Employee Wellness Programs Research Paper

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In “Prevention Makes Common ‘Cents,'” a report issued in 2003, the U.S. Department of Health and Human Services (HHS) estimated that 129 million adults in the United States are overweight or obese and that treating medical conditions related to obesity costs $69 billion to $117 billion per year. HHS also reported that more than 75% of all health-care dollars are spent on chronic con-ditions such as diabetes, obesity, cardiovascular disease, and asthma—most of which are preventable. In addition, 70% of the cost of health care is incurred by just 5% of the population. Considering that health-care costs are on a steady upward projection—12.5% in 2005 alone—many employers have begun to develop a proactive approach to long-term health-care cost containment through encouraging employee wellness and disease prevention. The target is not those who are already chronically ill, but those who are in an at-risk category. The goal is to provide interventions designed to maintain good health. For those who are successful in these efforts, the benefits are not only realized in lower health-care spending, but also higher employee productivity and enhanced organizational performance. Accordingly, it is important for firms to understand what these programs consist of, how employee wellness programs create positive business results, and how to implement such programs in their own organizations.

Employee Health Promotion As A Business Imperative

Employee health and wellness programs attempt to improve the overall health status of employees and sometimes even employees’ family members through prevention, education, and health interventions (Johnson & Johnson, 2003). Companies in the United States began to use workplace health and wellness programs in the 1970s, largely in response to declining employee health status and rising health-insurance costs (Conrad, 1987). By 2005, 75% of companies in the United States were offering health promotion programs, up from 56% two years earlier (Pallarito, 2006). Thus, while health and wellness programs at work are a relatively new development, they have rapidly diffused and play an important role in firms’ efforts to become more competitive.

So why do organizations care about the health of their employees? This is not a simple question to answer, as a number of evolving cultural forces have resulted in an increased focus on improving employees’ health rather than on merely treating their illnesses. Results from over 22 years of health and wellness interventions, including more than 100 empirical research studies, suggest that these programs provide improved health outcomes and a positive return on investment for business organizations (Pelletier, 2005). Accordingly, these programs have shown to be not only beneficial to employees but also to the employers who utilize them. Health and wellness programs have also been shown to have beneficial effects on organizational financial performance. Wellness programs have been commonly attributed with being “at least partly responsible for slowing the increase in health insurance premiums” (Kossek, Ozeki, & Kosier, 2001, p. 25). In addition, they have been shown to reduce absenteeism and increase employee productivity (Eddy, Eynon, Nagy, & Paradossi, 1990). For example, city employees in Garland, Texas, took part in a half-year health and wellness program in which they collectively lost around 800 pounds, leading to an annual health-care cost reduction for the city of around $700 per employee (American City & County, 2005). This savings results in a reduced burden on taxpayers as well as increased services provided by the city to better meet its citizens’ needs.

Health and wellness programs may become increasingly important in the future due to the competitive nature of the global marketplace. In an intense market for human capital, any advantage enhances firm competitiveness. The extent to which health and wellness programs can improve employee morale and company image creates an edge in employee retention (Conrad, 1987). Higher morale and improved reputation can serve to not only make existing employees more productive but also to make it easier to attract quality employees in the future. For example, providing employees with a corporate gym is not uncommon, and this practice can be viewed as a tool for not only improving employee fitness levels, but also employee recruitment (Fickensher, 2004) . Access to a corporate gym is a recruiting “perk” that is attractive to potential employees, particularly those with a busy family life or a long commute. As work and home environments have become less physically demanding, the overall fitness level of the population has declined (Paton, 2005) . In the past, when work environments were more physically demanding, work itself often provided health benefits. Many modern occupations tend not to be physically strenuous, thus supplemental exercise is becoming necessary if employees are to maintain their health.

Other factors such as urbanization, automation, and an abundance of relatively inexpensive food have added to the overall phenomenon of poor physical health in the United States. From an employer’s perspective, the increasing average age of workforce participants magnifies the negative effects of these changes, as health and physical fitness tend to decline with age. These societal and demographic changes have led to increases in diseases such as cancer, cardiovascular illnesses, and diabetes. These conditions are not only disabling to employees, but can also be very expensive to employers in the forms of lost productivity and insurance expense. Insurance benefits are an important set of issues for U.S. firms, as they often pay a significant portion of the health-care costs of their employees. Accordingly, increasing and potentially avoidable health-care costs have resulted from employee illnesses associated with these societal trends. From an employer’s perspective, the costs include increasing insurance premiums, loss of employee time due to illness, and decreased productivity (Johnson & Johnson, 2003). Organizations with higher utilization rates are subjected to increased insurance premiums. Employee illness is costly to employers as it results in employees not performing their jobs effectively due to not “feeling 100%” while on the job, which diminishes productivity or even causes employees to stay home from work, which means they are completely unproductive. Taken together, these additional costs can eat away at the profit margins of business organizations. Every dollar spent for employee health care is one dollar less that can be spent on servicing customers, investing in research and development (R&D), or returned to investors as profit. Thus, it is important for companies to take into account not only the direct costs, but also the indirect costs of decreased productivity and the opportunity costs of poor employee health.

The escalation of workforce-related health expenses has created strong incentives for organizations to manage this aspect of their business more actively or have their financial performance threatened. From this perspective, developing and successfully implementing employee health and wellness programs becomes vitally important for firms seeking to become more competitive through effective human resources development. An effective and loyal workforce is an organizational feature that is unique to a firm and creates a strategic capability that is difficult to imitate.

Health and wellness programs seek to build a sustainable human resource by mitigating the costs of employee illnesses related to preventable causes. This focus on preventable causes is important because it indicates to employees that their employers are taking a proactive approach to creating a healthy work environment. Health-care costs are far from trivial for modern firms. These costs are second only to wages in the total compensation package and are thus a significant concern for many organizations—particularly those with aging workforces that have guaranteed benefit structures such as the auto industry (Fottler et al., 1999). For example, DaimlerChrysler Corporation has over 95,000 employees throughout the United States. In 1985, it instituted a national wellness program as a negotiated benefit between the company and the United Auto Workers Union (UAW). By 1995, the program resulted in savings of over $1.5 million dollars per month (Fottler et al., 1999). In the capital-intensive auto industry, significantly reducing the overall cost structure by that amount creates a sustained competitive advantage. For most organizations, it is enough of an incentive to invest in the health of their employees.

A Change In Mind-Set: Illness Prevention To Wellness Promotion

Wellness programs are the result of companies realizing that it may be cost efficient to focus on keeping employees healthy rather than paying for the costs of treating the outcomes of poor health (Pelletier, Klehr, & McPhee, 1988). The wellness movement is a significant advancement in employer/employee relations, as it may enable health care to be viewed from an entirely new perspective. Thus, the health and wellness movement involves a major paradigm shift from focusing on alleviating or reducing work-related illness to helping employees maintain and improve their health status, with a special emphasis on facilitating positive behavioral changes. Positive behavioral changes may set in motion a “virtuous spiral” that is beneficial to both employees and employers. Rather than looking at health care as simply a cost to be minimized, it can be seen as an important human resources investment that enables employees to be more productive. In doing so, health care is transformed from being viewed as an organizational constraint to being viewed as a potential competitive advantage in the form of facilitating a superior workforce. Firms with healthier employees are likely to be more productive, efficient, and successful. Thus, health and wellness programs can be seen as complementary to other strategic human resource approaches that are concerned with maximizing human capital for long-term competitive advantage.

Whereas traditional health-care approaches may have focused solely on those experiencing illness, health and wellness programs are for everyone in an organization, even those who are relatively healthy. Accordingly, due to the sheer number of people who participate, they offer significantly more potential to be beneficial to firms than programs focused primarily only on those who may have poor health. Research has shown that employees with poor health have lower work performance than those with good health, and this difference is equivalent to working one full day less in a workweek (Paton, 2005). Over the course of a year, this research suggests that a firm with healthy employees would gain an additional 2 months of productive efforts from its employees. In addition, “presenteeism” is reduced—employees who come to work but get less done due to chronic but not controlled diseases or health behaviors and risks (Burton et al., 2004). Thus, employee health has a tremendous impact on productivity. Empirical research also indicates that employee participation in health activities may lessen the occurrence of undesirable outcomes related to poor physical health such as heart disease (Eddy et al., 1990). As an example of how costly poor health choices by employees can be for organizations, a recent U.S. Air Force (USAF) study illustrates the magnitude of the costs associated with employee tobacco use. The USAF estimates it loses around $107 million annually due to the impacts of employee smoking (Robbins, Chao, Coil, & Fonseca, 2000). Thus, a proactive stance on employee health would likely reduce the use of tobacco, improve overall employee health practices, and provide early intervention for chronic illnesses and diseases. This simple example serves to illustrate the potential power and value of taking a health and wellness approach in regards to employee health. When compared with the traditional disease management approach to health care, “the health and wellness approach seeks to address the root causes of chronic conditions and explores avenues such as lifestyle changes, habits, and environment to help people avoid developing those conditions” (Oort, 2005, p. 7).

Health and wellness programs also seek to lower costs by decreasing demand for clinical medical services that are paid for through the company’s insurance plan (Kossek, Ozeki, & Kosier, 2001). This demand reduction approach is innovative in that it views the solution to poor employee health as being improved behaviors by employees, as opposed to passively hoping for technological breakthroughs that will cure the health problems faced by employees. The focus is on enabling positive behavioral change rather than on facilitating technological advancement as the primary solution for rising health-care costs. This health and wellness approach views the answer to escalating health-care costs in improved employee lifestyle choices and behaviors rather than improved technology.

Types Of Employee Wellness Programs

Employee health and wellness initiatives range from simple health-risk appraisals to complete on-site services. A recent study by the Society for Human Resource Management (Weatherly, 2005) found the following to be the most commonly cited components of organizational wellness programs:

  • Reducing insurance premiums for those who participate in health screenings
  • Reducing insurance premiums for nonsmokers
  • Waiving and/or reducing deductibles and copays for preventive care
  • Providing on-site fitness facilities or discounts to area fitness clubs
  • Sponsoring weight-management programs
  • Conducting workshops on health and wellness (e.g., smoking cessation)
  • Sponsoring on-site health fairs with free laboratory testing/health screening
  • Providing flu shots
  • Paying for or subsidizing on-site massages
  • Supporting corporate fitness clubs (walking, biking, hiking, etc.)

Health-risk appraisals may include a wide variety of tests that seek to determine the current health status of employees.

These screenings provide information to both employees and employers that may enable positive behavioral changes, which enables employees to understand their current level of health and to develop a plan for improvement. This is important because some employees may not realize they are at risk until their health is assessed (Oort, 2005). Some highly debilitating and costly health problems such as diabetes, heart disease, and obesity may not even produce symptoms that are recognizable as warning signs until the conditions are significantly advanced. These screening tests are generally low cost and simple to administer. At the other end of the cost-continuum, some organizations have instituted on-site medical clinics to provide employees with easy access to medical care. This can be important for employees who may have very little time outside of work and thus may neglect their health or fail to seek necessary medical advice without easy access to these services at work. Other organizations may provide on-site fitness centers to make it possible for employees to exercise before or after work or even during the work day. The convenience of these fitness centers may provide an incentive for employees to exercise who would not otherwise do so because of lack of time or desire to go to a fitness center requiring a separate trip. In the middle of the continuum are programs that offer cash incentives for participation in healthy activities, medical coverage discounts contingent on good health assessments, smoking cessation programs, and health-club membership reimbursements. These programs are effective in improving employee health, as they provide additional incentives or make participation in healthy activities more convenient. These programs are more than just good intentions. Health and wellness programs have been attributed to both improving employee health and decreasing the costs of providing health care for employees.

One example of a successful health and wellness program is Maple Grove, Minnesota, which provides cash incentives for employees to participate in activities that can improve their health and reduce the likelihood of their incurring health-care costs (Sweeney, 2001). In this program, employees can be rewarded for participating in a variety of programs such as health assessments or weight-loss meetings. These cash incentives are utilized to motivate employees and have been successful, as health-care costs per employee are decreasing and have ranked below the average nationally since 1998. Further, greater wellness among the city employees has produced numerous benefits. It has led to a less stressful work environment, improved retention, increased productivity, and below-average health-insurance inflation.

Effective wellness programs are mutually beneficial for both employers and employees. Employees benefit from improved quality of life and employers benefit from improved organizational performance. Thus, health and wellness programs have the potential to be highly beneficial as they facilitate the undertaking of immediate behavior changes that will in turn provide numerous long-term benefits.

Keys For Successful Implementation Of Health And Wellness Programs

The most significant factor in the success of an employee wellness program is leadership buy-in demonstrating support and enthusiasm for the initiative. Wellness must be integrated into a company’s strategic plan, articulating a vision for employee well-being. Employees must see the top-level leaders involved in wellness efforts before they will engage in the programs; otherwise these programs will be viewed as a “flavor-of-the-month,” short-lived management fad. Successful employee wellness programs share the following hallmarks: They begin with health-risk assessments, offer a number of employee incentives, and track measurable results in turnover, absenteeism, claims data, and insurance costs over a multiyear period.

Implementing a health-risk assessment is an important first step in creating an employee-wellness initiative, as employees who are most at risk for disease or illness are often unaware of their risk factors. To the degree that health-risk assessments are able to improve the detection of chronic disease markers, they are likely to provide important motivation to employees to make efforts to change their behaviors and improve their health. In addition, health-risk assessments enable companies to gather anonymous information about employee health and create programs to lessen the probabilities of undesired outcomes (Fickensher, 2004). They can enable firms to gain a clearer picture of the nascent health conditions of their employees and thus make it possible for them to intervene before health problems become severe. This aggregated baseline information is important for measuring overall outcomes of wellness programs through insurance claims information and experience rates.

Incentives greatly increase participation in wellness programs among employees who have the greatest risks of health problems (Oort, 2005). Incentives that may work well and improve the likelihood that health and wellness programs will be successful include cash or decreased costs of health care. For example, one incentive-based wellness program “offered insurance premium reductions or increases in copayments, and coupons to apply to flexible benefits based on annual evaluations of health and fitness by medical staff, wellness classes, access to fitness facilities, and assistance with weight loss and smoking cessation” (Kossek, Ozeki, & Kosier, 2001, p. 24). Companies such as Coors Brewing Company and Dell provide health-care premium discounts to employees who participate in wellness program activities (McQueen, 2006). Utilizing a variety of incentives is important in order to appeal to a diverse group of employees. For example, some employees may be highly motivated to reduce their health-care costs. For others this may not be important, but they may be motivated by having easier access to exercise facilities or the opportunity to join a company-sponsored hiking club. Whatever the method, creating a culture of health through a number of employee wellness activities is critical to employee adoption of healthy lifestyle choices.

Calculating the return on investment of wellness programs through measurable outcomes is a critical factor in assessing the success of the initiative. As previously mentioned, common measures include turnover, absenteeism, and reduction in health-insurance premiums or claims. However, quantifying wellness return on investment is a challenge because the savings happen over a multiyear period and often cannot be measured in the same straightforward manner as actual expenses. Thus, it may be difficult for health and wellness programs to show a positive return on investment (Paton, 2005). The actual financial benefits of these programs may take time to materialize, as improved health is not immediate but takes constant, prolonged effort. A short-term focus can hinder the utilization of and success of longer term programs (Eddy et al., 1990). Intangible benefits such as employee morale, recruitment enhancement, or increased retention of employees must also be considered in the return on investment equation. Examples of the wide variety of positive outcomes possible with a successful wellness program are illustrated in Table 60.1.

employee-wellness-programs-research-paper-t1Table 60.1 Employee Wellness Programs Return on Investment Factors

Challenges For The Implementation Of Wellness Programs

Three major factors make the implementation of health and wellness programs problematic: employee attitudes, calculation of return on investment, and legal requirements. Like any other programs that require significant behavior changes, the possibility of long-term rewards may be insufficient to change unproductive behaviors and overcome the inertia of bad habits that may be widely accepted and difficult to overcome. Implementation challenges include employee disinclination to get involved and the difficulty of quantifying the cost savings that result from improved employee health (Oort, 2005). These programs may require infringing on employees’ lifestyles in order for them to take the steps necessary to achieve improved health (Paton, 2005). Employees may be defensive to external efforts to change them and may exert their freedom to act as they choose, even if it is detrimental to them or the organization. They may believe that the organization is “heavy-handed” or “paternalistic” in its efforts to improve employee health. Many studies have focused specifically on the return on investment from worksite health promotion and disease-prevention programs. One recent review identified well-conducted, rigorous evaluation studies of return on investment, then documented the range of return on investment estimates in these studies, and examined the factors that influenced program outcomes and return on investment estimates (Goetzel, Juday, & Ozminkowski, 1999). Findings on the return on investment for health promotion and disease management programs were reported for nine employers: Canada & North America Life; Chevron; City of Mesa, AZ; General Mills; General Motors; Johnson & Johnson; Pacific Bell; Procter & Gamble; and Tenneco. These programs provide health education to their employees to promote behaviors that will improve health or prevent disease, and typically include exercise programs, health-risk appraisal, weight control, nutrition information, stress management, disease screening, and smoking cessation. The review found significant return on investment for the programs provided by these nine employers, with the range of benefit-to-cost ratios, ranging from $1.49 to $4.91 in benefits per dollar spent on the program and a median of $3.14. For instance, at the high end, General Motors realized at one of their sites an annual savings of $105.50 in total healthcare costs per enrollee for an annual program costing $27 per enrollee—a ratio of 4.91 to 1 (benefits to costs). These outcomes demonstrate that improving employee health is a long-term commitment and probably will not improve the performance of the overall organization significantly before the next quarterly reports.

A third and final challenge to the implementation of wellness programs is the burden of legal reporting requirements and privacy statutes. Employers seeking to establish wellness programs in connection with an employer-sponsored group health-benefits plan need to take into account certain requirements under ERISA, the Internal Revenue Code, and the Public Health Service Act (PHSA). All three laws were amended by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to provide for improved portability and continuity of health coverage. HIPAA also added Code section 9802, ERISA section 702, and PHSA section 2702, each of which prohibits discrimination in health coverage based on health status. These nondiscrimination provisions, however, do not prevent a group health plan or health-insurance issuer from establishing discounts or rebates or modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention (Alvarez & Soltis, 2006). To qualify, programs must generally be open to all employees, be limited in their reward amounts, and provide a reasonable alternative standard for employees who are unable to participate for medical reasons (such as maintaining a cholesterol count below 200 or losing 10% of one’s total body weight). HIPAA further dictates the privacy standards that health-care providers (and employers) must adhere to when communicating with employees about their protected health information (PHI). The National Labor Relations Act (NLRA) requires a unionized employer to bargain with the union regarding wages, hours, and other terms and conditions of employment—so-called mandatory subjects of bargaining. Failure to do so constitutes an unfair labor practice under the statute. The National Labor Relations Board would likely find that participation in a wellness program—even if voluntary—is a term and condition of employment, especially if the program includes financial incentives. Finally, wellness programs must comply with the Americans with Disabilities Act (ADA), particularly in regards to making reasonable accommodations for disabled employees. Overall, employers are advised to take the following steps to minimize the likelihood of legal challenges to their wellness initiatives:

  • State the positive purposes for the program, and consider whether these purposes may be achieved without medical inquiries.
  • Avoid a coercive tone, and emphasize voluntary participation.
  • Frame incentives as rewards, not penalties.
  • Provide accommodations for individuals with disabilities to enable them to participate in the wellness program.
  • Retain a third party to manage medical information.
  • Comply with applicable state lifestyle or disability discrimination laws.
  • Raise awareness about inappropriate remarks about lifestyle. Jokes and nicknames are fodder for harassment and discrimination litigation.
  • Bargain with the union to extend the program to represented employees.

Health and wellness programs have been critiqued for a number of reasons. For instance, some point out that much of the health-care costs borne by employers are attributable to the family members of employees rather than the employees themselves (Conrad, 1987). According to this reasoning, health and wellness programs at work would be of little benefit because the employee’s family members are not able to utilize these programs. Moreover, no amount of physical fitness may be able to compensate for poor mental health among employees. Poor employee mental health may necessitate other interventions far different from those utilized in health and wellness programs. However, these criticisms are not entirely justified. To the degree that health and wellness programs apply to and are utilized by family members of employees as well as employees, and to the degree to which improved physical fitness also is associated with improved mental health either directly or by enabling people to better cope with stress, these criticisms are largely unfounded. Another criticism of health and wellness programs is that some view these programs as controlling, as they may require employees to participate in a health-risk assessment in order to qualify for insurance coverage (McQueen, 2006). However, while this may be true to a certain extent, it would be unreasonable to think that employees should benefit without any costs. Making positive behavioral changes is not easy, but it appears that these changes are indeed worth the effort. Empirical research has demonstrated that employee wellness programs are beneficial to both employees and employers. Accordingly, for firms to be productive and competitive, we posit that it is important for them to understand the potential value of health and wellness programs. Further, it is important for them to understand how they can best overcome the challenges and resistances that these programs face, and how these can be overcome, so that they can be successfully implemented.

Summary

As the cost of health care continues to escalate, many employers are choosing a proactive approach to long-term cost containment by encouraging employee wellness and disease prevention. Poor employee health is associated with increasing costs to employers due to increased health-care and insurance costs, lost employee productivity, and the opportunity costs associated with lost investments in value creating activities such as R&D. Societal trends such as sedentary working conditions, an aging workforce, easy access to abundant amounts of unhealthy foods, and technological conveniences have made it more difficult for employees to maintain good physical health. Thus, employers are often challenged with finding ways to induce their employees to pursue healthy life choices, thereby preventing many of the chronic diseases that plague so many Americans today.

Employee wellness programs are now found in 75% of major organizations. These programs have been shown to not only improve employee health but also to improve organizational performance and lessen the negative effects of undesirable social trends of diminishing physical health. It is anticipated that the utilization of health and wellness programs at work will continue to increase, becoming even more important for organizations as employees become more health conscious, and employers look for new ways to reduce insurance costs, worker absenteeism, and improve productivity. While improved employee health will not completely counteract the annual increases in healthcare expenses, a number of studies have demonstrated per employee savings of up to $800 per year. Further, through enhanced productivity and decreased presenteeism, investments that lead to healthy employees are also beneficial for organizational success. This will be especially true in a global economy where competitive advantage is fleeting and pressures to become more efficient and effective are present. Overall, employee health and wellness programs are viewed as an important human resources innovation that provides benefits to employers, employees, and society in the form of improved health, enhanced organizational performance, and reduced health-care costs.

References:

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