Mid-market employers have been slow to embrace wellness, primarily because health insurers haven't been giving them full credit for the contribution such programs have been making to lower health care costs.

But even midsize employers that self-insure their health benefits have been reluctant to make significant investments in health promotion programs—such as health risk assessments, biometric screenings and health coaching—because it often takes several years for those initiatives to pay off.

That attitude may be changing, however, as midsize employers come to the realization that they've reached the end of their ability to cut costs through simple plan tweaks and cost-shifting to employees, benefit experts say (see related story).

“Unfortunately, community rating laws that many states have for small businesses do not allow for adjustments to premiums based on improvements in employees' health status achieved through wellness programs,” said Craig Hasday, president of Frenkel Benefits L.L.C. in New York.

Some employers may get partial credit if they are experience rated, but true experience rating in health insurance usually doesn't occur until employers have 1,000 or more employees, according to Chris Hogan, president of Benefit Commerce Group, a benefit consultant based in Scottsdale, Ariz.

With community rating, which is common in small-group markets, the claims experience of individual groups is pooled with that of other similarly sized groups for underwriting purposes to come up with an average or “manual” rate. This is because groups with fewer than 1,000 lives are not considered “credible” by insurance underwriters and actuaries to base rates on their own experience.

“The large employer is fully credible, and that data is what is used to set their future cost liabilities,” he said. “If you go to a less credible segment, which is what the middle market is, many insurers blend the employer's experience with a manual rate. So improvements get lost in the wash because they are blended with the carrier's entire book of business.”

As an example, he described a situation involving a 55-employee company that was especially proud of its worksite wellness program, which it estimated yielded a 2-to-1 return on investment.

“Their calculations were based on the assumption that they were 100% credible but, to the carrier, they were only 30% credible. So it only affected 30% of the renewal calculation,” Mr. Hogan said. “That's why more employers don't implement wellness programs.”

Wichita, Kan.-based Meritrust Credit Union broke away from its insurer out of frustration when it failed to see reductions in premium commensurate with the inroads it was making in its wellness program, according to Byron Stout, vp of human resources.

“We didn't start seeing results until we married the health plan and our wellness program together by going self-insured,” he said. “A lot of frustration companies our size have is that they're just shooting in the dark.”

But even after switching to self-insurance, most mid-market employers often are reluctant to commit resources to wellness unless a return on investment is guaranteed, according to Aron Minken, a director at PricewaterhouseCoopers L.L.P. in New York.

“When an employer transitions to self-insurance, it is possible to perform a financial analysis projecting the likely costs,” he said. By contrast, “I think it's a little bit harder to project the savings from wellness programs,” he said.

As a result, “for a middle-market company to spend $100,000 on wellness, it's a harder decision to reach, unless someone at the senior executive level believes in it. They hesitate to spend the dollars if they don't see an immediate payback,” Mr. Minken said.

“Mid-market companies are looking for an immediate return on investment,” said Robin Bouvier, a vp at Aon Hewitt Inc. in Boston.

A recent online study of financial executives' attitudes toward wellness programs conducted by Corporate Synergies Group Inc., an independent insurance broker and consultant that targets the lower middle market, and the Financial Executives Research Foundation supports this. Of the 156 executives from mostly midsize companies who were interviewed, 52% said they hadn't seen an ROI from their wellness programs and, of the 35% that did, 42% said it took more than two years to realize. Of the companies that have chosen not to implement wellness programs, more than half—52%—cited the ROI of these programs has not be proven.

“It's harder to measure the impact of wellness on smaller populations. They also don't have the manpower in-house to support the programs,” said Chris Dickinson, chief revenue officer at Limeade Inc., a Bellevue, Wash.-based wellness program vendor.

Sometimes midsize employers balk at wellness programs when they find out how much of an up-front commitment is required, according to Ms. Bouvier.

“Oftentimes with a worksite wellness program, we actually see costs go up in year one because employees are accessing more detection services, which may lead to the use of more medical services,” she said.