Wellness programs are a long-term investment. But how long should you wait for results?

Finance and the CEO want hard numbers to show return on investment (ROI). And wellness ROI is tougher to calculate than, say, a 401(k).

18-month guideline

Recent studies have established some benchmark data on wellness ROI you can use as a guideline. It’s useful whether you already have a wellness program or are thinking about starting one.

It usually takes at least 18 months from the launch of a wellness program to see any results in your healthcare plan bottom line.

For many firms, 18 months is the point at which workers’ improving health starts to cancel out the cost of sponsoring and administering the wellness program.

By and large, the long-term cost savings from a wellness program will be driven by how much you’re willing to spend. Generally, companies get what they pay for – both in time and money invested.

As a rule of thumb, the average cost to the employer is about $3 to $5 per participating employee per month. Within three years of launch, you should be seeing significant savings.

The typical ROI tends to be about $4 to $5 saved for every dollar spent. So how can you manage the costs in the short-term in order to achieve the long-term savings?  And how can you maximize the long-term payoff?

Consider making it budget-neutral

For many employers, the most effective way to manage the cost of a wellness program in the start-up phase is to make it a budget-neutral expense.

In other words, the program neither adds to your health costs at the outset, nor reduces them. Example: You plan to roll out a wellness program effective Jan. 1. The program will cost the company $5 per employee.

You can roll the $5 per month cost directly into the employee’s monthly share of their healthcare premium. In this age of continuous cost-shifting, most employees are used to seeing small increases in their monthly contributions each plan year.

Just be sure you’re not hitting folks with a big hike on top of that $5. Comparably designed wellness programs pay off about the same – meaning employees buy in and participate at the same rate – whether they’re budget neutral or the employer absorbs the cost.

But when employees get clobbered by large-scale contribution hikes at the outset, they often resist the wellness program. The long-term ROI for these initiatives is often disappointing.

If you’re faced with a situation where achieving a budget-neutral program would trigger push-back, your firm is better off absorbing most or all of the wellness costs.

The biggest hurdle is to get over the hump for those first 18 months or so.

Here’s more evidence that wellness programs pay for themselves:

Over the last two years, one organization in five has seen significant improvement in employees’ health status – and started to stabilize their costs – according to one study.

Among firms noting improvement, nearly two-thirds (64%) feature wellness programs offering incentives for healthier lifestyles.

Here are three twists on traditional incentives that’re getting good results:

1. Health coach outreach

Many firms require employees to work with a personal health coach in order to get a discount on monthly premiums or earn cash incentives.

The most common set-up: On a regular basis, the employee must set up appointments with and report to (either over the phone or face to face) his or her health coach.

But experience has shown there’s often a high dropout rate.

People get off to a great start – and they’re enthusiastic about the incentive – but once they realize there’s some effort involved, they lose interest.

The good news: Firms have found a simple-to-arrange alternative that keeps  people on the right track. Rather than requiring employees to contact the health coach, a growing number of organizations require participants to take calls from the health coach.

Potential result: Fewer folks fall off the wagon. There’s no outreach effort involved, and the health coach keeps people accountable.

2. Nutritional education/therapy

A newer – and cost-effective – feature in the battle against employee obesity: offering an employee nutrition-education program administered by a professional nutritionist.

Just 11% of organizations – 18%  of large employers and 7.5% of small to medium ones – have such programs, according to SHRM’s most recent benefits survey.

Even fewer offer (via their EAPs) nutritional therapy for people with eating disorders. But available data on these programs shows they usually pay for themselves.

The stronger the firm’s emphasis on teaching healthy eating, the faster and more dramatic the reduction in major health claims.

Common plan features: lunch-and-learns featuring healthy food choices, giving out nutrition-linked gift cards and extending obesity-prevention incentives to people’s family members.

3. Aggressive smoking cessation

A small, but rapidly growing number of employers are taking more aggressive measures to avoid the costs associated with employees who smoke.

The step can be broken down into three levels of aggressiveness and potential risk/reward.

Level one: The employer installs a wellness program in which non-smoking employees and those who commit to maintaining a healthy weight receive financial incentives that lower their share of monthly premiums.

Level two: The employer disqualifies job candidates who smoke from hiring consideration. Alternatively, some firms require health risks assessments as a condition of being hired.

Level three: The employer docks pay or fires employees who fail to control their lifestyle-related health risks.

Example: Clarian Health made news last fall for sending notice to employees that as of Jan. 1,  2009, people who smoke or chew tobacco would start be charged $5 per paycheck.

Are these strategies legal? At level one, the answer is a qualified yes. HIPAAs non-discrimination rules permit such incentives within limits.

In a nutshell, it’s legal to reward employees who quit smoking but illegal to punish those who try and fail. If an employee tries but fails to quit smoking, you’re still legally obligated to give them another shot next year.

Also keep in mind that, by law, the size of the reward or penalty under your wellness program can’t exceed 20% of the total cost of coverage.

At levels two and three, it remains to be seen if such policies would hold up in court. Proceed with caution.

When it comes to obtaining and using employees’ health info, your firm’s plan has more power than you may think.

Under HIPAA, your plan is allowed to obtain health info for the purpose of controlling your health costs. And there are a host of legal uses of that info for that one purpose.

Questions you can answer

Your plan is entitled to obtain and review a sampling of people’s personal health info to answer all of the following plan cost-related questions:

• Are employees getting the right treatment for their health conditions?
• Which network doctors aren’t communicating treatments with each other, wasting resources?
• Are employees compliant with their prescription drugs?

In short, you’re allowed to use the info to more accurately predict upcoming claims and costs in the short-term future. What you can’t do with the info is make any employment-related decisions with it.

Experts debate if the prohibition includes charging smokers or other at-risk populations higher premiums. But you can always use it when shopping the cost-effectiveness of different health plans or for making your wellness program even stronger.

Wellness program implications

Under HIPAA and ERISA, you’re allowed to use health data as the starting point for having employees contacted regarding their health issues. Based on the info you obtain, you can hand-pick people for educational mailings about specific health issues.

Your wellness program manager is allowed to find out if an employee has a certain health problem (such as asthma or diabetes) and hasn’t sought a program to treat that issue.

Reminder: If you offer financial incentives as part of your wellness program, be aware that HIPAA’s non discrimination rules require you to wipe the slate clean each plan year.

Legally, it’s still the safest policy to stay hands-off personal health info when it doesn’t relate to certifying FMLA or accommodating ADA. But it’s good to know HIPAA’s privacy rule is usually on your side in the battle to control health costs.

Nearly two-thirds of organizations with wellness programs offer employees incentives – financial or otherwise – to participate.

But only one firm in five has seen major improvement in employees’ health status (and lower costs) within two years of launching the incentive. Here are three keys to getting good results – and a red flag for failure.

Cancer screenings pay off big

Most wellness programs feature health-risk assessments for things like high cholesterol and diabetes. But many overlook the need for early detection of cancer, which can affect any employee, regardless of his or her age or general health.

In many cases, you can line up certain screenings, such as skin cancer detection (the most common type of cancer and, in its early stages, the most easily treated) for free or at a nominal cost.

These resources are often available through community agencies or the American Cancer Society. More involved and expensive screenings – such as mammograms – are well worth the cost. A single case of cancer identified early typically saves thousands of dollars in medical claims and disability costs – not to mention trauma for the employee.

Smart rewards

HIPAA has tricky non-discrimination rules for offering employees a break on premiums or copays. You needn’t worry about HIPAA if you:

1. Structure the program as a cost-break for employees who embrace wellness. On the flip side, imposing surcharges for uncooperative employees can force you to jump through HIPAA hoops.
2. Make the incentive available to all employees. For example, if you offer a discount to non-smokers, an employee who recently quit smoking must also be eligible.
3. Allow employees who fail to earn the incentive to have another shot at it next plan year.

Bottom line: Make the financial incentive a reward, not a punishment. Do the incentives work? If they’re done right, yes. Firms offering monetary rewards for wellness typically save about $20 to $50 a month, according to some estimates.

Making it simple

Many firms require employees to work with a personal “health coach” in order to earn premium discounts or other incentives. Typically, the employee sets up appointments and reports to the health coach on a regular basis, either by phone or in person.

The good news: The early results are often encouraging.

The bad news: Once employees realize there’s ongoing effort involved, many lose interest. But many firms have found a simple alternative. Rather than having participants contact the health coach, the health coach calls them.

In many cases, this minor program tweak keep folks on the right track and cuts dropout rates.

Wellness starts upstairs

No matter how much money your company spends on wellness, the odds of success depend largely on the example set by top management.

Example: If your CEO is a smoker, chances are few employees will buy into a smoking cessation program.

Likewise, it’s hard to sell employees on subsidized gym memberships if your organization culture is sedentary. For wellness to work, the top brass must practice what the firm preaches.

When it comes to wellness programs, it can be tough to get past all the hype. Here’s how to avoid the three most common traps employers fall into.

Trap #1. The “one-size-fits-all” approach

For good reason, your organization doesn’t simply copy other firms’ 401(k) plans or compensation designs. Yet, all too often, firms adopt ill-fitting wellness programs based on things that have worked elsewhere.

Your CFO may have seen data on the cost savings other employers have achieved via certain wellness incentives. Or an old colleague of your CEO swears by the program at his or her own firm.
In response, the top brass pushes for a copycat program – for instance, offering smoking cessation incentives.

That might be a good idea, as long as smoking-related illnesses are a key driver of your company’s health costs. But how can you be sure? Is it good enough to have your employees undergo a health risk assessment?

Typically, the answer is no.

Health risk assessments are a great starting place, but it’s often a mistake to stop there. The assessments help you get a feel for what your employees’ baseline physical problems are before you try to design a program around them.

This creates rough outlines of what your program goals should be and where to target employee initiatives. If you want the maximum bang for your wellness buck, you’ll have to dig a little deeper for information. Key places to look:

• your organization’s medical-claims breakdown for the last three years
• prescription-drug claims
• employee absence information
• EAP use
• disability claims, and
• employee demographics (workers’ ethnic, gender, age and dependent coverage status points to greater – and lesser – health risks associated with each category).

Trap #2. Leaving the program on autopilot

Many wellness programs often get off to a good start and then fizzle out. Employers are left wondering what went wrong. Their mistake: They failed to revisit the program on an ongoing basis – at least every other year.

Why it’s crucial: Your cost-drivers can easily shift as employees come and go from the company.
Example: This year, emphysema and other smoking illnesses may be your biggest cost driver. But two years from now, it might be obesity and diabetes.

Unless you continuously track the program and adjust your goals as necessary, you may not be prepared to meet those new challenges.

Trap #3. Unrealistic expectations

Generally, it takes at least a year and a half for employers to break even on the cost of a wellness program. As a rule of thumb, the average program cost per employee per month to the employer is about $3 to $5.

If, after three years, you still aren’t seeing results, something went wrong. Currently, the benchmark ROI after the third year of a wellness program is $4 to $5 saved for every dollar spent.

How can you manage the cost in the short-term? In many cases, employers pass the cost of the wellness program on to the employees. For example, let’s say you want to roll out a wellness program effective January 1 (or whatever your first day is of the new plan year).

You can roll that $3 to $5 per employee per month cost directly into the employee’s monthly share of their healthcare premium. That makes the wellness program a budget-neutral expense for your organization.

But remember: You get what you pay for – both in time and money invested. The less guesswork that’s involved in the planning and execution, the better the chance for success.