The HR Specialist

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First, employers suggested. Then, they encouraged. Then pleaded. Now more U.S. employers are turning to the almighty dollar to get their employees to change their pound-packing, chain-smoking, sedentary ways.

Despite the sour economy, more employers are creating and expanding wellness programs in recent years. And they’re increasingly turning to financial rewards and penalties to increase participation.

“In previous economic downturns, investments in benefit communication and employee wellness were among the first to get cut from a benefit program,” said Dave Guilmette, director of health programs at HR consulting firm Towers Perrin. “The increasing investment in employee wellness we’re seeing today shows that more employers are beginning to recognize the long-term financial benefit.”

But don’t expect instant magic. It can take three years or more for wellness programs with the right rewards and penalties to boost participation and cut health care costs. Programs with the wrong inducements (or none at all) are unlikely to produce good results.

Financial incentives change behaviors

Companies that offer financial rewards see a much higher participation rate in wellness programs, according to a recent Watson Wyatt survey.

A different survey from Towers Perrin says nearly one in three employers (32%) will introduce or increase financial incentives for wellness programs in 2009 and 2010. Another 30% of employers are considering such actions.

Why the financial arm-twisting? It’s simple. Wellness programs are one of the only tools with positive ROI in fighting soaring health costs.

In fact, a new U.S. Department of Health and Human Services study says U.S. organizations save between $1.49 and $4.91 in health-related expenses for every dollar spent on wellness programs.

The art of the deal

The Watson Wyatt report suggests employers implement financial incentives using the following guidelines:

• No need to go overboard. Financial incentives as low as $51 to $100 can improve employee participation in weight management and smoking cessation programs.
• Still, money does talk. Generally, the higher the amount of the financial incentive, the greater the impact on participation.
• Financial incentives do little to encourage employees to join disease management programs.

According to a Mercer Consulting report, cash incentives of up to $100 per employee combined with a good communications strategy can boost participation rates up to 50%. Incentives of $250 or more can increase participation by 70% or more.

Cash-equivalent rewards—such as a gift cards or contributions to a Health Savings Account—yield similar results.

Carrots, yes, but don’t ignore sticks

Nearly half of U.S. employers (45%) say they hit employees with financial penalties if workers fail to participate in wellness or health promotion activities, says the Towers Perrin study.

For other companies, a mix of carrot and stick works.

Example: Scotts Miracle-Gro Co. reimburses the $10 monthly fee it charges for the use of a company fitness center after 120 visits.

Meanwhile, Scotts’ employees who don’t take health risk appraisals are required to pay a $40 monthly insurance premium surcharge. Employees who score poorly on the appraisal and do nothing to lower their risk pay a $67 monthly surcharge.