2013 Wellness & Benefits Administration Benchmarking Study

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Benefits Administration

Benchmarking Study

An analysis of how companies are leveraging employee wellness

initiatives and benefits technology to control health care costs.

SEPTEMBER 2013

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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.

The respondents were divided into two groups: large employers with more than 500 eligible employees and smaller employers with 50 to 500 benefit-eligible employees. Data reported within this paper will primarily focus on large employers, unless otherwise specified.

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 2012.

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 2014. 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.

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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% 11% 8% 2% 1% Reduce/manage health care costs

Offer employees an additional “perk” to attract and retain talent

It’s the right

thing to do Everyone else is doing it

Improve employee presenteeism and productivity

>500 employees

Base = Employers offering wellness programs Percentages may not sum to 100% due to rounding Source: SourceMedia Research, 2013

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.

>500 employees Greater than 75% 51% to 75% 26% to 50% Less than 25% 30% 17% 24% 29% >500 employees

Base = Employers offering wellness programs Source: SourceMedia Research, 2013

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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.

Discounts on healthy food Clinics and/or medical professionals at worksite Coaching onsite or via phone/email/internet Health fairs Physical fitness challenges or activities Weight loss groups/challenges/contests Gym memberships/discounts or onsite gym Biometric tests Smoking cessation Health Risk Assessments (HRAs)

Flu shots _88%93% 83% 72% 81% 77% 61% 72% 66% 67% 65% 65% 59% 63% 50% 28% 21% 22% 16% 50% 42%

Figure 3—Employee Wellness Programs, Large Employers

Which wellness programs or initiatives does your organization currently have in place for 2013 for employees?

>500 employees

Base = Employers offering wellness programs Source: SourceMedia Research, 2013

■ 2013

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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 2012. 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?

More than $1,000 $500 to $1,000 $250 to $499 $50 to $249 Less than $50 2012 2013 12% 33% 25% 26% 3% 15% 36% 24% 21% 4% >500 employees

Base = Employers offering incentives or disincentives Percentages may not sum to 100% due to rounding Source: SourceMedia Research, 2013

54%

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As Figure 5 indicates, employers continue to incentivize the completion of HRAs (74%) and biometric tests (53%) in 2013. 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 outcomes-based program and hold employees accountable for their health.

Meeting/exceeding biometric thresholds Wellness education/classes Wellness activities/challenges Tobacco use/tobacco non-use Completion of biometric tests Completion of Health Risk Assessments (HRAs)

53% 72% 56% 51% 50% 53% 34% 34% 15% 13%

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”)?

■2013

■ 2012

>500 employees

Base = Employers offering incentives or disincentives Source: SourceMedia Research, 2013

74%

52%

“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 2009. 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 2013. 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): 490 – 499

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Additional paid time off (e.g., vacation days) Eligible for richer health plan and/or lower deductible Reduced co-pay/co-insurance for drug costs Additional contributions to a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) Wellness points to convert to cash, gifts, etc. or gift cards and cash Health insurance premium discounts, credits, surcharges or penalties

64% 59% 48% 38% 12% 13% 13% 6% 6% 3% 4% 9%

Figure 6—Types of Wellness Incentives, Large Employers What types of incentives or disincentives does your organization use?

■ 2013

■ 2012

>500 employees

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, 1979. 47(2): 263 – 292. Note: Daniel Kahneman won the Nobel Prize largely for this work in 2002.

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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.

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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 2014. 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?

All benefits Ancillary/voluntary benefits only

Health/medical only

50-500 employees

>500 employees 64% 5% 31%

62% 38%

Base = Employers considering a defined contribution approach for 2014 Source: SourceMedia Research, 2013

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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.

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?

No online enrollment Online enrollment for

some benefits others processed via manual paper process Online enrollment for

all benefits but enrollments are verified/processed by a benefits administrator Online enrollment for

all benefits without administrator involvement Annual Open Enrollment Life Event New Hire 28% 30% 31% 11% 19% 31% 41% 9% 39% 30% 10% 22% >500 employees

Source: SourceMedia Research, 2013

6 “The Total Economic Impact of bswift Benefits Automation,” a 2009 study conducted for bswift by Forrester Consulting.

410%

RISK-ADJUSTED ROI

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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?

No alerts or notifications Administrators monitor and notify

Auto alert

2012

2013 21% 52% 26%

19% 54% 27%

>500 employees

Percentages may not sum to 100% due to rounding Source: SourceMedia Research, 2013

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?

Do not reconcile bills on a regular basis Paper bills: manually reconcile

Self-bill Electronic bills: electronically reconcile

2012

2013 48% 30% 16% 6%

4%

36% 30% 30%

>500 employees

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Large employers are also becoming more efficient at handling adjustments to age-based benefits when employees turn 65 or 70. 55% report that their benefit systems make that change automatically today, compared to 49% in 2012.

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?

Life coverage reduction is not applicable to our organization Manually Automatically by benefits system 2012 2013 55% 31% 14% 49% 36% 15% >500 employees

Many large employers have yet to fully exploit technology that can expedite and reduce the cost of these functions.

Other (e.g., random audits)

Benefits outsourcing firm verifies upon enrollment Health carrier or TPA

verifies upon enrollment

Employer HR department verifies upon enrollment No verification process Annual Open Enrollment Life Event New Hire _26% _49% _6% _13% _6% 11% 63% 8% 14% 4% 25% 46% 6% 14% 8%

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?

>500 employees

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?

Health carrier/ TPA cancels Manually Automatically by benefits system 2012 2013 49% 14% 37% 42% 36% 22% >500 employees

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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 2012. 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.

>500 employees

50-500 employees

Meeting/exceeding biometric thresholds Tobacco use/tobacco non-use Wellness education/classes Completion of biometric tests Completion of Health Risk Assessments (HRAs)

Wellness activities/challenges 62% 50% 60% 74% 52% 53% 45% 34% 29% 51% 17% 15%

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”)?

■ 50-500 employees

■ >500 employees

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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?

More than $1,000 $500 to $1,000 $250 to $499 $50 to $249 Less than $50 >500 employees 50–500 employees 25% 43% 20% 10% 3% 33% 54% 12% 33% 25% 26% 3%

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

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>500 employees

50-500 employees

Self-bill health insurance Life event employee self-service Employee age change updates Dependent age out updates New hire employee self-service

New hire automated alerts 3%

21% 8% 28% 25% 49% 36% 55% 6% 19% 7% 30%

Figure 16—State of Automation

■ 50-500 employees

■ >500 employees

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.

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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 60606 877.9.BSWIFT | [email protected] | www.bswift.com

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. http://www.sourcemedia.com/research_data/