Incentives: The Key to Healthcare Cost-Containment

by | Feb 26, 2020

Home » Blog » Employee Healthcare » Healthcare Costs » Incentives: The Key to Healthcare Cost-Containment

All signs indicate that healthcare costs will continue to climb this year – like always. For employers, this means we’ve reached an average cost of $15,000 per employee. Employees are bearing the cost, as well. More are enrolled in high-deductible health plans every year, pushing out-of-pocket maxes well into the thousands.

As everyone yearns for a long-term solution, incentivizing the right healthcare choices can give employees motivation to keep costs low. Right now, the employee healthcare experience feels like going to a restaurant and being given a menu without any prices. They need a push to shop for care.

With so much of the onus to save placed on employees, rewarding health-promoting, cost-reducing behaviors is a powerful cost-containment strategy. Yours might look like rolling out a wellness program, which is typically designed to get ahead of costly medical conditions with a preventative approach to health. It might also take the form of a rewards program that provides bonuses for selecting lower-cost, higher-value providers. With prices varying by ten times for the same procedure in the same market, that strategy can mean big savings.

The key to both options is the design of incentives. Here, we’ll discuss how incentivizing health can positively impact your employees’ behavior.

How incentives provide fuel for cost-containment

Incentives are an integral part of making voluntary cost-containment programs stick.

The psychological concept of incentive theory goes like this: a person’s behavior is motivated by a desire for reinforcements and rewards. We’re less likely to do things if the reward is negative, and more likely to do them if the reward is positive. This theory holds that motivation comes from external forces, instead of from within.

Let’s apply it to your cost-containment efforts. Say you’re banking on enrolling employees in a wellness program that includes screenings, tools for weight and health management, and regular check-ins. Without an incentive, all those points become yet more things in their long list of work-related to-do’s. Your employees already know this kind of program can make them healthier. Most employees already want to be healthy, but don’t want an additional chore. If participation means a lower premium, though, it becomes a more valuable investment of their time.

Research bears this out: in one study, participation in a biometric screening program increased by 55% when financial incentives were provided.

When an incentive program works, the relatively low cost of the provided incentive can pay dividends in lower healthcare costs. Employees who chose a less expensive MRI might be rewarded with a few hundred dollars. Considering the cost of certain healthcare procedures can vary by thousands between facilities, though, the total savings to them and their company could reach into the thousands.

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In short, it’s too easy to overpay for healthcare, so there’s immense value in incentivizing employees to make smarter healthcare decisions.

Which incentives work best?

Employers tend to incentivize healthy choices with monetary rewards. For instance, employees might get a bonus on their paycheck or even a straightforward monetary reward for completing a month-long wellness program.

Discounts might also be considered an incentive; a wellness program may offer discounts to a local gyms or fitness studio or sponsor membership to a weight loss program. It’s worth pointing out, though, that discounts don’t necessarily create the conditions incentive theory says are most effective. Instead of offering a bonus for doing the desired action (in this case, exercising regularly), they make it less expensive to pursue that action. If we’re applying incentive theory, a more effective approach might be to give employees a reward on every tenth gym visit.

A Brigham Young University study found that gift cards were an even more effective incentive than cash when it comes to driving employee participation in wellness programs. Participants in the study could choose which reward they wanted after completing the program. Between cash, gift cards, and tangible gifts, more than half of people selected cash. Yet, the 30% who selected gift cards were 25% more likely to complete the challenge. Researchers involved in the study theorized that gift cards were more motivating than cash because they allowed participants to spend on something fun without guilt.

Of course, best practices can’t tell you what will be most effective when it comes to actually motivating your employees. Asking for feedback from a committee of employees or polling them to hear preferences can guide your choices. That way, you can ensure employees are motivated to help in your company-wide cost-containment efforts.

Using incentives to lower healthcare costs

As you’re exploring ways to lower your healthcare costs this year, remember that getting employees on board with your cost-containment efforts is key. Often, that means offering incentives they actually want. Whether your incentive program provides a lower premium for passing a wellness screening or a gift card for choosing a recommended surgery facility, it’s worth learning how incentives can work to lower the cost of healthcare.

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