Companies Making Good Progress, but Still Have More to Do to Effectively Mitigate Costs and Improve Employee Health
Despite the uncertainty of health care reform, most U.S. employers say they are continuing to make investments today that will improve the long-term health and productivity of their workforce, according to a new survey by Hewitt Associates, a global human resources consulting and outsourcing company. But while well-intentioned, Hewitt’s survey shows most companies 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 annual health care trends survey of nearly 600 large U.S. companies representing more than 10 million employees shows that employers’ short- and long-term approaches to health care remain consistent with last year. Almost two-thirds (65 percent) say they currently invest in long-term solutions to improve the overall health and productivity of their workforce while less than a third (32 percent) are primarily focused on controlling their annual health care costs. Just 3 percent reported currently moving away from directly sponsoring health care. When asked about their future approach to health care, more companies (80 percent) plan to focus on improving health and productivity in the next three to five years.
Hewitt’s survey, conducted from December 2009 to January 2010, found that employer concerns regarding rapidly rising health care costs continue to grow. Almost all (95 percent) of companies 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 costs1 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 Is Critical
Even with the uncertain health care landscape, Hewitt’s survey shows that fewer than half (42 percent) of employers have a formal policy or strategic health care plan in place, which is consistent with last year. In addition, while 80 percent say offering competitive benefits is a key component of their health care strategy, most indicate managing cost as their top business priority—a clear disconnect between HR benefit goals and overall business objectives.
“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.”
Laying the Groundwork for the Future
Despite a minority of companies having a formal overall strategy in place, Hewitt’s survey suggests there is a growing recognition among employers that programs and tactics, tailored to an employee’s specific needs, will provide them with the best foundation for future 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 currently have a disease management/health improvement strategy in place. 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.
Increasing the focus on improving both 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. Today, just over a third (35 percent) of companies incorporate behavioral health programs (e.g., Employee Assistance Programs and/or targeted networks of mental health specialists) into their strategies, and more than half (58 percent) are planning to do so over the next three to five years. In addition, while less than one in five (19 percent) consider absence management as part of their current health and productivity strategy, 56 percent plan to incorporate it over the next three to five years.
Using incentives and penalties to encourage participation. To encourage participation in health care programs, more than a 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 almost doubled from last year—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 already use penalties and another 29 percent say 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 preventative 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.”
Considering the diverse workforce. Hewitt’s survey shows that nearly 60 percent of employers say they take the diversity of their workforce into account when they design and communicate their health 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 versus individual incentive programs to drive positive behavior change.”
Measuring success through behavior change. Hewitt’s survey shows that 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 utilized (57 percent). Just 19 percent measure employee behavior change and 15 percent measure behavioral modification. However, employers expect to reverse this emphasis in three to five years. More than half (53 percent) say 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 are 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.”
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit http://www.hewitt.com.