incentives
After you identify what behaviors you want to encourage, you must decide on what incentives you want to provide.
“There are many more incentive options today for employers to consider for wellness programs” Lewis
says. She identifies four basic kinds of incentives to be considered:
Non-monetary Awards
•Gift cards from national retailers
•Brand-name merchandise
•Travel packages
•Gas/phone cards
•Foods
•Personal services
Monetary Awards
•Health Savings Account contributions
•Health Reimbursement Account contributions
•Medical premium contributions
•Discounts
Health Rewards
•Condition-specific rewards (e.g., glucose monitor)
•Fitness, health and beauty or recreation products
•Prescription discount cards
•Condition management resources
•Educational materials
Debit Cards
•Universal
•Filtered
4 Choose a vendor smartly
Many vendors can design a program, keep track of participants and administer gift cards or debit cards to
participants. However, depending on the size and complexity of your incentives program, you may need more from your vendor.
“You want somebody who can integrate all of the program data, track participation, goal achievement, delight and engage the end-user over time and essentially grow with you, scale with you as your program evolves,”Lewis says. Ideally, a vendor should be able to offer three things:
Incentive business intelligence
The vendor should be a seasoned partner who understands your business and has a track record for uncovering what works (using research, case examples, customer experience, tracking reports and monitoring of secondary data) in the use of incentives for health behavior change. The choice of
incentives — monetary or non-monetary, one-time awards or an ongoing points-based system — are components of incentive business intelligence.
Says Willette: “Employers should look to the vendor as a niche expert. Employers don’t always have consultants; they should be able to rely on an incentives vendor to give expert advice.”
Incentive administration
Look for a partner with the capacity to integrate incentive administration and reward redemption capabilities for all types of rewards, from gift cards to debit cards to medical premium contributions. A
vendor should also have the expertise to administer all health activities and associated processes, to include employer-specific customization, data integration, real-time tracking and reporting, payroll integration, the ability for employees to self-report activities and integrated communications tools.
Lewis advises that this is where a vendor can alleviate the “pain” of administering these vital components.
Incentive technology
Today’s health and productivity programs are sophisticated. You will likely tweak and evolve your programs, adding components and dropping others over time. The changing mix of disparate vendors, data and programs creates the need for a single, robust technology platform to knit programs together.
Integration and flexibility are at the heart of that platform — including the ability to integrate Web-based
technology with client systems, such as payroll and accounting, and with other Web products. Technology will also enhance the communications strategy.
Willette advises that you need to look for a vendor with the flexibility and breadth to provide different kinds of incentives; experience in working with multiple service delivery partners; and an IT platform robust enough to handle changing needs.
5 Communicate, communicate, communicate
Employees need to know exactly what they’re being encouraged to do. Employee communications must
be simple, direct and comprehensive. This is critical — an incentives strategy will fail if it’s not supported by a thorough communications program.
“If rules are not clear and people don’t get the reward they thought they should, it will create confusion, resentment, even anger, and totally undermine the purpose of offering incentives to begin with,” Willette says.
It may seem simple but this is an area in which any incentive programs fail. The rules can be too complicated or expectations can be easily misinterpreted. Start early, announcing the incentives program in a way to make it stand out as something new and different. And keep the notices coming — communication should be ongoing, with regular updates to advise employees of new developments.
How to communicate? Use as many ways as possible — an employee portal through a web site or Intranet site, written materials, employee meetings.
“A solid communications strategy uses multiple forms to get the message out over a sustained period of time,” Willette says.
According to Lewis, communications-related keys to success to effectively implement an incentives program to maximize effectiveness include:
•An integrated communications platform for all health programs
•A communications plan development and execution
•Condition, audience and seasonal communications tools; and automated rules-based communications
6 Adopt a culture of health in the workplace
A good health and productivity program must allow employees to actually do the things that incentives are
encouraging them to do — otherwise, the disconnect will be fatal.
“This won’t work unless there is a culture and environment that supports health. The top of
the organization needs to be engaged and put a supportive stake in the ground,” Willette says.
For example, an employer offers a discounted membership to a local gym to employees who commit
to a weight-loss program and maintain their weight for a period of time. The program could be undermined if the employee cafeteria does not feature healthy lunch options.
In addition, if employees are not granted time to use their gym memberships, the incentive becomes
meaningless. “I need my managers not to be a barrier to participate in the incentive, but to be an advocate,” Willette says.
Tactics to achieving this include tying a middle manager’s compensation (in the form of a bonus) to participation in the health management program, or ensuring that health is discussed along with safety
during OSHA-mandated safety meetings as appropriate.
Trends
According to Hewitt, 32 percent of large employers surveyed are currently using incentives for employees
who participate in wellness or other health-related initiatives. In addition, 16 percent are in the process of
adopting these this year and 45 percent are considering for a future date. Clearly, the trend is on the
rise — driven by rising costs and chronic disease.
But, just as an individual employer’s incentive program ought not be stagnant, the industry in general is growing.
Some trends:
Incentive contributions tied to medical premiums.
This is growing in popularity as employees consider consumer directed health plans, which carry
a high deductible. “As plan design becomes tied to healthy choices and healthy behavior, this model
has shown promise,” Lewis says.
Tying incentives to actual outcomes.
Whereas incentives once encouraged participation in a
program, there is growing interest now in rewarding the outcome rather than the attempt — for
instance, in rewarding weight loss rather than enrollment in a weight loss program.
Extending an incentive program to spouses and dependents.
While this can get costly quickly for an employer, it pays off because a support system at home can be a
powerful motivator. “We all know that having a network participate in a program with you can make a big
difference,” Lewis says.
Expansion of incentives to other areas besides health.
Termed “total rewards management,” this trend integrates rewards or points earned for participation in a health and productivity management program with those earned in other arenas — including, for example, quality improvement, attending corporate seminars or meeting sales objectives.
Conclusion
Everything about health care is changing — how it’s provided, how it’s paid for, how it’s administered and how it’s regulated. Making sense of the changing landscape is a full-time job. Managing population health is but one aspect of the changing health care landscape and incentives are but one aspect of managing health.
But as chronic disease continues to afflict a rising number of Americans, and as health costs rise, employers are increasingly looking to programs to mitigate the costs and the health risks. At one end of the scale, employers are said to be interested in getting out of paying for health care altogether — although recent studies by Hewitt and others indicate that employers view health benefits positively and want to continue to provide them.
Just as health benefit plan design features have been used and modeled to avoid utilization of services, health incentives can be used to avoid costly care — not through cost shifting or erecting barriers to care, but through positive reinforcement by investing in the health of the individual.
“At their core, incentives are a mechanism to create or reinforce positive health behaviors,”Lewis says. “Complying with a medication routine, getting the annual screening, keeping children up to date on their immunizations — incentives are a tool to encourage this. And incentives do work.”
1 Mercer National Survey of Employer-Sponsored Health Plans 2006.
2 Survey by PricewaterhouseCoopers’ Management Barometer and PWC’s Health Research Institute. April 2006. Information
available at: www.pwc.com/extweb/ncpressrelease.nsf/docidFD126764F4A20F728525714C0061D9CA.
3 “The Road Ahead: Emerging Health Trends 2007 survey by Hewitt Associates. Available at www.hewitt.com.
4 “Health & Wellness: Accelerating Trends and Emerging Themes,” a TripleTree Industry analysis, available at www.triple-tree.com.
About the Authors
Sue Lewis
Sue Lewis is Senior Vice President of Health and Productivity Solutions for IncentOne. Ms. Lewis has over 18 years of experience in the healthcare and population health management industry offering a broad range of knowledge and expertise.
Prior to joining the IncentOne, Ms. Lewis was Vice President of Strategic Business Development for
Optum, a Specialty Health Division for UnitedHealth Group. At Optum, Ms. Lewis specialized in
partnership and acquisition development, sales management, product development and product
management.
Prior to joining Optum, Ms. Lewis was Senior Vice President of Sales and Marketing for Gordian
Health Solutions, a leading population health management company. Ms. Lewis is a member of the Health Enhancement Research Organization (HERO) and is actively engaged in numerous organizations that focus on health and productivity management. Lewis earned her B.S. degree from the University of Vermont and her M.Ed. from The George Washington University.
Sue Willette
Sue Willette is Principal and National Leader of Mercer Health & Benefit’s Health and Productivity Management Specialty Practice and a specialist in the use of incentives for health and productivity management.
