Participation vs Outcome

Wellness programs fall into two primary programs;

    Participation based wellness programs

    When a wellness program engages and the goal is to get employees to just participate, many wellness engagements will entice or encourage employees to show up for the wellness events.  The employee is usually enticed by the belief that a better lifestyle will make them feel better.  The best example is providing employees with a picture of a healthy lung, and then a second of an unhealthy lung and saying “wouldn’t you rather”.

    In some cases this is known as a “know your numbers” campaign where you might even provide, at an added expenses to the employer, blood profiling which would help the employee be informed under the hopes that if the employee is informed, they will actually do something about it.

    Participation based wellness programs get very little if any discounts from insurers to offset the expenses taken on with such informational campaigns.  Many insurers believe these engagements are so slight that they may not be even noticed, and if they have any impact, it will be given to the next insurer who the employer might transfer to at the next premium renewal cycle.  Therefore carriers will usually say that your reward will be found in your own claim reductions, if in fact they happen.

    In order to entice the employees to utilize these “participation” based systems, employers will start to offer incentives or rewards in order for the employee to participate in the wellness campaign.  These incentives should be added to the overall cost of your health plan, but in the end, they gain more, but still an insignificant participation value.  I.e.; if you participate in the blood screening, I’ll give you $50, or if you utilize the gym membership, I’ll pay ½ the cost of your membership.

    In the end, those who participate are usually the wrong people to affect your health plan costs.  These are usually the people who already use the gym, they are thrilled although that you are willing to now pay ½ or they are those who just want to know their resting heart rate for their own exercise campaign.

    Many of these programs have a built in fraud contingent, where the employee won’t tell the truth about their lifestyle habits because they are just interested in the $50.  They may say they don’t smoke in order to get the reward, but continue after hours.  Many pedometer programs have deception involved where employees will attach the pedometer to their dog’s collar or spin it in their clothes dryer in order to get the appropriate steps necessary for the cursory reward given by their employer.

     

    Outcome based wellness programs

     The second and more accurate system is an “outcome” based system.  This is where the employee participates in a blood screening, and the result from the blood profile determines the reward.  If then nicotine shows up in their system, then they are not eligible for the reward.

    Most states allow outcome based systems, provided you are state approved, and limit your profiles with outcomes attached to those personally controlled by the employee, i.e.; BP, cholesterol, BMI, nicotine, and in many cases A1C (blood glucose levels).  It would be probably illegal for you to ever given an incentive for someone to not have a disease or a specific genetic dilemma, but if the employee has personal control over the factor, it then is viewed as their personal choice.

    Applying rewards then to this accelerates the employee engagement to a wellness program that provides clarity and accuracy, especially if the rewards are considered robust/meaningful.  These engagements will likely gain you deep financial discounts from your underlying insurer because of the significant belief that engagement will result in lowered claims spend.

    INCENTIVES        

    There are dozens of incentives that can be used, from points systems that are redeemable, to movie tickets to tennis shoes, but they all fall into 3 primary types;

    Gift Cards   ($1.40 per $1.00 of incentive)
    This is by far the most expensive incentive because it is a present value dollar, and is taxable as income for all values above De Minimus, and in some cases it’s a card for a retailer that goes bankrupt before it’s used and therefore worthless.

    Cash   ($1.00 per $1.00 of incentive)
    This is always taxable as income UNLESS provided as a premium offset via Section 125.  This incentive cost at least $1.00 per $1.00 of incentive.

    Actuarial incentives   ($.25 per $1.00 of incentive)
    This is by far the cheapest incentive because of the actuarial conversion factor which multiplies its value.  As an actuarial model, the cost of this incentive is highly regulated and must be pre-approved by the Dept of Insurance.

    EXAMPLES OF COST

    If the employer of 100 employees were to give a $500 incentive

    GIFT CARD CASH ACTUARIAL/DEDUCTIBLE VALUE
    If the employer of 100 employees were to give a $500 incentive

    $500 x 1.4
    $700 x 100 ees = $70,000
    No admin
    $70,000

    $500 x 100 ees = $50,000
    No admin
    $50,000

    $500 x .25 = $125 x 100 ees = $12,500
    admin like FSA $5000
    $17,500

    If although the employer desires 4 credit values at $500 each or $2000 total value for 100 employees

    $2000 x 1.4 = $2800
    $2800 x 100 ees or $280,000
    No admin
    $280,000

    $2000 x 100 ees = $200,000
    No admin
    $200,000

    $2000 x .25 = $500 x 100 ees = $50,000
    admin like FSA $5000
    $55,000

    All those in the wellness arena would agree and believe that a fully functioning wellness program must have rewards or incentives in order to be meaningful. There seem to be dozens of different types of incentives that might be offered, but the each fall into 3 common buckets or types.

    The first is by far the most expensive in that when you give a gift card, it is considered a “present value” dollar. If you were to give an employee $500 to participate in the wellness program inside a gift card, I was forced to fund the card prior to giving it to the employee. A $500 incentive would likely be taxed then as income because it surpasses the IRS rules on deminimus which suggest that any gift about $60 is taxable as income. And even more significantly it would be disastrous for your gift card program if you would give cards to retailers who go out of business before your employee enjoys their reward. This category of incentive usually costs approximately $1.60 for every $1 given in an incentive to your employee.

    The second category that is meaningful yet still expensive is cash. Cash comes in many forms, from outright cash, to a more common form being premium offsets. Without the protection found inside the premium offset and its corresponding Section 125 pre tax calculation, other forms of cash would also be taxable. Therefore most employers choosing to give cash do so through the premium offsets to avoid income tax. This incentive although still costs approximately $1.2 per $1 given. If given through premium offsets, the employee will gain the entire $500 incentive (keeping the example the same) when the year ends where the employer gave $40 per month, totally $500 per year. Further, premium offsetting cash is a $500 expense for each employee when the year ended, and is a consistent burden on cash flow regardless of any claim savings virtues.

    The third and least expensive incentive is found inside an actuarial value. This is most likely engaged through a reward toward the health plans deductible. This incentive will cost around $.20 per $1 of incentive given because, all contributions are tax deductible as premium, and not taxable as income when the employee receives the rewards. Further, as a state regulated incentive, we must validate to the state the likelihood of expense, when in the year the expense will be incurred, what value of the incentive won’t be used by year end, and the fact that you need to have a claim first before you can gain value of your reward.

    The significance of the discounts given by the underlying insurance company to launch a wellness campaign is almost non-existent for participation based incentive programs because they get very little engagement. For that matter, the underlying insurance companies fully believe that whatever engagement a participation based wellness program gets are probably the wrong people. Had the other/non-participating employees been involved in the wellness program, the insurance company may have given discounts. But accelerates as you go to outcome based systems, and then are in full stride when outcome based systems are coupled with significant/meaningful incentives.

    Participation based incentives get very little discounts from the underlying insurance company and accelerate when outcome based incentives are engaged, then they flourish when outcome based programs are engaged, using significant/meaningful incentives. In this scenario, the discounts from the underlying insurance company surpass the cost of the wellness program and the value of the incentives conbined.

    With outcome based systems, participation jumps dramatically.

     

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