Rising health care costs are prompting an increasing number of companies to encourage participation in employee health management programs through financial incentives and penalties, according to new research by Towers Watson (NYSE, NASDAQ:TW), a global professional services company, and the National Business Group on Health.

The 2011/2012 Staying@Work survey of 335 midsize to large companies found that the use of financial rewards increased by 50% between 2009 and 2001. By 2012, four in five companies plan to offer some type of financial reward to individuals who participate in their health management programs.

In addition, the use of penalties more than doubled from 2009 to 2011, rising from 8% to 19%, and is expected to double again by 2012 when over a third (38%) of respondents plan to have penalties in place. While just 12% of U.S. respondents report that they currently reward (or penalize) based on outcomes (such as target BMI or cholesterol levels), an additional 16% are planning this achievement-based approach for 2012.

"Employers today view health and productivity programs as integral to their overall health benefit strategy and efforts to control health care cost inflation," said Shelly Wolff, senior health care consultant at Towers Watson. "As companies strive to maximize employee participation in these programs, they are opting for both rewards and penalties. And many are finding these approaches are producing significant results."

Among employers that offer financial incentives for health risk appraisals, employee participation rates are 46%, compared with 19% for those that do not offer incentives. Participation in biometric screenings is 45% at companies with incentives and 25% at those without. By contrast, participation rates in disease management programs for chronic conditions were low among all respondents at just 14% and show little responsiveness to incentives, increasing to just 16% where incentives were present.

Costs continue to play a major role

Continuing investment in health and productivity programs is also fueled by concerns about the rising cost of employee illness and time away from work. In fact, health and productivity costs as a percent of payroll totaled nearly 27% in the U.S., a 22% increase from 2005 U.S. levels. What's more, overtime costs as a percent of payroll increased by nearly 70% from 2009 to 2011.

"The old adage of doing more with less is still a dominant theme," said Wolff. "But there's also a new twist. While employers continue to offer and promote programs to address health improvement, the accountability model has shifted over the last two years from one where managers and employees share responsibility to one in which employees are expected to bear the primary burden."

The proportion of respondents that believe employees should be accountable for maintaining and improving workforce health and productivity rose from 78% in 2009 to 83% this year. However, the percentage of employers that believe managers should be accountable dropped from 64% to 42% over the same period. Despite a five-fold increase, the percentage of employers that believe their employees are held accountable is still only 10%.

Effective health management drives better business results
 
While 89% of employers cite health and productivity programs as core to their organizational health strategy, companies with effective health and productivity programs achieve significantly better business outcomes.

According to the survey, employers with effective health and productivity programs are doing much more to link senior leaders to program performance, engage employees in the management of their health with incentives, measure program outcomes, target preventable causes of employee absence and personalize communications for specific employee populations.

In particular, top performers achieved:
• Industry-adjusted average revenues per employee that were 40% higher than low-effectiveness companies, a difference of $132,000 per employee
• Fewer lost days due to unplanned absences and disability, which when combined with savings on health care costs, creates a $27 million annual cost advantage for a U.S. company with 20,000 employees and an average pay level of $50,000

"The evidence overwhelmingly shows that effective health and productivity programs can make a real difference to a company's bottom line," said Helen Darling, CEO of the National Business Group on Health. "There are unrelenting pressures on employers and employees today, but improving employee health is an opportunity for a true win-win."

*The Staying@Work survey findings reported in this press release are based on the responses of 248 companies based in the United States. Findings based on the responses of Canadian companies will be issued in November 2011.