Employers Weigh Health Care Strategies

A growing number do more to mitigate costs and improve employee health

By Stephen Miller Mar 18, 2010

Despite the uncertainty of health care reform, most U.S. employers are continuing to make investments that will improve the long-term health and productivity of their workforce, according to a survey by consultancy Hewitt Associates. But while companies are well-intentioned, Hewitt said, its survey shows most are just beginning to consider and implement the types of strategies, tactics and goals that will create positive and sustainable improvements in employee health and constrain escalating health care costs.

Hewitt’s health care trends survey was conducted from December 2009 through January 2010 among nearly 600 large U.S. companies representing more than 10 million employees. When asked about their future approach to health care, more companies (80 percent) said they plan to focus on improving health and productivity in the next three to five years. Almost all (95 percent) say managing costs is a top business issue, up slightly from 91 percent in 2009. This concern is not surprising; Hewitt’s research shows that total health care costs (including employer cost, employee payroll contributions and employee out-of-pocket expenses) have more than doubled in a decade—from $4,793 in 2001 to $11,058 in 2010—and are expected to continue increasing over the next 10 years.

“The harsh reality is that with or without comprehensive health care reform, employers remain on course for having the same or greater cost and employee health problems over the next few years as they have in recent years,” said Jim Winkler, leader of Hewitt’s U.S. health care practice. “Employers know they aren’t getting results using traditional approaches and are taking steps to reverse that trend. However, they still have a lot of work to do to get on a path where they’ll see positive, sustainable changes that really move the needle.”

Developing a Health Care Strategy

The survey reveals fewer than half (42 percent) of employers have a formal policy or strategic health care plan in place. “Health care is one of the biggest expenditures for a company, yet most organizations don’t have a formal plan that outlines their program’s goals and ties them to business objectives,” said Ken Sperling, leader of Hewitt’s global health care practice. “This makes it easy for companies to revert to traditional, less-sophisticated cost-cutting tactics when things get tough and short-term challenges need to be resolved.”

Despite a minority of companies having a formal overall strategy in place, the survey finds a growing recognition among employers that programs and tactics, tailored to an employee’s specific needs, will provide them with the best foundation for change. These programs and tactics are often built on existing targeted initiatives. For example, disease management and health improvement programs continue to remain a priority for employers. More than half (53 percent) of companies have a disease management/health improvement strategy. Of those that don't, 11 percent plan to implement one in 2010 and another 75 percent plan to implement one in the next three to five years.

Laying the Groundwork for the Future

The top health improvement strategies on employers' radar, according to the survey findings, are described below.

Increasing the focus on improving physical and mental health.

While still emerging, there is an increasing interest among employers to incorporate mental health and absence management programs into their health and productivity strategy:

Just over a third (35 percent) of companies incorporate behavioral health programs (e.g., employee assistance programs or targeted networks of mental health specialists) into their strategies, while more than half (58 percent) are planning to do so over the next three to five years.

Less than one in five (19 percent) consider absence management as part of their current health and productivity strategy, while 56 percent plan to incorporate it over the next three to five years. (SeeGauging—and Improving—Employees’ Short-Term Disability Experience.)

Using incentives and penalties to encourage participation.

To encourage participation in health care programs:

More than half (58 percent) of companies offer incentives to employees and a quarter (24 percent) extend these incentives to spouses and/or family members.

The number of companies offering cash incentives for completing a health risk questionnaire in 2010 almost doubled from 2009—from 35 percent in 2009 to 63 percent in 2010.

In addition, 37 percent of companies provided cash incentives for participating in health improvement and wellness programs, up from 29 percent in 2009.

Penalties, such as higher benefit premiums or deductibles, are also emerging as a popular tactic:

Almost one in five (18 percent) employers use penalties, and 29 percent said they will use them in the next three to five years.

Smoking and failure to participate in disease management programs are the most common behaviors where penalties are deployed.

“It’s important for employers to tie incentives to steps that require actual behavior change,” said Winkler. “Giving a diabetic $100 to complete a health risk questionnaire may identify that diabetic as high risk, but it won’t do much to ensure he/she is taking steps to exercise, eat properly and get preventive care. Employers with programs that require workers to demonstrate these sustainable behaviors before receiving an incentive will have a more meaningful impact than those that base the reward on one-time actions, such as signing up for a disease management program.” (See Size and Scope of Wellness Incentives Grow Larger; also see box below.)

Considering the diverse workforce.

Nearly 60 percent of employers said they take the diversity of their workforce into account when they design and communicate their plans. “Leading-edge employers are beginning to use this information to understand cultural nuances in the use of health care services as well the role of the extended family in health decisions,” said Sperling. “They can then change their approach to employee communication, how they provide access to on-site services and how they offer family vs. individual incentive programs to drive positive behavior change.” (See Focus on Business to Achieve Diversity Strategy.)

Measuring success through behavior change.

The majority of companies continue to measure the success of their health and productivity programs by how well they manage medical costs (58 percent) or by how well their programs are being used (57 percent). However:

Just 19 percent measure employee behavior change, and 15 percent measure behavioral modification.

Employers expect to reverse this emphasis in three to five years. More than half (53 percent) said they plan to measure employee behavior change and/or behavioral modification in the next three to five years.

“The way employers intend to measure these programs over the next three to five years is encouraging and shows they are thinking about moving beyond short-term financial tactics,” said Sperling. “Measuring clinical changes in health risk, for example, can help employers gauge whether these programs are actually changing employee behaviors and ultimately leading to longer-term cost mitigation and improved employee health.” (See Employers Change Health Benefits to Cut Costs, AlterBehavior.)

More Employers Raise Bar on Financial Incentives,

Adopt Consumer-Directed Plans

While employers remain committed to offering health and productivity programs, they are frustrated by the inability of many workers to change their health habits. In an effort to encourage healthy behaviors, a growing number of employers are tightening their requirements for workers to receive financial incentives, according to the 15th Annual NBGH/Towers Watson Employer Survey on Purchasing value in Health Care, conducted by consultancy Towers Watson and the National Business Group on Health (NBGH), a nonprofit association of large U.S. employers. Survey questions were fielded from November 2009 through January 2010, with responses from 507 employers of 1,000 or more employees that employ 11.5 million workers.

For many employers, participation is no longer enough to earn an incentive, the survey found:

In 2010, more than half (53 percent) of large U.S. employers offer financial incentives to workers who enroll in health engagement activities, such as weight management and smoking cessation programs.

More than one-third of employers (37 percent) reward only those workers who meet the company’s requirements for completion of a health engagement activity.

Almost one-third (29 percent) only reward members who participate in multiple activities.

Still, most employers (93 percent) have no plans to eliminate their health promotion programs, and 83 percent have no plans to cancel or delay adding new ones.

“Employers are frustrated by their employees’ low use of expensive health improvement programs,” said Ted Nussbaum, senior consultant at Towers Watson. “As employers continue to empower workers to be more health focused, they are beginning to target and reward those workers who demonstrate a real commitment to making positive lifestyle changes.”

Cost Controls

The NBGH/Towers Watson survey showed that employers demonstrate dramatic differences in their ability to keep health care cost increases in check. The survey identified a group of “consistent performing” companies that have held cost increases below the median trend for the previous four years:

Consistent performers experienced a median cost increase of just 2.1 percent over the last four years compared with 6.8 percent for all companies.

Consistent performers separate themselves from poorer performing companies in five areas:

Appropriate financial incentives.

Effective information delivery.

Metrics and evidence.

Quality care.

Health and productivity.

Consistent performers spent $6,536 per employee on health care benefits in 2009—nearly $1,200 less per employee than for all survey respondents.

“Employers can learn from the companies that consistently hold down health costs year after year,” said Ron Fontanetta, a senior consultant at Towers Watson. “These employers are doing more than just making temporary changes to individual programs. Consistent performing companies offer a wide array of integrated health initiatives and appropriate financial incentives. Over time, the savings are significant.”

Turning to Consumer-Directed Plans

Interest in consumer-directed health plans (CDHPs) continues to expand among employers and their workers:

Just over half (54 percent) of companies offer a CDHP in 2010, and that number is expected to grow to 61 percent in 2011.

Nearly half (46 percent) of companies that offer a CDHP report at least 20 percent of their workers enrolled, an increase of nearly 70 percent in five years.

Companies with high levels of CDHP enrollment report lower costs:

Those with at least 50 percent of their workers enrolled in a CDHP report average annual costs per employee of nearly $1,000 less than at non-CDHP companies.

Nearly 60 percent of survey respondents indicate their workers pay premiums that are at least 30 percent less than those for traditional co-pay plans.

Other findings include:

In 2010, 38 percent of companies will offer a health savings account (HSA), with an additional 7 percent expected to do so in 2011.

In 2010, 46 percent of employers will provide coverage for use of retail clinics, up from 36 percent in 2009.

In 2010, 57 percent of employers will encourage plans and service providers to give workers access to online medical records, up from 54 percent in 2009.

Stephen Miller is an online editor/manager for SHRM.

Job Finder

Find an HR Job Near You
Post a Job


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect