Deep-Fried Costs

Health insurance is getting more expensive all the time. And it’s largely our fault. We smoke. We drink. We don’t exercise enough. We order French fries instead of fruit salad. We sit all day at our desk, staring at a screen. Then we drive home, sit on the couch and do the same.

Over time, our inactivity adds up.

Our unhealthy habits are a big reason why the average premium for family coverage has doubled since 2002, to nearly $16,000, according to the Kaiser Family Foundation. Treating smoking-related illnesses alone costs $1,850 per smoker per year, according to the National Business Group on Health. People suffering high stress rack up an extra $1,300 a year in medical and pharmacy claims, according to one study. And the rise in obesity has inflated total U.S. health spending by 10% over the last quarter century, according to a 2009 Business Group report. That’s $200 billion a year.

And it’s not just stressed-out, overweight smokers who are driving up the healthcare tab. Even among employees with a healthy body mass index, sedentary workers have medical costs 5% to 11% higher than “active” ones, according to a Business Group study.

These days more companies are trying to get their people up and about, sparking boom times in the world of workplace wellness. Spiraling health costs, easy new technology and even some aspects of the Affordable Care Act are driving companies of all sizes to launch programs that help their workers live healthier. And while wellness used to mean sticking a few treadmills in an empty conference room, today’s efforts include sophisticated biometric screening and subtle behavioral cues. Now many companies are wrestling with the question of incentives, even premium reductions, to nudge more employees to participate.

Not long ago, wellness programs were something of a novelty, says Kevin Herman, director of Worksite Wellness at Horton Benefit Solutions in Orland Park, Ill. Not anymore.

“The conversation has almost changed from, ‘Why would you do this?’ to, ‘Why wouldn’t you?’” he says. “And it has moved from the HR department to CFOs and CEOs.”

Success stories are multiplying. Take American Express. Four years ago, the credit card giant launched its Healthy Living program. It studied claims data on its roughly 60,000 employees and built on-site clinics to target local health needs. It brought in health coaches and dieticians and launched competitions between different locations to meet health goals. It revamped internal communications to focus less on top-down corporate-speak and more on employee success stories. Gradually, it has produced results.

Jim Dwyer, the company’s vice president of global benefits, says about 18,000 U.S. employees signed up for a walking contest last year. Roughly 8,000 who signed up for Weight Watchers lost an average of 11 pounds. When the wellness initiative started in 2009, Dwyer says, 70% of American Express employees classified as “low-risk” for health issues. Today that figure is just shy of 73%. The goal is 80%. These results already are having an effect on the bottom line for the company’s self-insured health plan.

“We’ve effectively controlled our healthcare expenses,” Dwyer says. “We do not have a lot of volatility any more in our costs.”

But exactly what to do and how much to spend doing it remains fuzzy. After all, this is about changing human behavior, says Dr. Ian Chuang, medical director at Lockton Benefit Group in Kansas City. That’s no small task.

“We’re dealing with people. People are unique,” he says. “This is not like software that you pull it off the shelf, run the setup wizard, and you’re good to go.”

Every workplace has a different culture, a different population and different health needs. What works wonders for one company may fizzle elsewhere, and it’s easy to spend a lot on programs that don’t actually lower health costs.

Marleece Barber, director or Health & Wellness and Chief Medical Officer at Lockheed Martin, says different wellness plans need to be applied even within the same company since people have different starting points, pain points and viewpoints. Culture must be considered, she says. And, she says, some woman, who spend a lot on getting their hair professionally styled, don’t want to see it ruined in the gym.

Jennifer Kurkoski, director of Google’s People & Innovation Lab, asks the question: “Can a wellness program be incorporated into our social data/digital programs? Can my Google thing or Apple app be programmed to identify restaurants wherever I am that provide calorie counts on menus? Can I set my search parameters to give me fast food places or other restaurants with low-cal options? How about hotels that have the kind of exercise I like, whether that’s a gym, a pool, or a walk-friendly outdoor garden or sidewalks?”

Both women made their remarks at this year’s TedMed Washington conference.

“Right now everyone’s very concerned with the dollar bottom line,” says Jessica Grossmeier, vice president of research at StayWell Health Management in St. Paul, Minn. “What’s the return on investment?”

“One thing we tell employers is simply ask: Did you improve health first? If you’re not improving health, you’re probably not going to get that ROI,” she says.

Grossmeier also urges patience. The big gains often come from preventing chronic conditions. That takes time. Most experts agree it often takes two or three years before the investment in wellness starts to pay off. When it does, though, the payoff can be significant. A number of studies have found $3 to $3.50 in cost savings for every dollar spent on wellness.

Bruce Elliott has seen those results. Elliott manages compensation and benefits at the Society for Human Resource Management in Alexandria, Va., and he freely admits to using the organization’s 375 employees as a lab for wellness programs.

Elliott starts with biometric screenings to get baseline data on body mass index, or BMI, cholesterol and other risk factors. He correlates that information with claims data on drug costs and procedures. Then he implements different wellness programs and watches how the results play out over time. In three years, he’s seen the impact.

“I’ve seen my average LDL cholesterol go down 25%,” Elliott says. “I know my average weight is down. I know what I’m spending for prescription drugs related to heart disease. If I can get one employee off a maintenance drug, maybe I’ve spent $500 on a nutritionist, but I’ve saved $3,000 in drug costs.”

Wellness is like any other piece of a business, Elliott says. You figure out your goals and how to achieve them, then measure and adjust. The key, he explains, is keeping a steady finger on the pulse.

“If you’re measuring on a regular basis, you can actually show what the ROI is,” he says. “It’s data that a CFO will absolutely love.”

The other key: employee buy-in. Nearly everyone agrees the first step in wellness is sending the message that wellness matters. That starts at the top.

“The more engaged the company’s leadership is in living healthy lifestyles and communicating that, the more people respond,” says Joe Woods at HumanaVitality, the wellness arm of the big insurer. “A company’s culture is so important in creating a culture of wellness.”

It’s also important to find people who can lead from the middle, says LuAnn Heinen, vice president at the National Business Group on Health. From among everyday employees, Heinen says, companies should develop “wellness champions” to recruit their colleagues and lead by example.

“This creates peer and social support,” Heinen says. “These are people you work with every day, not just someone coming in from HR.”

And there are ways to make wellness part of everyday work life. After all, plenty of us spend a third of the day (or more) at the office, so why not make the office a healthier place to be? This could mean investing in hardware, like standing desks, or instituting cultural changes, like the “walking meeting.”

Many companies are trying to make the cafeteria a healthier place to eat or are tinkering with the contents of the vending machine. And it’s not just about the products in the machine, but their placement.

“Place healthy foods at eye level and to the right of the machine, they’re more likely to be consumed,” says Beena Thomas, vice president for health and wellness at Optum, a health services provider. “That is not a cost to the employer. That’s just a conversation with your vending machine operator.”

Companies are experimenting with behavioral cues in other ways, too. Heinen knows of places where open enrollment includes a default fitness class. Then, when classes start, employees get an Outlook reminder.

“This is about being a little clever,” she says.

Sometimes, though, clever isn’t enough. Financial incentives can help boost participation, and some companies offer cash rewards for wellness results. That’s where things get complicated.

A survey by Fidelity and the National Business Group on Health found that 86% of companies offered financial incentives for wellness last year, up from 57% since 2009. In that time, the value of those incentives has doubled, to an average of $521 per employee.

These incentives come in many forms, from points that let you buy fitness gear to gift cards to cash to premium reductions. And they’re used both to encourage behavior—like signing up for a walking group—and, increasingly, to reward measurable outcomes, like lowering your cholesterol.

Research about their effectiveness is all over the map, says Grossmeier. While they’ve been shown to help get people to do one discrete task, like getting a flu shot, they’re too new to say if they really help change long-term behavior. And they can carry tricky side effects.

“We’ve been urging caution,” Grossmeier says. “It’s a good idea to look at incentives because there are good things that can come out of them. There are also a lot of ways to screw up.”

The biggest mistake companies make, says Stephanie Pronk, senior vice president for Clinical Health and Improvement Solutions at Aon Hewitt, is treating the incentives as the wellness program. “Really they’re just one component of it,” Pronk says. “Sometimes there’s this feeling that incentives are what it’s all about.”

It’s better, say Pronk and others, to build a culture around wellness first and then gradually introduce financial rewards to raise the bar.

But what to reward? To date, most incentives focus on getting workers to do something, like take a health assessment or participate in coaching. But more companies are exploring incentives for measurable outcomes—like lower BMI or glucose levels.

Nearly one fourth of the companies that responded to an Aon survey said they already provide financial rewards for improved biometric results. Two thirds said they would consider adding them within the next three to five years.

Tying health results to premiums sends an important message, Chuang says, that people’s choices affect the bottom line. It’s like car insurance, he says: Drivers with speeding tickets pay more.

“The premium differential is key,” he says. “It ties it all together. It tells the right story that the choices people make contribute to risk and that affects price.”

But other experts warn that companies going down this road should proceed with caution. “Employers will look at those as incentives, but employees don’t always see it that way,” he says. “It can be perceived as: ‘I smoke, therefore you’re going to charge me 10% more? That’s not fair.’ It can breed resentment.”

But nearly everyone agrees that use of premium-based incentives will grow. In Aon’s survey, 58% of companies said they plan to impose financial “consequences” on workers who don’t take steps to improve their health. And federal law will make it easier.

Rules being drafted under the Affordable Care Act would increase the amount insurers can offer as an incentive, or set as a penalty, for health behaviors. Already, smokers can be charged 30% more for insurance; that would rise to 50% next year. The allowance for other conditions, like obesity and high blood sugar, would climb from 20% to 30%.

Those are not the only changes coming. Social media and the explosion of smartphone apps have more companies looking at new tools to engage employees and track physical activity.

Digital devices, such as “fitbit,” clip onto clothing and track daily steps, distance and calories burned. Some of their devices track sleep cycles and can wake a person in the morning. The devices can sync with a computer or smart phone to provide more information on health and to motivate the wearer to be more active. Several insurers have added fitbit and similar devices to their wellness programs.

Fitbit is being promoted by The Council at this year’s Employee Benefits Leadership forum. Several other smartphone apps also help track food intake, exercise and various health-related aspects of life. Such devices can aid in changing to a lifestyle of healthy habits for a very small price.

Insurers are studying new ways to better integrate doctor visits into day-to-day wellness programs so that everyone, especially the patient, has a complete picture of his or her health.

“It’s not just going to be a trip to the doctor where you learn your cholesterol number,” says Dr. Thomas Van Gilder, national medical director for wellness at Humana. “It’s going to be a much more holistic, consumer-led experience.”

And even the nature of wellness is broadening, said Optum’s Thomas, from physical health to programs that boost financial and emotional wellbeing, too. She expects to see more programs on everything from maintaining mental health to managing your checkbook.

“Companies are trying to be more comprehensive about this,” she says. “Just understanding finances can often be a stress issue for many people.”

As more companies decide to promote employee health, wellness programs of all shapes and sizes will continue to grow. Throw in an aging workforce and more chronic health issues, and Chuang, for one, doesn’t see these boom times for wellness ending any time soon.

“This is not a fad,” he says. “There’s no going back.”