1 2013 Wellness & Benefits Administration Benchmarking Study An analysis of how companies are leveraging employee wellness initiatives and benefits technology to control health care costs. SEPTEMBER 2013 Published by:
2 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY Background U.S. employers continue to feel the pain from the spiraling costs of health care, and consumers see the impact in the checkout line as well. American companies must pass [health care] costs on to their customers, which makes their products more expensive. The health care cost built into each new General Motors automobile is about $1,200; health care is now the single most expensive part in a new American car, reports David Brodwin, journalist and cofounder and board member of the American Sustainable Business Council. To battle rising health costs and compete in today s new world, employers are increasingly investing in employee wellness programs and the benefits technology that can efficiently and cost-effectively administer these initiatives and other benefit offerings. Many employers are ramping up their wellness programs to create a healthier workforce that requires less costly health care. It just makes sense that if employers can keep people healthy, it will cost less and make them substantially more productive, said Mike Leavitt, founder and chairman of the Leavitt Partners consultancy in Salt Lake City and former U.S. Secretary of Health and Human Services. However, employers must ensure that employees are invested in their own wellness, Leavitt advises. Weight Watchers CEO David Kirchhoff agrees and says that the key to any wellness program is continued participation. Unless you can get Americans to live in a fundamentally different way, it s going to be really hard to stop the fact that health care costs are rising faster than the rate of inflation, states Kirchhoff. Employers that are serious about modifying employee behavior to reduce health care costs need to tackle the following: 1. Start a wellness program 2. Get employees to participate 3. Get employees to care and keep participating The 2013 Wellness & Benefits Administration Benchmarking Study, commissioned by bswift and conducted by SourceMedia Research (a unit of SourceMedia, the publisher of Employee Benefit News) sheds light on these steps and illustrates increased employer investment in wellness, the need for automation and the impact on overall costs for employers. The study was conducted online in March 2013 among 380 benefit decision makers at organizations that offer health benefits. Respondents were required to be employed at an organization with 50 or more employees and have responsibility in HR/benefits/insurance designing benefit plans and selecting benefit carriers. Key Findings Employers are increasingly investing in wellness incentives. In 2013, more employers offered incentives to motivate employee participation in wellness programs. While large employers only experienced a slight increase from 76% to 78%, the use of incentives by smaller employers increased from 52% to 69%. Biometric testing emerged as the foundation of most wellness programs. This year, 77% of large employers said they have biometric testing in place for employees compared to last year s 61%. Premium adjustments are the most common incentive payment mechanism. Most large employers (64%, up from 59% in 2012) use health insurance premium discounts or surcharges to motivate employees. The dollar value of wellness incentives continues to increase. More than half of large employers, 54%, reported spending more than $250 annually per employee on wellness incentives compared to 49% in Early adopters are showing interest in defined contribution. 14% of large employers said they are considering defined contribution for some benefits for active employees in While there has been considerable hype around this funding strategy and there could certainly be substantial longer term adoption the study revealed that defined contribution is not in most employers plans for next year. Employers remain only partially automated for benefits administration. Almost one-third (31%) of large employers do not offer online benefit enrollment for new hires. Similarly, 31% of large employers still manually adjust coverage amounts when employees turn 65 or 70; and 63% manually verify dependent eligibility for life events. These high numbers suggest a significant opportunity for administrative cost savings, especially given the availability of economically viable technology that automates these processes. The respondents were divided into two groups: large employers with more than 500 benefit-eligible employees and smaller employers with 50 to 500 benefiteligible employees. Data reported within this paper will primarily focus on large employers, unless otherwise specified.
3 2013 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY 3 Everybody s Doing It: Employers Embrace the Importance of Wellness The study found that 85% of large companies and 81% of small companies have a wellness program in place. The majority of employers (77%) are investing in wellness primarily to reduce/manage health care costs. Figure 1 Reasons for Investing in Wellness Programs, Large Employers What is the primary reason your organization invests in wellness? 77% Reduce/manage health care costs 2% Offer employees an additional perk to attract and retain talent 11% It s the right thing to do 1% Everyone else is doing it 8% Improve employee presenteeism and productivity Base = Employers offering wellness programs Percentages may not sum to 100% due to rounding While employers are investing in wellness, the majority of employees are not. Only 47% of employers are seeing employee participation rates above 50%. Figure 2 Wellness Program Employee Participation Rates, Large Employers In 2013, what is the employee participation rate (i.e., of your wellness programs)? Participation is defined as an employee enrolling and/or earning an incentive. 17% 29% Less than 25% 26% to 50% 51% to 75% 30% 24% Greater than 75% Base = Employers offering wellness programs
4 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY What Does a Typical Wellness Program Look Like? Employers in 2013 are investing their wellness dollars on many of the same initiatives as last year. Flu shots, Health Risk Assessments (HRAs), smoking cessation and biometric tests lead large employers wellness lineups. Figure 3 Employee Wellness Programs, Large Employers Which wellness programs or initiatives does your organization currently have in place for 2013 for employees? Flu shots Health Risk Assessments (HRAs) Smoking cessation 72% 83% 81% 93% 88% Biometric tests 61% 77% Gym memberships/discounts or onsite gym Weight loss groups/challenges/contests 42% 72% 66% 67% Physical fitness challenges or activities 50% 65% Health fairs 65% 59% Coaching onsite or via phone/ /internet 50% 63% Clinics and/or medical professionals at worksite Discounts on healthy food 21% 22% 16% 28% Base = Employers offering wellness programs
5 2013 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY 5 How Much is Enough? Incentivizing Participation High levels of participation are critical for program success. To get more employees involved, companies must rethink how they offer incentives ( carrots ) and disincentives ( sticks ). More than three-fourths (78%) of large employers offered incentives/disincentives in 2013, holding steady from last year (76%), while small employers offering incentives/disincentives grew from 52% to 69%. Across the board, employers are increasing their investment in incentive dollars. In 2013, 54% of employers offered annual wellness incentive dollar amounts above $250, up from 49% in 2012, and only 12% offered annual wellness incentives of less than $50 versus 15% in The reason employers are offering more is straightforward, says Michael Dermer, president and CEO of IncentOne in Lyndhurst, New Jersey. Changing health habits isn t as easy as we d all like it to be, so employers need to offer incentives to make it worth it. $50 may not be enough money to get an employee to visit the doctor, much less get a colonoscopy, he commented. Figure 4 Investment in Wellness Incentives per Employee, Large Employers What is the annual dollar amount per employee for wellness incentives? Less than $50 $50 to $249 $250 to $499 $500 to $1,000 More than $1,000 54% % 33% 25% 26% 3% 49% % 36% 24% 21% 4% Base = Employers offering incentives or disincentives Percentages may not sum to 100% due to rounding
6 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY As Figure 5 indicates, employers continue to incentivize the completion of HRAs (74%) and biometric tests (53%) in Biometric tests assess key health indicators including blood pressure, cholesterol levels and weight/bmi, which help establish a baseline for measuring progress or the lack thereof. The focus on these metrics, particularly biometric tests, suggests that more employers are preparing to shift to an outcomesbased program and hold employees accountable for their health. Figure 5 Incentivized Wellness Programs, Large Employers For which of the following wellness programs, if any, does your organization offer incentives (i.e., carrots ) or disincentives ( sticks )? Completion of Health Risk Assessments (HRAs) Completion of biometric tests Tobacco use/tobacco non-use Wellness activities/challenges Wellness education/classes Meeting/exceeding biometric thresholds 15% 13% 34% 34% 53% 52% 51% 56% 50% 53% 74% 72% Base = Employers offering incentives or disincentives The advantage of biometric testing is its ability to accurately and objectively measure health status and track results, notes Brad Wolfsen, executive director at bswift and past president of Safeway Health. When Safeway transitioned from self-reported HRA data to biometric measurement, our population with dangerous health risks appeared to double on some measures, he said. Employees may not know their cholesterol level or they may not consider themselves tobacco users if they occasionally smoke socially. Companies such as Safeway 1, Johnson & Johnson 2 and Cleveland Clinic 3 are leading the way with metrics and have demonstrated the ability deliver dramatic financial success. Johnson & Johnson generated average annual per employee savings of $565 in The Cleveland Clinic slowed and then arrested the growth in employee health care costs at the clinic with their wellness program. As the delivery method for incentives, premium adjustments (used by 64% of employers, up from 59% in 2012) and wellness points to convert to cash and gift cards (used by 48% of employers, up from 38% in 2012) are becoming more common in Other incentive payout mechanisms, such as Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) contributions, co-pay reductions, richer plan eligibility and paid time off were less commonly used than in the prior year. 1 Burd S. Senate Testimony, U.S. Senate Committee on Health, Education, Labor & Pensions. 6/11/09 2 Henke RM, Goetzel RZ, McHugh J, Isaac F. Recent Experience in Health Promotion at Johnson & Johnson: Lower Health Spending, Strong Return on Investment. Health Affairs, 2011; 30(3): Klein E. The Promise and Peril of Wellness. The Washington Post: Wonk Blog. 10/16/2011
7 2013 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY 7 Figure 6 Types of Wellness Incentives, Large Employers What types of incentives or disincentives does your organization use? Health insurance premium discounts, credits, surcharges or penalties 59% 64% Wellness points to convert to cash, gifts, etc. or gift cards and cash 38% 48% Additional contributions to a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) Reduced co-pay/co-insurance for drug costs Eligible for richer health plan and/or lower deductible Additional paid time off (e.g., vacation days) 12% 13% 6% 9% 6% 13% 3% 4% Base = Employers offering incentives or disincentives Premium adjustments offer numerous advantages relative to the other payout types: 1. Pre-tax advantage: employees receive wellness credits via pre-tax payroll deductions 2. Credits on employees paychecks serve as a recurring reminder of how their health status/choices directly impact cost 3. Can be positioned as a loss, surcharge or penalty, which has twice the motivational value of gains, rewards or discounts 4 4. For self-funded employers, these can be implemented as an increase to the premium equivalent rate and, therefore, do not require explicit funding by the employer 5. Compliance with HIPAA, ACA and IRS regulations is relatively easier to monitor Our experience has shown that when incentive values match the level of effort required, they drive significant participation in wellness programs, typically over 70%, says Wolfsen, and premium adjustments, either surcharges or discounts, are typically the most efficient means of delivering incentives, with the best bang for the buck. 4 Kahneman D, Tversky A. Prospect Theory: An Analysis of Decision under Risk. Econometrica, (2): Note: Daniel Kahneman won the Nobel Prize largely for this work in 2002.
8 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY Tackling Outcomes Employers remain reluctant, according to the study, to hold employees accountable for improving their biometric testing results. As shown in Figure 5, only 15% offer incentives/disincentives for meeting/exceeding biometric thresholds. Traditionally, companies have offered rewards for participating in straightforward tasks, such as attending a diabetes seminar or completing a biometric test. But few employers have incented employees to act on the feedback and generate a measurable, improved outcome. The recent RAND report promotes a pessimistic assessment of employer wellness programs. Their 2013 report concludes that employer wellness programs have not produced meaningful cost reductions. However, the study s ability to assess the power of incentives to drive positive wellness ROI is quite limited. Only four employers in the report had sufficient information with which to evaluate the use of incentives on wellness program participation, and none of them reported using incentives tied to actual behavior change or health goal attainment. In addition, the annual incentive amounts paid were quite low, ranging from $50 to $125. The researchers conclude that, because of the limited variation in incentive use, our multivariate analyses on the effect of incentives on lifestyle program participation did not generate stable results. 5 As a result, the RAND study leaves unanswered and unaddressed the role that incentives play in effective wellness programs. The absence of this key lever in effective wellness program design should lead employers to question the study s results. The newly released regulations governing wellness incentives impose more complexity for administration, but leave open the door for employers to implement outcomes-based designs. The new regulations require employers to accept as a reasonable alternative standard the suggestions of an individual s personal physician, for those individuals who don t meet the employer s outcomes-based standard. Leavitt, who is a strong advocate for incentives/disincentives, says employers leave money on the table when they do not follow up with employees and reward or penalize them accordingly. Smoking and weight are two of the largest contributors to health care costs, so if you can stop someone from smoking or reduce their body mass index to less than 30, you can have a significant impact on their long-run health costs, says Leavitt. Outcomes-based incentives/disincentives can be particularly effective to persuade employees who initially balked at participating, says Chris Goldsmith, vice president of Sibson Consulting, a strategic human resources firm. You can approach a smoker and say, If you had stopped last year, you would have had a lower deductible and premium. You do that enough times with enough people and you create the tipping point you need to reach an ROI, Goldsmith advises. 5 Mattke S, Liu H, Caloyeras J, Huang C, Van Busum K, Khodyakov D, Shier V. Workplace Wellness Programs Study: Final Report. RAND Corporation, 2013.
9 2013 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY 9 The limited use of outcomes-based incentive programs also illuminates why, despite expanded corporate spending on wellness programs, employers have yet to see dramatic improvements in employee health. The nature of what is being asked of employees in regards to wellness participation is too simplistic, notes Dermer. In short, Wolfsen advises that several things have to happen to move the needle on wellness: Assessments must be objective, progress must be measurable and employees have to be invested in their own wellness success. As Leavitt says, employers must share responsibility, cost and outcomes with employees. Rethinking Contribution Strategies: Is Defined Contribution the Answer? Defined contribution as a funding strategy for health care coverage is gaining much attention lately as another cost control concept and driver of deeper health care consumerism. Part of the hope is that more personal responsibility will result in better health care behaviors and outcomes, and a lower cost trajectory. In the past, employers have said, We will provide health insurance for you and/or your family. In the future, they will say, We will make it available for you to buy, Leavitt says. Leavitt predicts that employers in numbers will soon shift to a defined contribution approach. Doing so, he believes, will help employees better understand the costs associated with poor health and help them have skin in the game to lower those costs. 14% of large employers said that they are considering a defined contribution approach for some benefits for active employees in While employers considering this approach are the minority today, Don Garlitz, executive director of Exchange Solutions at bswift, expects that number to grow over the next 10 years. As Bill Gates said, We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don t let yourself be lulled into inaction, and I think that applies here. Employers ought to prepare for a shift to defined contribution, says Garlitz. Figure 7 State of Defined Contribution 14% Large employers considering a defined contribution approach for any benefits in 2014 for active employees For which of the following is your organization considering a 'defined contribution' approach? Health/medical only Ancillary/voluntary benefits only All benefits 64% 5% 31% employees 62% 38% Base = Employers considering a defined contribution approach for 2014
10 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY Automation: Another Cost Containment Strategy As companies rejigger their approach to health insurance and wellness and pursue myriad cost containment strategies, they must consider automation. As prior research indicates, a comprehensive benefits automation solution can achieve a 410% risk-adjusted ROI. 6 However, despite living in a world where greater than 80% of American adults have access to the internet, 31% of large employers still do not offer online benefit enrollment for new hires. 41% have no online enrollment for life events, and only 39% report having annual open enrollment online for all benefits without administrator involvement. 410% RISK-ADJUSTED ROI Figure 8 Employee Benefit Enrollment Methods, Large Employers How do your employees enroll in benefits (e.g., health, life, etc.) for each of the following enrollment types? Online enrollment for all benefits without administrator involvement Online enrollment for all benefits but enrollments are verified/processed by a benefits administrator Online enrollment for some benefits others processed via manual paper process No online enrollment New Hire 28% 30% 11% 31% Life Event 19% 31% 9% 41% Annual Open Enrollment 39% 30% 10% 22% 6 The Total Economic Impact of bswift Benefits Automation, a 2009 study conducted for bswift by Forrester Consulting.
11 2013 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY 11 Another easily automated administrative function that is still under-utilized is alerts for new hires whose enrollment window is closing, or those whose enrollment remains incomplete. Only 21% of large employers automate that process, and a higher percentage (26%) provide no alerts or notifications. The remaining 52% report that administrators handle the process manually. Figure 9 New Hire Communication, Large Employers How are new hires alerted if their enrollment window is closing soon and their enrollment remains incomplete? Auto alert Administrators monitor and notify No alerts or notifications % 52% 26% % 54% 27% Percentages may not sum to 100% due to rounding Employers are making gains when it comes to billing automation. 48% are electronically reconciling bills compared to 36% in 2012 and 30% have maintained a self-billing arrangement with health carriers. Figure 10 Health Insurance Billing Automation, Large Employers How does your organization manage health insurance bill reconciliation? Electronic bills: electronically reconcile Paper bills: manually reconcile Self-bill Do not reconcile bills on a regular basis % 30% 16% 6% % 30% 30% 4%
12 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY Large employers are also becoming more efficient at handling adjustments to age-based benefits when employees turn 65 or % report that their benefit systems make that change automatically today, compared to 49% in Figure 11 Employee Age Change Automation, Large Employers How are life insurance coverage amounts, premiums and employee deductions reduced when an employee reaches the age of 65 and/or 70? Automatically by benefits system Manually Life coverage reduction is not applicable to our organization % 31% 14% % 36% 15% Many large employers have yet to fully exploit technology that can expedite and reduce the cost of these functions. Figure 12 Dependent Eligibility, Large Employers For each of the following enrollment types, who verifies the eligibility of dependents (e.g., reviews marriage certificates, birth certificates, etc.) and when? No verification process Health carrier or TPA verifies upon enrollment Employer HR department verifies upon enrollment Benefits outsourcing firm verifies upon enrollment Other (e.g., random audits) New Hire 26% 49% 6% 13% 6% Life Event Annual Open Enrollment 11% 63% 8% 14% 4% 25% 46% 6% 14% 8% Percentages may not sum to 100% due to rounding Figure 13 Dependent Age Out Automation, Large Employers How is dependent coverage canceled when dependents 'age out'? (e.g., at age 26) and become ineligible? Automatically by benefits system Manually Health carrier/ TPA cancels % 14% 37% % 22% Percentages may not sum to 100% due to rounding 42%
13 2013 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY 13 Companies 50 to 500 Employees: Wellness Small companies have become more committed to wellness, much like the larger companies. Key findings include: Wellness programs at smaller companies are similar to those at larger ones. The most popular types of employee wellness programs among small employers include free flu shots (89%), biometric tests (72%), HRAs (70%), weight loss groups/challenges (69%) and gym memberships (61%). Small companies are not too far behind their larger counterparts on participation. 36% of small companies are seeing employee participation rates above 50%, compared to 47% of larger companies. Like large companies, small companies consider wellness primarily a way to control rising health care costs. This year s study shows that 75% of small companies believe wellness programs can help them reduce/manage health care costs. More so than large companies (11%), small companies also believe providing wellness programs is the right thing to do (23%). A growing number of small companies provide incentivized wellness programs. 69% of small companies now offer some wellness incentive, compared to 52% in Of those employers, specific activities for which they are offering incentives include participation in organized activities/challenges (62%) and completion of HRAs (60%). Offering incentives for the completion of biometric tests jumped from 48% in 2012 to 52% this year for small employers. Figure 14 State of Incentivized Wellness Programs For which of the following wellness programs, if any, does your organization offer incentives (i.e., carrots ) or disincentives ( sticks )? Wellness activities/challenges 50% 62% >500 Completion of Health Risk Assessments (HRAs) 60% 74% Completion of biometric tests 52% 53% Wellness education/classes 34% 45% Tobacco use/tobacco non-use 29% 51% Meeting/exceeding biometric thresholds 17% 15% employees Base = Employers offering incentives or disincentives
14 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY Premium discounts are among the top wellness incentives. 43% of small companies that offer incentives use health insurance discounts, credits, surcharges or penalties to spur participation in incentivized wellness programs. They also rely heavily on gift cards, cash and wellness points that can be redeemed for cash or gifts. Incentive dollar amounts are less generous among small employers. Only 33% of small employers offer an annual wellness incentive of $250 or more per employee, compared to 54% of large employers. Figure 15 State of Employers' Investment in Wellness Incentives per Employee What is the annual dollar amount per employee for wellness incentives? Less than $50 $50 to $249 $250 to $499 $500 to $1,000 More than $1,000 33% employees 25% 43% 20% 10% 3% 54% 12% 33% 25% 26% 3% Base = Employers offering incentives or disincentives Companies with 50 to 500 Employees: Automation Smaller companies that are embracing automation of benefit administration tools have significant opportunities to increase automation and achieve cost savings. Key findings include: New hire enrollment is under-automated. Only 8% of smaller companies offer fully automated employee self-service for the new hire enrollment process, compared with 28% of larger companies. This leaves most smaller companies (72%) still enrolling new employees completely manually; a mixed manual and online approach is used by 21%, for all or some benefits. Companies are not utilizing automated age-outs. Only 25% of small companies are likely to autocancel coverage when dependents become ineligible, compared with 49% of large companies.
15 2013 WELLNESS & BENEFITS ADMINISTRATION BENCHMARKING STUDY 15 Figure 16 State of Automation New hire automated alerts 3% 21% >500 New hire employee self-service 8% 28% 50-5 Dependent age out updates 25% 49% Employee age change updates 36% 55% Life event employee self-service 6% 19% Self-bill health insurance 7% employees 30% Self-billing is rare. Only 7% of small companies self-bill for health insurance, compared with 30% of their larger counterparts. That leaves more than 93% of smaller companies using a mixed manual and online approach for reconciling health insurance bills against benefit records. Conclusion: Untapped Potential for Cost Savings With no end in sight to increasing health care costs, and with CFOs on a perpetual quest to save dollars on operational expenses, employers are responding with a multi-pronged approach that includes wellness, defined contribution, consumerism/transparency and automation. Our study indicates that there is still untapped potential for cost savings. Employers believe that wellness programs, when properly administered, monitored and incentivized, can improve the overall health of their population and reduce their outlay on health care. The emerging evidence from the study and insights from industry experts suggest that in order to achieve a higher return on their wellness investment, employers need to shift from participation-based to outcomes-based programs to keep employees engaged. As employers pursue these cost containment strategies wellness, defined contribution and consumerism/ transparency automation and technology can amplify the impact. By automating enrollment, premium adjustments, incentive payouts, life event changes, analysis and communication, employers can achieve significant efficiencies and cost savings. 7 In today s fast changing world of health care and benefits, we anticipate larger numbers of employers to invest in automation and technology. Future studies will reveal the extent to which employers will move in that direction and how rapidly. 7 The Total Economic Impact of bswift Benefits Automation, a 2009 study conducted for bswift by Forrester Consulting.
16 Methodology This online survey was fielded during March and April of In total, SourceMedia surveyed 380 benefit decision makers at organizations that offer health benefits. The sample was randomly drawn from subscribers of Employee Benefit News. The margin of error for the total sample is +/-5.0% at the 95% confidence level. About bswift Based in Chicago, bswift offers software and services that streamline benefits, HR and payroll administration for employers and public and private exchanges nationwide. bswift s state-of-the-art cloud-based technology and outsourcing solutions significantly reduce administrative costs and time-consuming paperwork, making life easier for administrators and millions of consumers who enroll in benefits with bswift. To learn more, please contact us at: 10 S. Riverside Plaza, Suite 1100, Chicago, IL BSWIFT About SourceMedia SourceMedia Research (a unit of SourceMedia, publisher of Employee Benefit News) provides complete custom B2B research solutions for strategists, marketers, agencies and others seeking in-depth insight into select segments of the financial services industry. SourceMedia Research combines a strong technical competency in market research with deep market knowledge and focus.