How companies try to curb health care costs

How do companies curb health care costs?

Do healthier employees lead to increased productivity?  Several progressive companies believe so and have committed to providing employees with programs to help engage them in a healthier lifestyle.

As part of the incentives to lead a healthier lifestyle some employers have instituted a penalty and reward system tied to the companies’ benefits.  For example, smokers may incur a significant surcharge to the cost of their health insurance plan while nonsmokers could see a reduction in cost.

According to an article in The New York Times, a growing numbers of companies including Home Depot, PepsiCo, Safeway, Lowe’s and General Mills are seeking higher premiums from some workers who smoke, similar to Wal-Mart’s addition of a $2,000-a-year surcharge for some smokers.

Escalating health care costs

In an era of economic turmoil and escalating health care costs, companies are seeking ways to curtail spending while increasing productivity.  In 2011, total health care costs per active employee, on average, are expected to reach $11,176, up from $10,387 in 2010.

Employers pay 36% more for health care and employees contribute over 45% more than they did five years ago.

With pressures mounting for companies to curtail spending and for employees faced with uncertainties, “a decline in health could begin a vicious cycle of increasing out-of-pocket health care costs and stress,” reports Towers Watson.  Employers may be facing an unproductive workforce with employee absenteeism.

Employees turning away from their health

It’s troubling that employees are strained to the point of turning away from and managing their own health. According to Towers Watson, 59% of employees say that managing their health is a top priority; this is down 10 percentage points since 2008.

Penalties more than doubled

Additionally, according to Towers Watson’s 2011/2012 Staying@Work Report, employers use of penalties more than doubled from 2009 to 2011, rising from 8% to 19%, and is expected to double again by 2012 when 38% of employers plan to have penalties in place.

It’s reported that 12% of employers currently reward or penalize their employees based on outcomes.  For example, target BMI or cholesterol levels, and an additional 16% are planning this tactic based approach for 2012.

“Employers today view health and productivity programs as integral to their overall health benefit strategy and efforts to control health care cost inflation,” said Shelly Wolff, senior health care consultant at Towers Watson,” in a press release statement. As companies strive to maximize employee participation in these programs, they are opting for both rewards and penalties. And many are finding these approaches are producing significant results.”

While the overall health and well-being of employees is a goal of employers, the main goal is to curb health costs.

Employers are frantic to find a way to curb health care costs.  “As companies strive to maximize employee participation in these programs, they are opting for both rewards and penalties,” said Wolfe in the press release.

Wal-Mart and the other emerging companies feel that charging employees to pay more for unhealthy behaviors such as smoking, is the answer.

Is it the answer?

Whether it is the answer or not, companies are initiating this tactic.

I asked Matthew Holt, founder of The Health Care Blogand co-founder of Health 2.0 how he feels about companies like Wal-Mart initiating an out-of-pocket surcharge to employees who smoke. “It’s OK to charge smokers a small amount more so long as there is a real program to help them quit, and that amount isn’t enough to cause hardship or to prevent them from accepting offered employer based health insurance,” he said.

If employees don’t stop smoking, they will pay financially for it.

Companies are committed to curbing health care costs; however, they are devoted to promoting healthier behaviors, either through penalties or rewards.

Reed Abelson reporter of the New York Times writes:

Many programs that ask employees to meet certain health targets offer rewards in the form of lower premiums. At Indiana University Health, a large health system, employees who do not smoke and achieve a certain body mass index, or B.M.I., can receive up to $720 a year off the cost of their insurance. “It’s all about the results,” said Sheriee Ladd, a senior vice president in human resources at the system.

“One in four employees would not participate in their company’s wellness program without a financial incentive.”

It’s interesting that according to the research by Towers Watson, they found “more than one-quarter of respondents say they must have a financial incentive in order to participate in a wellness program.”  But as many as 23% of the respondents say “financial incentives aren’t important and their health isn’t a top priority.”


According to the chart below, “$100.00 in cash” is preferred over vouchers and sweepstakes which would encourage employees to participate in a wellness program.  However when the incentive offered is a “One in 10 chance to win a $1,000 airline voucher,” most preferred $100.00 reduction in annual premium.

Encouraging wellness may prove more of a challenge for a workforce that seems resistant to a lifestyle change.

Which of the following would most encourage you to participate in a wellness program?

How companies try to curb health care costs

Direct financial incentives are valued more than riskier alternatives


Companies are committed to curbing health care costs.  Enticing employees with cash savings and incentives is currently gaining traction, but is that sufficient enough to encourage lifestyle changes or do companies need to supplement this with supportive programs for employees?

Barbara Ficarra is creator, executive producer and host of the Health in 30® radio show, and founder and editor-in-chief of

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  • Dave Chase

    One of the most effective employer initiated programs I heard about applied more help for the employees with an assigned PCP and health coach. It accompanied a carrot/stick (3 strikes, you’re out) where the employee could stay on the preferred health plan (better benefits, less employee contribution) if they stuck to the plan with the help of their health coach. Out of 700, 18% got strike one, 3% got strike two and literally one person got strike three. At first, some employees viewed it as invasive but when they felt the benefits of tackling obesity and substance abuse, they appreciated the help.

    I wrote about another tactic ~20% of larger employers are taking with onsite clinics - Like the Direct Primary Care model I have written about here and elsewhere, employers recognizes that proactive primary care (via onsite clinics or DPC) is the best bang for the buck you can get. See for more on DPC models.

  • civis isus

    “While the overall health and well-being of employees is a goal of employers, the main goal is to curb health costs.”
    Barbara, it’s unwise to imagine that ALL companies proceed from the same narrow accounting motives. For some – not the majority, true, but for more than a few large, leading employers – the driving force is to increase the value they obtain from investing in employees’ health. For these employers – in their strategies and tactics – describing resources devoted to population health as investments to be optimized rather than expenses to be diminished, is not merely semantics.

  • Peter Nesbitt

    These would seem to be positive steps that might slow the growth of costs slightly but they will not eliminate the waste (unnecessary treatment) that bedevils health care while marching along and adding at least $700 billion a year. We need to rethink how we manage care and how we can assure that each patient gets appropriate care as dictated by clinical findings. Large employers who can form their own networks of care providers are in a position to establish treatment protocols that emphasize appropriate care. They should be able to reduce overall medical and lost work time by about 40 percent.

    • Violetta V

      How is forcing healthy people to take prescription drugs are positive steps?

  • Margalit Gur-Arie

    This would be funny if it wasn’t so sad. Pepsi and General Mills, who are selling garbage foods that make people both fat and sick, and doing rather well financially in a depression, while spending a fortune on lobbying government to keep up the subsidies and preferential treatment at tax payers expense, are now the paragon of keeping people healthy? Not to mention Walmart, the other civic pillar of our society.

    When we start thinking about ourselves as “workforce”, there isn’t much left to discuss.

  • Violetta V

    It’s reported that 12% of employers currently reward or penalize their
    employees based on outcomes.  For example, target BMI or cholesterol
    levels, and an additional 16% are planning this tactic based approach
    for 2012.

    This is idiotic and shows that the companies act based on perceived notions rather than science. Studies have shown that “healthy lifestyle” while a good thing doesn’t reduce costs. People with high BMI may get involved in physical activity, it may reduce their risk of heart attack 5 years down the line but increase the rate of injuries now, and the companies will have to pay for treatment.

    But the height of idiocy is cholesterol levels. There are A LOT of people over 50 who are slim, healthy, active, and who have high cholesterol level. Many of these people have 10 year heart disease risk of 1%. So now the companies will force these people into taking expensive drugs to reduce their 10-year risk of heart disease from 1% to .7%? HELLO? Someone please teach these executives some statistics ASAP.

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