Finding the ROI in Wellness Incentives

Companies have been pouring money into employee health and wellness programs in recent years, and that's only going to increase as they cast about for alternatives to the well-worn tactics of increasing employee contributions and tweaking medical plan design to cut costs.

Whether these programs will achieve the success companies are counting on will largely depend on employees' willingness to participate and stick with them until they achieve measurable results. And that's far from a given. A recent PricewaterhouseCoopers survey of 561 U.S. companies in a wide variety of industries found that fewer than 30 percent of employees who are eligible to enroll in wellness programs -- smoking cessation, weight management, and stress reduction programs, for example -- actually do so.

Employees have been even slower to embrace disease management programs. These benefits have now "gone mainstream," says Michael Thompson, principal in PricewaterhouseCoopers' health and welfare practice; they're offered by around 60 percent of American companies. Yet less than 15 percent of eligible individuals take advantage of them.

On the positive side, the companies in PwC's sample that offer incentives for participation in their health and wellness programs achieved a significantly better response. For example, organizations that offered a reward for completing a health risk questionnaire experienced more than double the participation achieved by those that did not. "There are still many companies that don't offer incentives," Thompson notes, "but they believe that wellness programs will work, and they're willing to invest in the future."

There's no doubt that it's going to take more than t-shirts and coffee mugs to motivate employees to sign up for these programs, but the sums involved are not huge. Employers typically pay out between $100 and $300 per person per year, according to a recent survey of 225 U.S. companies conducted by the ERISA Industry Committee (ERIC), the National Association of Manufacturers (NAM), and IncentOne Inc., an incentive solutions provider.

Gift cards are the most popular type of incentive this year, offered by 28 percent of organizations with health and wellness programs, up from 17 percent in 2007. About one-fourth of companies offer premium reductions, and another quarter offer cash bonuses. About one-fifth provide merchandise, and 14 percent offer health account contributions.

So what are companies getting in return for their investment? Studies of the cost-effectiveness of wellness incentives are thin on the ground, although a 2007 survey of practices at 115 companies found a strong correlation between cash-based incentives and reduced health-care costs, with an average cost reduction around 15 percent, or $1,165 per employee. (The study, by health solutions provider SHPS, is available here.)

It's worth bearing in mind, too, that the full impact of wellness programs and incentives extends beyond direct care costs to a bunch of other factors tied to a corporation's bottom line, including absenteeism, presenteeism (and the loss of productivity that goes with it), turnover, and recruitment.

The ROI calculation is certainly challenging, and only 36 percent of participants in the ERIC/NAM/IncentOne study said they had attempted it. Of those that did, though, about one quarter said they successfully measured ROI, which suggests that companies are getting better at it. "We anticipate that this trend will continue as ROI methodology is improved and employers continue to demand measurable results," the study notes.

What's more, the results from companies that did estimate ROI are distinctly encouraging. Fully 83 percent of respondents indicated that the return was positive, a sharp increase from 66 percent last year. Another 12 percent said they hit the break-even point. Only 5 percent estimated ROI at less than 1:1.

Incentivized health and wellness programs are in their infancy in many organizations, and it may be years until the full ROI picture emerges. But with medical costs set to rise 10 percent again next year, they're looking more and more like an investment that's well worth considering.