Rising healthcare costs have put growing pressure on employers to find new ways to bring their spending under control. In response, America’s largest self-insured employers are adopting new strategies to push employees to make healthier choices and help save money.

Three in five insured American workers today are covered by self-insurers, according to the Kaiser Family Foundation’s 2013 Employer Health Benefits Survey. The percentage of covered workers who are in a plan that is completely or partially self-funded has increased over time to 61 percent in 2012 from 49 percent in 2000, according to the survey. Large employers not yet adopting the model are being drawn to it in increasing numbers, seeing the successes reported to date by companies such as UnitedHealth Group, Safeway, and Life Technologies.

With average annual premiums reaching $5,884 for individuals and $16,351 for family coverage, employers are taking a variety of approaches to align the financial interest of the employee to improve their health and cut the overall costs of care. Such efforts have taken the form of sharing detailed healthcare quality and cost information with employees, offering treatment decision support, and providing incentives for employees making healthy choices. In some cases, employers are even paying in full for certain common procedures, such as knee and hip-replacement surgeries for employees in selected hospital systems.

UnitedHealth Group in August reported savings of $107 million in healthcare costs in the first 36 months of a program that included, among other strategies, an “earn-back” mechanism that reduced premiums to employees who adopt healthy habits. The company’s Rewards for Health program identified 7,200 people who were at high risk for diseases, including undiagnosed diabetes. Forty percent of those not meeting body mass index targets received health coaching in 2010, and 44 percent of those showed improvement in the following year, averaging a 4.5 percent weight loss.

Employees enrolled in the UnitedHealth program are eligible to earn points to qualify for insurance premium reductions of up to $1,200 per family per year for having health screenings to detect conditions such as cancer or diabetes, or meeting certain targets, such as body mass index reductions.

Within two years of the program’s start, 82 percent of employees earned points and realized health improvements, with UnitedHealth reporting large increases in wellness visits and office-based screenings, colorectal cancer screenings, and retinal eye exams for people with diabetes. In addition, 44 percent of overweight employees who engaged in health coaching improved the following year, with an average of 4.5 percent weight loss.

“Implementing patient-engagement strategies more broadly could have a profound impact on consumer health, help achieve wide-scale cost reductions and advance a higher-performing health system,” says Lewis Sandy, executive vice president of clinical advancement for UnitedHealth, which points to its experience managing costs with its own program that included 133,000 employees.

Documenting UnitedHealth’s results in the journal Health Affairs, Sandy wrote that “although the patient-physician relationship is central to healthcare, payers will play an important and complementary role in enabling robust patient engagement and achieving the Triple Aim—a better patient experience, improved population health, and lower per capita costs.”

Safeway’s gains
Safeway, a self-insured California grocer, reported that it managed to keep its per capita health-care costs flat with similar programs that it pioneered between 2005 and 2009. Then-CEO Steven Burd took to the pages of The Wall Street Journal in 2009 to advocate for healthcare reform built on “market-based solutions” that reward healthy behavior. Doing so, he suggested, could ultimately reduce America’s healthcare bill by 40 percent.

Safeway’s Healthy Measures program covered 74 percent of the company’s insured non-union work force in 2009, according to Burd. Employees were tested for tobacco usage, weight, blood pressure, and cholesterol levels and given insurance premium discounts for each test they passed, offering employees passing all four tests a savings of as much as $780 for individuals and $1,560 for families and partial refunds for cases in which an employee improved on measures such as obesity.

Whether or not Safeway actually achieved the results Burd claims as a result of its Healthy Measures program was called into question by a January 2010 analysis of the company’s records presented in The Washington Post because the results were skewed by a sudden and significant drop in 2006. Nonetheless, Safeway has continued to develop its strategy, since hiring its first chief medical officer. Neither he nor another company representative was available for comment on the plan’s evolution.

Rules are changing for self-insurers
Self-insuring provides large employers such as Safeway exemptions from state insurance laws, including reserve requirements, mandated benefits, premium taxes, and consumer protection regulations. But federal laws are another story. The Departments of Labor, Treasury, and Health and Human Services in July issued Final Wellness Rules under the Affordable Care Act. These rules have made programs of the type Safeway has offered, health-contingent wellness programs, more constricted in their scope.

On the upside for employers seeking to get smokers to quit, the new rules raise the maximum reward that can be offered under tobacco-focused health-contingent programs to 30 percent of the cost of an employee’s coverage, up from 20 percent. But for wellness plans that tie a reward to reaching specific health goals, such as attaining a certain body mass index, the leeway provided to employees for compliance has been expanded.

Once the new rules take effect in January 2014, all health-contingent programs will need to offer reasonable alternative means of obtaining a reward at stake in cases where it is either unreasonably difficult due to a medical condition to meet a program’s standard, or in cases in which it is medically inadvisable to attempt to satisfy the standard.

Incentives and surcharges
Self-insured companies are adapting to the law and still embracing health-contingent programs says Henry Loubet, chief strategy officer for Keenan, the largest privately held insurance brokerage and consulting firm in California. Keenan has seen some clients in its self-funded insurance plan administration business assess surcharges of $30 to $50 on top of premiums for tobacco-using employees. “Over the past two to three years, we’ve seen increasing interest as the ACA has provided greater flexibility to explore surcharges,” he says.

Furthermore, Keenan clients that have implemented health management programs integrating incentives with benefit design are getting engagement rates as high as 94% with rewards as much as $1200, Loubet says. “We’re hopeful these programs will impact the trend in healthcare costs, and even lost productivity, as they become a greater part of self-funded insurers approach.”

Influencing employee choices
With both wellness and other programs designed to keep costs in check, self-insurers are seeking to influence the healthcare providers that employees choose. For Keenan, which administers customized self-funded programs for healthcare systems and hospitals among others, that means tailored networks to incentivize employees to use their own facilities for healthcare services, and surfacing cost transparency and reference pricing on high cost procedures.

Many companies have enlisted services such as Castlight, which aggregates data on the quality and cost of medical services and products to illuminate the once-unknown chasm between what one provider and another charge for the same thing.

In healthcare, there is little correlation between cost and quality, Castlight points out. For example, in Detroit, individuals might pay top-dollar for pregnancy-related care and receive below average care, or spend far less and get above average care. Castlight sorts through employer claims data as well as information from the Centers for Medicare & Medicaid Services and presents it online to employees of self-insurers.

One company using Castlight, Thermo Fisher-owned Life Technologies, has seen 61 percent of employees using the application report that it influenced their healthcare decisions, driving a 13 percent reduction in Life Tech’s expected healthcare spending trend.

The best for less?
An inevitable extension of greater transparency in healthcare markets will be greater efficiencies. While healthcare systems have proven resistant to efforts to realize cost-benefits from efficiencies in the past, an October deal struck by Walmart, Lowe’s, and other large employers may hint at a future in which choices for employees narrow, but value grows.

In a program designed to serve as a model for delivering high quality healthcare with transparent and predictable costs, the companies are offering employees and their dependents no-cost knee and hip-replacement surgeries—provided they use one of four designated healthcare centers. Consultations and care, travel, lodging and living expenses for the patient and a caregiver are fully covered, without deductible or coinsurance.

The program is, for now, voluntary and employees or their covered dependents can still choose to receive care from local providers and incur routine costs. But given the rising cost healthcare, it is easy to see a future in which even voluntary programs attain de facto enforcement by virtue of being the only affordable option for employees who find incentives too good to pass up or alternate options too expensive to stomach.