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March 20, 2008

THE WELLNESS CURE

Cost-conscious metals companies are getting into the employee health business via an array of wellness programs. It's not clear, however, whether the cure is better than the illness.

You might think that one solution to rising healthcare costs is to keep employees healthy. People who drop weight, stay fit, eat right, don’t smoke or otherwise contribute to their own demise must visit doctors less often, use fewer drugs, require fewer surgeries and, thus, save money. After all, an ounce of prevention is worth a pound of cure, right?

Not necessarily. Savings assumed to come from wellness programs are far from proven. Moreover, some observers note that employer intervention in employee health can cause legal expenses to suddenly rise when workers cry foul or something goes wrong.

Nonetheless, wellness has been the healthcare solution of choice for several decades. A 2007 survey of multinational employers of more than 3 million employees, conducted by the National Business Group on Health and PricewaterhouseCoopers’ Health Research Institute, found that 33% of companies are engaged in comprehensive wellness programs in multiple countries, while another 17% favor at least one wellness initiative. More than half of surveyed companies expect to increase wellness investments in the next five years.

Among metals companies, studies show more than 80% provide at least one health-related program, including wellness, smoking cessation, disease management and health risk assessment plans.

LACKING EVIDENCE

But even leading advocates of workplace health programs say cost-savings are difficult to measure. The University of Michigan Health Management Research Center analyzed hundreds of studies of worksite health programs. While many studies cite savings-to-cost ratios of more than $3-to-$1, center Director Dee Edington says “good science” is hard to find because workplace sample sizes are too small to provide a true clinical trial. Additionally, there’s a bias: Usually only positive results are published.

“I don’t believe the ROI studies out there because the participation rates are so low in the worksite,” Edington says. “If they do wellness programs and only 10% to 20% of the employees participate, you can get a tremendous ROI and not make a [cost] difference in the organization. You need 90% to 95% participation in order to make a difference in any outcome—trends of healthcare costs, prescription costs, short-term disability, workers compensation.” Given the current methods, achieving such high participation rates can take years or may never be accomplished.

“It takes time to get credible data to see if we’ve made strides with medication compliance, adherence to tests, preventative measures, and then go back and say, ‘If we have a patient that is well-managed, we save this much,’” says Jennifer Boehm, Atlanta-based principal at human resource services company Hewitt Associates.

Shira Capellini, director of business and new program development for Wellness Coalition America, a corporate wellness program provider, says return on investment (ROI) is meaningless in the wellness realm because it’s based on assumption. “We’re huge proponents of auditing, tracking and measuring results and progress,” she says. “You can’t say 100% that a diabetic would go on dialysis if it wasn’t for our program. What we can do is audit and track participants that are diabetic to determine if they’re filling their prescriptions, seeing their doctor and being compliant with recommended preventative screenings. We look at VOI—value on investment.”

In short, ROI measures hard or tangible benefits such as cost savings, while VOI considers benefits that go beyond dollars and cents, such as improved health or better workplace morale.

The primarily self-insured companies served by Wellness Coalition America aren’t bothered by the lack of definitive evidence on how much healthcare costs can be reduced through wellness programming. “If you’re saving one person from going to the emergency room, if you’re saving one diabetic from a foot amputation, you’re saving a company hundreds of thousands of dollars,” Capellini says. “When you are keeping employees healthy, the company is immediately reaping those benefits out of their pockets.”

Employers must tread carefully, however, given the requirements of the Health Insurance Portability and Accountability Act, which limits employers’ ability to charge different rates based on health, and the Americans with Disabilities Act, which restricts the questions employers can ask about employee health. There’s also potential employer liability if third-party wellness firms, health coaches and disease management providers make mistakes.

Carolyn Plump, a partner in the labor and employment law practice group of Philadelphia law firm Mitts Milavec LLC, says any cost-benefit analysis of wellness programs is incomplete without giving due consideration to potential legal costs. In fact, Plump, an expert on corporate wellness programs who counsels employers on employment policy issues, calculates that the risks of future discrimination, negligence and privacy lawsuits are too high. She advises employers to avoid wellness programs altogether. “The attention and effort needed to set up a legally defensible plan and monitor ongoing issues [is] significant,” she says.

LEGAL LAND MINES

A smattering of cases across the nation forebode “an exponential increase” of wellness-related lawsuits over the next decade, she notes. The city of Taylor, Michigan, discontinued its mandatory wellness program after being sued—and losing—for forcing firefighters to participate in blood screenings that would detect cholesterol levels. In Massachusetts, an employee is suing his employer, The Scotts Co., after he was fired for testing positive for nicotine in violation of a company smoking ban.

In an Ohio case, a widow is suing an employer and its thirdparty testing facility for negligence in interpreting, evaluating and communicating her late husband’s blood test results, which were obtained through a wellness program. Her late husband received the results, which showed an abnormally low hemoglobin level, but gave no explanation as to what that might mean. He died three months later from an aggressive form of colon cancer. A ruling in favor of the widow would weaken the prevailing confidence among companies that using third parties to administer wellness programs relieves them of liability.

“Any potential savings in insurance premiums will be lost in the cost of oversight and administration of the plan, defending complaints and claims regarding such plans, or due to lawsuits over employment decisions allegedly made as a result of information learned through such plans,” Plump says. “Even the attention and effort needed to set up a legally defensible plan and monitor ongoing issues would be significant. Employers do not need to burden themselves voluntarily with programs that add another arrow to employees’ already large quiver of potential claims.”

Karen Corman, a partner with Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates in Los Angeles, says if an employer contracts with a third party to engage with its employees, then the third party’s conduct is attributable to the employer. The labor and employment lawyer who specializes in discrimination cases advises companies to negotiate for some form of indemnification from the provider.

“That way, if something is done wrong or a claim is made, the employer can look to the provider as the first line of defense and payment for any legal award that the employee might receive,” she says. “In the third-party contract, the employer would ideally want a provision that says the provider will comply with the law in administering the program. And if it fails to do so, or if its conduct results in harm to the employee, then the provider is going to pay costs, etcetera.”

RISK-BENEFIT ASSESSMENT

Despite the lack of conclusive financial evidence, many companies say they can’t afford to take a passive approach to employee health. And without question, there are non-financial benefits to companies and their employees who are fitter, who don’t smoke and who, as a result, avoid long-term debilitating disease.

Without some kind of change, insurance plan costs seem destined to rise. Hewitt Associates predicts average employer healthcare costs per person will jump 8.7% to $8,676 in 2008.

AK Steel Corp., a West Chester, Ohio-based producer of flat-rolled carbon, stainless and electrical steels and tubular products, has launched its Healthy Choices program to help its 1,475 salaried employees improve their health while reducing costs for the company and employees. It includes a systematic approach to health screenings, meetings with nutritionists and health education. But even before establishing the program, the self-insured company began instituting building policies to encourage healthy living. Smoking, for example, is banned on the grounds of the new corporate headquarters.

“We’re not trying to be punitive,” says Alan McCoy, the company’s vice president of government and public relations. “We’re simply saying, ‘For your own benefit, for everybody’s benefit, you ought to think about cessation. And we’re going to make it fairly difficult for you to continue that bad habit.’”

It’s in the company’s best interest, McCoy says, to have a healthy workforce, even if it can’t be measured quantitatively at this point. “While we will look to measure to make sure we’re spending our time and resources for some return, to some extent, reasonable people will be able to conclude from observations that we are doing good things and people are benefiting,” he says.

Tampa, Florida-based McNichols Co., which operates 17 sales and distribution centers in the United States and Mexico, subsidizes employee participation in health programs and offers 100% reimbursement on preventative medical procedures such as mammograms and colonoscopies. It also contracts with outside organizations to administer disease management and prescription management programs.

Larry Jones, the company’s senior vice president and chief personnel officer says, “It’s hard to measure the cost savings today because medical information is private, but if [we didn’t offer wellness programs], we know our costs would be higher. If involvement in our programs saves an employee from going to the doctor or hospital, that saves them money. If involvement in our health programs lowers the costs of an employee’s prescriptions, that saves the company money. It’s a win-win.”

Signs of a new era of employer involvement in employee health also are evident at Benjamin Steel Co. Inc., headquartered in Springfield, Ohio. “We have redesigned the plan itself and shared more of the costs with employees. But even more energy goes into encouraging wellness, because the health insurance provider bases our rate simply on utilization, simply on claims,” says Amanda Kincaid, human resources director for the company of 224 employees. “So if we can provide them with a healthier sample, we’ll improve the rate.”

Company vending machines that once held candy now offer more nutritious snacks. Notes with wellness messages are included in paycheck envelopes. On a payday in late January, for example, employees received a reminder about the American Heart Association’s National Wear Red Day on Feb. 1, along with a list of 10 questions to ask doctors regarding heart disease risk factors. At holiday celebrations, the company serves a heart-healthy fare, such as wholewheat pasta with marina sauce, tossed salad, fresh fruit salad and dry breadsticks.

“As a nation, more than 50% of the increases in medical expenditures in the last 15 years are associated with modifiable health behaviors—being overweight, smoking, getting too little exercise, having high levels of stress,” says Joe Marlowe, senior vice president of Aon Company, a Chicago-based insurance, risk management and human capital consulting firm. “If we’re going to confront this in the long-term, we have to start thinking about health behavior. I’m convinced that you’ll see very rapid growth in wellness programs.”