Energizing Workplace Wellness Programs: The Role of Incentives and Recognition

 About this Research

This paper is based on a review of hundreds of research papers, book excerpts, essays, articles and case studies on workplace wellness, population health management, and preventative medicine from approximately 1985 to the present day. The material has been synthesized to present the most relevant material and findings on workplace wellness programs —including the use of  incentives and rewards and government initiatives and legislation aimed at workplace and general wellness— in as succinct and logical manner as possible.

This paper is intended mainly to serve as a synthesis of the current state of workplace wellness programs, and specifically, the use of incentives and rewards therein. This is not original research. Where recommendations and conclusions are offered, they are the opinion of the author and do not necessarily represent the views or opinions of the Incentive Research Foundation or its members.

The main objective of this paper is to present in one place the emerging landscape from which the reader may appreciate the complexity of the topic, the richness of positions and practices in place, and the variety of issues involved, all of which make workplace wellness a fascinating arena with real potential to create a better future for Americans and the nation.

 Executive Summary

Healthcare costs are escalating rapidly and globally, accounting for greater shares of the GDP of developed world nations—their threat to national economies exceeds any other single cost item. It is no wonder that individuals, families, employers, communities and governments are urgently seeking solutions. Most agree that the greatest potential lies in reducing the largely preventable conditions and diseases brought on by poor individual health choices. Between 70% and 75% of the $2.5 trillion spent annually in the U.S. on healthcare is invested in the treatment of preventable conditions, but less than 5 percent goes toward chronic disease prevention (Department of Health and Human Services, 2010).

The question is how to drive healthier communities and organizations. How can employers and governments help individuals change their behaviors to stop smoking, stop overeating, exercise more, wear seatbelts, consume less alcohol, get regular health checkups, take their medications and change their diets?

Among the most promising approaches is the use of incentives, rewards and recognition in the encouragement of healthy lifestyles and choices. A growing and compelling set of evidence exists which correlates well-designed wellness programs—which almost invariably include incentives and rewards—with better health and wellness outcomes.

A growing community of practitioners, experts and policy-makers favor the use of incentives to encourage not only participation in wellness programs but outcomes.  “Attainment” incentives (rewards based on achieving wellness objectives) operate similarly to auto insurance policies. If I am a reckless driver, if I drink and drive, if I disobey speed limits, etc. (and if I get caught) I expect to pay higher premiums and probably will. Likewise, if I smoke, drink excessively, don’t exercise and am obese, it might be fair that I pay more of my health insurance costs than a person who maintains their health.

Currently, under the 1996 Health Insurance Portability and Accountability Act (HIPAA), a group health plan may not discriminate among individuals on the basis of health factors by varying their premiums. Moreover, the law states that even where attainment incentives meet these standards, they must not exceed 20% of the total cost of an employee’s coverage (i.e., the combination of the employer’s and employee’s contributions).

The new healthcare legislation—the Patient Protection and Affordable Care Act (PPACA)—underscores the government’s belief that reasonable and HIPAA compliant attainment incentives are both ethical and effective. In 2014, the PPACA raises the cap on attainment incentives to at least 30 percent and up to 50 percent.

The research is convincing where incentives impact short-term participation in wellness programs. There is also compelling evidence that incentives are effective in smoking cessation, weight loss and in the amelioration of other preventable health conditions. Where the research remains inconclusive, is in the effects of incentive programs on promoting long-term, sustained wellness.

Because few controlled, long-term behavioral studies have attempted to determine whether people who receive incentives are able to maintain their short-term success long term — the ultimate goal of incentive-based prevention program — this remains the largest gap in incentives driven wellness research. Additionally, few attempts have been made to address how the design of an incentive program should be adjusted according to the demographics of the target population, such as insuring that low-income participants have equal opportunity to participate. Research initiatives into these areas would add value to the body of existing research.

Introduction

The term “wellness” is not defined or used consistently around the world. Generally, “workplace wellness” refers to programs designed to improve the health and well-being of employees (and their families) in order to enhance organizational performance and reduce costs (see also Appendices A and B). Wellness programs typically address specific behaviors and health risk factors, such as poor nutrition, physical inactivity, stress, obesity, and smoking. Wellness programs can also help reduce the incidence and severity of chronic illnesses such as asthma, diabetes, insomnia and heart disease. Employers often integrate their wellness initiatives with chronic disease management programs to provide a continuum of healthy lifestyle support.

Wellness programs raise awareness, provide information and education, and usually offer incentives that encourage employees and their families to adopt healthier lifestyles. These initiatives are most successful in a workplace environment that, at its core, promotes and supports health and well-being. The health issues that wellness programs generally target commonly lead to serious and expensive health problems and have a negative impact on workforce productivity. They are also, largely preventable.

The Scope of the Problem

For almost 50 years, healthcare spending has grown by 2 percentage points in excess of GDP growth across all Organization for Economic Co-operation and Development (OECD) countries. As a result, health care has become a much bigger part of most of these economies.  If current trends persist to 2050, most OECD countries will spend more than a fifth of GDP on health care. Even if the excess growth of health care spending over GDP is somehow cut in half, according to a 2008 McKinsey report,  “health care will, by 2100, be the world’s largest economic sector—and in many countries, the largest economic problem.” [1]

U.S. healthcare costs are growing at an even faster rate than the OECD average and much faster than inflation, the economy, or wages. Costs have increased 274 times since 1950 even though the average cost of all other goods and services increased only eight times. In 2009, combined healthcare spending in the U.S. amounted to $2.5 trillion, or 17.6 percent of GDP. The Congressional Budget Office predicts that if trends continue, healthcare will consume 25 percent of GDP by 2025 and one-third by 2040.[2]   For all this, the US ranks, at best, 37th in global life expectancy – in part due to a focus on treatment over prevention. (WELCOA, 2009)

Solutions to spiraling healthcare costs may be an economic survival imperative for the U.S. and many other nations. Certainly, accelerating healthcare insurance costs have become a critical, board-level issue for many U.S. organizations. Thus, the rise of workplace wellness programs and initiatives over the past two decades is no surprise. Yet the problem is far from solved. Despite the clear benefits to better health choices and individual wellness, America is an overweight, obese, inactive and sick nation.

The State of Workplace Wellness Programs

Costs: The Key Driver of Workplace Wellness Programs

The silver lining in the otherwise depressing American health scenario is that the vast majority of healthcare spending is avoidable. Americans and the populations of most “western” countries are largely responsible for their own poor health in the choices they make. This represents an enormous opportunity for improvement. Figure One illustrates the primary health risks of American workers.

Figure One: Health Risks per 100 Employees in the U.S.

According to Mercer HR research, health insurance reached an average of $5,646 per employee in 2002, up 56% from 1997.  From 1998 to 2008, the real average total cost of employer-sponsored health insurance for a family policy rose by more than 69 percent (Kaiser Family Foundation and Health Research and Educational Trust 2009). Appendix C summarizes the most common preventable health conditions and their costs.

As referenced above, the U.S. currently spends about $2.5 trillion per year on healthcare. If 75% of that is spent on preventable conditions, as many experts suggest, then the overall savings potential through preventative healthcare, including workplace wellness programs is almost $1.9 trillion dollars per year and this does not include productivity gains nor quality of life improvements for the workers themselves.

Current and Future Trends in Workplace Wellness Program Adoption

A 2008 survey by Hewitt Associates found that 93% of major companies (5000+ employees) sponsor some form of a worksite wellness program. The primary reasons cited for company sponsorship were: to promote health (45%); reduce health care costs (34%); improve morale (31%) and productivity (21%); and aid retention (32%) and recruitment of employees (28%).

In its 2010 analysis, Population Health Improvement: A Market Research Survey, the Care Continuum Alliance reported that “89 percent of surveyed health plans and health systems offer wellness programs. Further, 61 percent of current purchasers [of vendor-supported wellness programs or services] view wellness programs as a ‘must have’ within their organizations, and 89 percent of purchasers predict a trend toward more wellness programs within their organizations.[3]

While the studies may differ in their assessment of workplace wellness program adoption (likely due to varying definitions) they all point to a trend toward greater implementation of the programs over the past decade or so. The reasons for broader adoption of wellness programs are varied but include the compelling evidence of a strong ROI in wellness programs.

 The ROI in Workplace Wellness Programs

The short-term return-on-investment (ROI) for corporate wellness programs has been well-documented over the past two decades. Year-round comprehensive corporate wellness programs have shown savings-to-cost ratios of more than $3 saved for each $1 invested (see Figure Two). Documented savings based on meta-analysis of numerous research studies are observed in medical costs, absenteeism, worker’s compensation costs, short-term disability, and increased productivity.

Figure Two

Source:  American Institute for Preventive Medicine

Examples of positive ROI are plentiful even though most organizations do a poor job of tracking it. Below are some examples of typical ROI:

Johnson & Johnson, which started its first wellness program in 1979, saves an estimated $9 to $10 million per year from reduced medical utilization and lower administrative expenses in its Healthy People program. J&J reports that “Our focus on health and wellness among our U.S. workforce has helped reduce per-capita health-plan costs by $400 per employee per year (based on 2007 data) and significantly improved overall employee health and productivity.” [4]

• Citibank’s comprehensive health management program demonstrates that for every dollar invested in programming activities, $4.56 to $4.73 is saved in reduced health care costs.
• Union Pacific Railroad’s medical self-care program achieved cost savings of $2.78 for every dollar invested by reducing inappropriate emergency room and outpatient visits.[5]

In a meta-analysis of the literature on costs and savings associated with workplace disease prevention and wellness programs, Harvard researchers led by Katherine Baicker recently reported that medical costs fall by about $3.27 for every dollar spent on wellness programs and that absenteeism costs fall by about $2.73 for every dollar spent. (New England Journal of Medicine, 2009).[6]

In perhaps the most rigorous research conducted on workplace wellness program ROI to date, researchers for the MEDSTAT group followed over 8,000 employee participants of Johnson & Johnson’s Health & Wellness program for about nine years (five before the program and four after). Using regression techniques to isolate the impact of the wellness program, the researchers concluded that: “a well-conceived health and wellness program that focuses on prevention, self-care, risk factor reduction, and disease management can produce substantial benefits for employers and their employees. Utilization and expenditures may be reduced by better coordination of existing health and productivity management programs, with many of these benefits occurring in later years.” [7]

The most relevant question for organizations today appears not to be whether they should offer wellness programs, but according to Baicker and her colleagues, ”rather how these programs should be designed, implemented and evaluated in order to achieve the best outcomes.” [8]

The Role of Incentives, Rewards and Recognition in Workplace Wellness program design and in Driving & Sustaining participation and Interest

As above, preventable medical conditions represent an unsustainable drain on the nation’s finances. Workplace wellness programs address this challenge and normally achieve 300% or greater ROI. Thus, the more employees who participate in a wellness program, the more potential savings and the better their quality of life.

Hence companies have tried a variety of methods to increase employee participation, some of which have proven more effective than others. Mandatory employee participation, for example, may backfire. When a railroad company tried to require its track maintenance employees to do warm-up exercises, the workers threatened to strike unless the program was halted immediately.[9]

While the stick is sometimes appropriate, positive incentives, rewards & recognition have become a part of most wellness programs in the United States today – the rewards offered are both financial and non-cash (i.e. gift cards, merchandise, travel, time off, even simple praise).

The results of an Aon Hewitt survey released in June 2011 found that “the inability to motivate and change habits has prompted concern” among employers. The report cited 56% of respondents who said that “motivating participants to change unhealthy behaviors is the most significant challenge to accomplishing 2011 health-care program goals.[10]

According to Health2 Resources 2008 survey of the membership of the National Association of Manufacturers (NAM) and the ERISA Industry Council (ERIC) between 2007 and 2008, employers offering incentives for health and wellness or disease management programs, rose from 62 percent to 71 percent.[11]

Types of Incentives Used

By far the most common incentives are used to encourage participation in a wellness program including the upfront Health Risk Analysis (HRA) and for actions such as attending fitness classes, receiving immunizations and reducing or stopping smoking. Generally, rewards for participation range from cash to gift cards to merchandise. According to a 2007 report from the Kaiser Family Foundation, about 6 percent of firms vary premium contributions based on employees’ participation in wellness programs, up from 3 percent in 2005.  Differential premiums can be controversial, especially when they reward not only for participating in a wellness program but for outcomes or “attainment”.[12]

Some employers have begun varying the premiums paid by their employees for health insurance based on health outcomes or attainment of goals. This approach has been endorsed to some degree by Congress and the White House in the Patient Protection and Affordable Care Act of 2010 (PPACA) which permits employers to offer cash incentives to employees for participating in wellness programs and for reaching certain targets. Current law limits the value of wellness incentives to 20 percent of the total health care premium spent per worker. When the new rules of the PPACA go into effect in 2014, limits will go up to between 30 and 50 percent.

Safeway is perhaps the organization best known for the use of differential premiums as incentives for wellness and is reputably the model for the incentives component of the PPACA described above. Safeway has instituted a program with substantial differences in premiums, depending on employees’ healthiness. The company’s health care plan also uses differing premiums, based on various factors such as smoking, weight, blood pressure, and cholesterol levels. Employees are screened for those four items, and they receive a discount off the base level premium for each test they pass or standard they meet.

The attractiveness of Safeway’s approach (and the emphasis on differential premiums in the PPACA) is obvious. In theory, if one requires workers to pay higher premiums if they fail tests for measures such as smoking, weight, blood pressure and cholesterol, they will want to become healthier to reduce their costs. When they do, the employer gets a fitter and healthier workforce and reduces medical expenses and absenteeism. Employees benefit in the form of lower deductibles and premiums.

In practice, Safeway’s results are impressive in most areas but marginal in others. According to Safeway’s statistics, the proportion of employees classified as obese declined by five percentage points between 2005 and 2009, while the proportion who were overweight declined by one percentage point. Meanwhile, 40 percent of workers and spouses who failed the blood pressure test in 2008, passed in 2009; 30 percent of former smokers registered as tobacco-free, and 17 percent who failed the cholesterol test in 2008 passed in 2009.

The financial ramifications remain unclear. In the short term, Safeway admits its program probably boosts medical expenses at first because the screenings prompt people to seek treatment for newly detected problems.

International Truck and Engine Corporation uses participation and attainment incentives to encourage high Health Risk Assessment (HRA) participation and to triage employees into primary, secondary and tertiary health promotion/disease prevention programs. International’s smoking policy was a by-product of this initiative. Over half of the employees that identified themselves as smokers actively participated in the smoking cessation course or quit smoking entirely.

Longitudinal study results at International, consisting of three separate retrospective surveys initiated in 2000, 2002 and 2004 indicate five-year estimated savings of $13.4 million with an investment of $1.2 million, resulting in a net savings of $12.1 million. The investment costs include staffing, handbooks (plus the shipping and handling fees) training, communication materials, incentives (including participation and attainment rewards) and early detection screenings in 2000 and 2003.

Since International funded the cost of the initiative, the return-on-investment (ROI) for each year was calculated from the plan paid perspective. As such, the estimated plan paid ROI for the five-year period was $9.70 for each dollar invested.

ROI is not the only consideration, however. Writing in a recent issue of the New England Journal of Medicine, Harald Schmidt and colleagues argue that “[Attainment incentives] might be fundamentally unfair because they might be only technically voluntary, out of reach for the socio-economically disadvantaged, a burden on the doctor-patient relationship and, ultimately, a source of higher out-of-pocket insurance premium costs for the very people who can least afford them”.[13]

Nonetheless, 56 percent of employers plan to hold employees accountable for a larger share of health plan costs according to a 2010 Towers Watson study. With costs escalating, it is likely that employers will pursue attainment related incentives and disincentives aggressively within the bounds of the law. In addition to being convinced that such incentives work, some employers see a way to pay for their wellness programs entirely through this strategy.[14]

The debate over the use of incentives in promoting workplace wellness will no doubt continue for years to come. For most organizations, communities and nations, however, evidence of the ROI in incentives-driven wellness programs will be the determining factor in their use, and the evidence is mounting in favor of the use of incentives – for those using both cash and/or non-cash rewards.

A 1991-95 study of 714 employees of the county government of Salt Lake City, who participated in a Healthy Lifestyle Incentive Program (HLIP) offers additional evidence in support of the use of incentives. The program allowed participants to earn points for engaging in a healthy lifestyle — behaviors such as exercising, wearing seat belts, not smoking, reducing or maintaining desirable blood pressure, cholesterol and body fat levels, having routine preventive exams and engaging in various educational  activities on healthy lifestyle topics.

Annual rebates ranged from $75 to a max of $300 with an average of $102. Even though the rewards were modest, modifiable health risks were significantly reduced over time, both among higher and lower risk participants. Obesity prevalence decreased significantly among men and women. High cholesterol and high blood pressure, seat belt use, smoking cessation and physical activity all saw significant improvements over the 4 year period, despite setbacks, in some cases, from year to year.

The size and type of incentive or reward can matter also. At Johnson & Johnson, for example, voluntary participation in its wellness program increased from 26 to 90 percent when non-cash incentives were offered. For some people, cash rewards, unless significant, can be less meaningful than the “trophy value” of a merchandise type reward.[15]

More recently, in May, 2011, The American Journal of Health Promotion published the results of a longitudinal study conducted by Discovery Vitality in which 300,000 subjects were studied over a five year period. About 65 percent of the subjects participated in the Vitality Wellness program over the five year study, while about 35 percent did not.

The differences between the two groups were significant. Wellness program participants were more likely to join fitness activities and remain engaged in those activities over time. Those that were active in fitness activities experienced significantly lower hospital costs than those that were inactive.[16]

Whether cash or non-cash, setting the incentive level is a design science in itself. The right reward type and amount will vary based on the behavior change, participation objective or outcome desired and possibly by type of organization, employee cohort, or a range of other factors.

Research Gaps and Recommendations for Further Research

There is strong evidence that employees prefer to work for firms that offer effective and attractive benefit programs. However, though a minority, many employers are still reluctant to implement incentive-driven wellness programs – especially with meaningful incentive dollar values – because they believe a compelling “business case” for such investment has not been made or they fear developing a “culture of entitlement” where wellness and health outcomes aren’t driven by intrinsic motivations because participants learn to expect rewards for everything they do and achieve. To address this need:

• Further research is needed to determine which incentive structures and amounts are optimal, assess the ability of incentives (both contingent and intrinsic) to produce sustained behavior changes, and evaluate the cost-effectiveness of implementing incentive programs.

• Further research is required to determine the degree to which incentive rewards within workplace wellness programs promote robust, long-term behavior change and whether  (and to what degree) incentives that are linked to behavior outcomes result in greater ROI than incentives for participation.
• More research is needed to better determine the interaction between the intensity of interventions and incentives offered and the duration of a program as it relates to the level of ROI that can be expected.
• A constraint also seems to be with the low cash incentives used in programs. A study using higher rewards could be feasible if conducted in a low cost country.
• Future research needs to more systemically examine the contextual factors in the workplace, such as the culture, senior management commitment, marketing of the program and incentives to discover how they may be linked to participation in health promotion activities. The study might also address how the design of an incentive program should be adjusted according to the demographics of the target population, such as insuring that low-income employees have transportation to attend classes and fitness facilities.
• More research is needed on the optimal mix and level of cash (financial) and non-cash rewards. Does merchandise leave a longer lasting impression on recipients than cash? Do non-cash incentives drive the desired behavior and outcomes as well or better than cash? How can cash and non-cash incentives support the need to develop intrinsic motivations for wellness? To what extent do the tax implications of non-cash rewards impact employees’ acceptance of them in lieu of premium reductions and financial incentives that carry no tax liability?
• What role do broader societal and cultural attitudes play in workplace wellness? How might attitudinal change efforts impact larger populations and workplace wellness?

According the Care Continuum Alliance (CCA): it boils down to this question: “Did this program result in better health, lower health care costs and increased productivity and quality of life among those participating in the program?” From an incentives perspective it would be important to add: to what extent, if any, did the incentives and rewards component of the wellness program drive better health, lower health care costs and increased productivity and quality of life among those participating in the program? Other questions might include: Did some types and amounts of incentives and rewards have more impact than others?  Is the ROI in the use of incentives and rewards positive? Which types of incentives and rewards generated the greatest ROI?

In an ideal world a study to answer these questions would be designed with a randomized controlled trial (RCT) using control groups to test a variety of design approaches and interventions. This kind of study is rare for several reasons, cost and practicality chief among them. However, such a study would provide the best evidence of causality, the best estimate of effect sizes and ultimately the best evidence as to whether meaningful outcomes are positively affected by the use of incentives and rewards (and types) in wellness programs.

Conclusions

Most Americans are employed and spend a significant amount of their time at work. Therefore, workplace wellness programs play a critical role in addressing the nation’s costly healthcare system and in making Americans healthier, happier and more productive.

Paradoxically, despite an avalanche of health and wellness information in the press, on TV and over the world wide web (to name a few) Americans remain an unhealthy lot. The evidence is all around us that merely knowing something is bad for one’s health, or conversely, good for one’s health, is insufficient to motivate the majority of us to make healthier decisions.

This ubiquitous and very visual evidence is supported by a rich body of research and case studies which demonstrate that fewer than 1 in 5 employees will participate in a workplace wellness program that does not offer rewards (or sticks). On the other hand, more than 4 in 5 will participate where incentives and rewards are offered. Logically then, at least for the time being, rewards are an essential element of wellness program design.

The questions that remain are what rewards? What mix and amount of cash, non-cash, attainment-based and punitive-type incentives motivate workers most efficiently and effectively? And what mix works best for different types of workers? What incentives and rewards generate the greatest business impact and ROI?

These and other related questions remain open such that further research is necessary in order to guide organizations in creating the most effective workplace wellness programs possible.  Therefore, if you have interest in the support of, or participation in, further research on the use of wellness program incentives, please contact the Incentive Research Foundation: https://theirf.org/contact/