Financial Incentives for Employee Health Care Produces Limited Savings

April 24, 2006 ( - Companies that focus solely on providing financial incentives to encourage plan participants to be more discerning health care consumers likely will realize only limited cost savings.

According to an analysis from Watson Wyatt Worldwide, 4% of participants with serious health conditions account for nearly half of health benefit spending in any given year. This group is unlikely to be encouraged by financial incentives or plan design features, such as high-deductible health plans paired with health savings accounts (HSA), which allow employees to save for health care expenses on a tax-advantaged basis, Watson Wyatt said in a news release.

The analysis found that the roughly 25% of participants in the early stages of chronic conditions or with acute health episodes account for 40% of spending, while those who are healthiest – 72% of participants – account for just 11% of health care spending, according to the release. Financial incentives or HSAs are likely to only be attractive to healthier employees.

“Rather than using financial incentives to encourage seriously ill hospital patients to reduce plan spending, directing them to high-quality delivery centers will be far more effective in making them better consumers and controlling plan costs,” said Ted Nussbaum, director of Watson Wyatt’s group and health care consulting services in North America, in the release. “In some areas of the country, using high-quality care centers may cut plan expenditures for the most expensive cases in half.”