There's More to Wellness Program ROI than Medical-Cost Savings

The value conversation about wellness programs needs to encompass factors beyond medical savings, driving the health-management industry to find new ways to show employers the return on investment.

Monday, June 9, 2014
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Do workplace wellness programs really deliver a positive return on investment? That seems to be the question on the minds of many human resource managers these days.

But maybe that's the wrong question to be asking. Or at least not the entire question. For years, employers -- and the wellness industry -- have focused on demonstrating ROI primarily through medical cost savings. Medical dollars saved, of course, should be a component of ROI when determining program success. But alone, it's not sufficient.

Many other financial -- and non-financial -- gains or losses should be quantified in order to fully understand the true value of health management programs. This is particularly true today as employers reexamine strategies for financing health benefits in the wake of healthcare reform. For example, private health exchanges in which employees can obtain coverage are a new option. Companies are also embracing defined contribution models for financing healthcare benefits -- giving workers a fixed-dollar amount to buy coverage on their own.

Employers responding to the rise in healthcare costs via these approaches are likely to reinvest savings in other areas, such as health and wellness programs. In fact, 64 percent would use savings from private health exchanges to expand existing health and wellness initiatives, according to a 2012 Aon Hewitt survey titled "Corporate Health Care Exchange Survey: The Time Is Now -- Rethinking Health Care Coverage."

However, employer perspectives on the value of these initiatives will likely change when they are no longer shouldering as much of the burden of yearly healthcare cost increases. As a result, the value conversation needs to encompass factors beyond medical savings, driving the health management industry to find new ways to show the return on investment.

Health Culture

For years, many employers implemented health-management programs primarily to stem rising healthcare costs. Today, with broader vision, companies seek to build a culture of health, safety, productivity and enhanced quality of life -- and they want these programs to enable that culture. They leverage health management programs to compete for talent, encourage healthy choices and stimulate peer interaction, in addition to containing costs.

While it is still too early to know how this evolving "culture of health" philosophy will play out, change is clearly coming and will greatly affect the value proposition of health management.

Programs that are designed to improve health should be evaluated by two broad categories of metrics. The first group affects employees personally:

         Quality of life (job satisfaction, morale, family life, relationships);

         Net health risk reduction;

         Job safety and ergonomics;

         Individual healthcare expenditures; and

         Health-benefit-program satisfaction.

The second group impacts business performance:

         Company stock price, total revenue per employee, shareholder value, earnings multiples;

         Return on invested capital;


         Accident rates, other safety metrics, disability program use;


         Healthcare costs (medical, Rx);

         Industry-specific operational business metrics (through-put, claims handling, inventory turnover); and

         Healthcare utilization (emergency room, inpatient stays, readmissions).

Linking these business-performance metrics to health-management programs is important for an often overlooked reason. For many executives -- chief operating officers, sales vice presidents and business-unit general managers - medical-cost savings may not be a priority because it doesn't seem relevant to their business goals. As a result, human resource departments often struggle to attract their interest in these programs.

By demonstrating how health management programs can help improve business performance metrics, however, human resource leaders can build greater support across the organization. Consideration of both sets of metrics will lead to a more complete valuation of health management programs.   

New Metrics    

While more research needs to be done, there have been promising initial attempts to connect health management interventions with improvements in metrics other than medical cost savings. Here are two early examples of industry-fueled findings that seek to make this vital connection to business metrics:

·         Revenues. Companies with highly effective wellness programs have achieved industry-adjusted average revenues that were up to 40 percent higher than companies with less effective programs, yielding a difference of $132,000 per employee, according to a 2011/2012 Towers Watson and National Business Group on Health report.

·      Shareholder returns. Employers with the most-effective health and productivity programs have experienced 28 percent higher shareholder returns, according to the 2009/2010 Health and Productivity Advantage report by Towers Watson and the National Business Group on Health.

Of course, we need to better understand whether these and other financial metrics are higher because of successful health management programs, or because more successful firms offer better health management programs, or both.

Some industry studies have already established a correlation between wellness programs and non-financial metrics affecting organizational performance:

·         Absences. Companies with the most effective health and productivity programs have experienced 1.8 fewer days absent per employee, according to the Towers Watson/NBGH research.

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·         Productivity. Average productivity savings per health management program participant was demonstrated to be $353 per year in a recent Optum study titled "Improving Employee Productivity Through Improved Health."

·         Health Risk Reduction. Optum's 2013 report titled "Health Risk Reduction Study" study showed that individuals completing both a telephonic wellness coaching and online health coaching program were:

o    64 percent more likely to reduce risk for obesity than those in the control group.

o    56 percent more likely to reduce risk for physical inactivity than those in the control group.

Realistic ROI

Regardless of which new metrics employers settle upon, there will always be a need to convert some to a financial savings model. The good news: It is possible to generate solid ROI in well designed health management programs. Results, of course, will vary depending on how outcomes are measured and how rigorously the ROI analysis is conducted.

However, it's time to rein in expectations about wellness program ROI. Some employers -- and health management companies -- anticipate savings to be three or more times as high as program costs.

This is much higher than returns from other corporate investments and may be unrealistic, particularly in the initial years of a wellness, disease management or high-risk case management program, which tend to produce returns over a longer-term horizon.

Compare these ROI benchmarks in the financial-services industry:

         A respectable 10-percent return in the stock market corresponds to an ROI ratio of $1.10 per dollar spent. Over three years, that ROI will be $1.10 to the third power, or $1.33.

         According to the U.S. Department of Labor, the annual investments made by every U.S. company and individual since World War II has yielded approximately a 3 percent gain -- an ROI of about $1.03.

Expectations for health management program ROI should be in line with the ROI from all other investments, such as personnel, equipment and employee benefits. Assessing returns from other investments provides a useful benchmark for comparison, thereby leading to a more thorough discussion of expectations, financial risks and returns. Once the comparison is made, employers can refine investments accordingly -- in health management as well as other programs -- in order to maximize returns overall.

Further research is needed to test the hypothesis that a healthier workforce can improve a company's stock price and other operational metrics. These are next-generation measurements that employers and wellness companies should embrace, so health management programs can evolve to better fulfill their promise.

In the meantime, employers should expand the universe of metrics to more thoroughly evaluate these programs. For example, start by assessing the impact of wellness initiatives on employee satisfaction, quality of life and retention. The wider employers cast the metric net, the more likely a complete valuation can be made. 

Ronald J Ozminkowski is senior vice president and chief scientific officer at Optum, where he leads healthcare analytics in support of Optum client relationships.

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