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'Tectonic Plates' and the ROI of Health Benefit Programs
Determine the true value of health coverage options and wellness initiatives

By Amy Neftzger  10/12/2009
 

As each fiscal year draws to a close, benefit managers look at methods for saving money and controlling health care costs in the coming year by their changing plan offerings. In many cases they negotiate with a host of vendors, and multiple changes might be made to the benefits design structure. This shifting of plan offerings is much like the tectonic plates that make up the earth’s surface. The difference is that plan design is done rapidly on an annual basis, whereas the earth’s movement can take millions of years before there's an observable effect.

Imagine if the changes on the earth’s surface moved as quickly as the changes in benefits structure. Rather than taking epochs, continents would move so quickly that when an airplane took off from one location it couldn’t be certain that its destination would be where expected, or able to calculate the distance flown. This is exactly what many organizations face when calculating the return on investment (ROI) of their health benefit programs. When new programs are established, often the true effect of their value can’t be measured accurately because the entire benefits world is in motion.

Effective Measurement Hurdles

The constant motion of plan design has a number of consequences. When changes occur every year, there is no true baseline for any of the programs. In other words, when a new health program is added, any previously existing program might already have impacted the behavior and health of employees.

Additive value might be demonstrated by adding only one program at a time, but this requires that no other change be made in the benefits structure. The reality is that numerous changes typically happen each year, thus making any baseline measurement difficult. When you don’t have a solid understanding of where you started, you never know how far you’ve traveled.

Among the problems surrounding measurement that annual changes lead to are:

Programs are not implemented in isolation and might not impact the population separately from other programs, making it difficult to separate the effects of one program from another and to determine how much value each individual program delivers.

Different vendors implement separate solutions but these interventions result in the same outcome effect, making it difficult to determine which program had the larger effect, whether all programs are necessary and which are cost effective.

Many outcomes are measured at an aggregate level (such as total cost of hospitalization), complicating the ability to identify which vendor’s programs are providing the best ROI. It’s not uncommon for several health program vendors to claim ROI based on the same outcome metric.

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It’s not uncommon for several vendors to claim
ROI based on the same outcome metric.

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Varying Metrics and Methodologies

Another issue to consider with changing benefits structures is that not all vendors who deliver the same service measure the same outcome in the same way. This means that when comparing two vendors or looking at trending of metrics, it is advisable to examine the criteria for inclusion in the metric calculation. Using a trained statistician to help decipher the calculations might help.

A few important questions to ask when comparing outcomes from different vendors include:

Did vendors use the same methodology for identifying individuals to include in the measurement of outcomes (e.g., disease identification algorithms using medical claims vs. employee self report)?

Are vendors using the same mathematical calculations from one year to the next? (Some differences may be attributable to subtle changes in the denominator calculation.)

Are vendors using the same inclusion criteria (e.g., continuously enrolled vs. dynamically enrolled employees)?

Do the metrics cover the same calendar time (e.g., Jan. 1 through Dec. 31)?

Are the metrics on the same reporting schedule (e.g., annual vs. quarterly)?

Some programs might have delayed effects, meaning that benefit managers won’t see the results in the first year of implementation. Delayed results might take the form of cost savings or increased expense. It is even possible to see savings in the first year of implementation followed by a jump in health costs a year or two later.

In some forms of utilization management (the cost-containment process used by many health plans to prevent unnecessary health care expenses), managers might save a large amount during the first year because the health plan denies an expensive diagnostic or treatment procedure. However, if this results in a delayed diagnosis or untreated disease progression, there could be more costly medical bills in subsequent years when the health plan that denied those procedures is no longer the vendor. When outcomes are examined strictly on a fiscal basis, this type of trend might be lost, making it more difficult to identify the program with the best ROI.

Another example might be seen in short-term disability claims. If vendor A provided services in 2007 and vendor B provided services in 2008, how do benefit managers know that vendor B provides better value? What if a wellness program is implemented in one year and not the other (or what if the types of wellness services changed)? What if the health plan in one year covered more pharmacy costs, thus encouraging employees to take their preventive medications during that year?

These types of services usually don’t impact employee health in an isolated manner. Employees are not segmented; they are whole individuals. Every aspect of the benefits structure affects the whole individual and how they care for themselves.

Potential Solutions

Given the measurement pitfalls and the pressure to create budgets that meet a fiscal objective, it might seem impossible to measure ROI accurately in a responsible manner. However, there are a number of alternatives:

Look at each vendor’s calculation of ROI across organizations. If the vendor is measuring program effects and has reliable data, some aggregate information should be available, and effects attributable to individual purchasers' benefits structures will “wash out.” What this means is that some benefits structures will serve to boost the program effects while others will dampen the effect or make it negative. When outcome results are aggregated across organizations, the average effects of the purchasing organizations’ benefits structures will be close to zero.

It's important to ensure that the analysis of program effects done in this manner be validated by a third party to ensure objectivity and sound methodology.

Look at the situation from a long-term perspective. Focus beyond the immediate fiscal year to the health of your workforce over time. Research has shown that healthier employees have lower health care costs, fewer short-term disability claims, and are less likely to be absent because of illness than others.

Consider global metrics that examine the total health of your workforce. Avoid relying on specific program metrics. Given the aging workforce and the rapid increase in chronic diseases within the working population, it makes sense to begin looking at the total individual through a global, rather than segmented, view of health.

Build a Culture of Health

A number of organizations are beginning to go beyond simple measures of employee health to building what's known as a “culture of health.” These cultures are intended to build an integrated approach to coordinating and managing benefits while increasing employee engagement. Theoretically, this approach should increase health and wellness while improving workplace morale. Some of the benefits of creating a culture of health are that it:

Establishes the organization as an employer of choice, attracting high-quality workers and reducing nonfunctional turnover.

Reduces unnecessary absences attributable to illness and the related loss to productivity.

Diminishes the likelihood that sick workers will create safety risks, work more slowly or let the quality of their work suffer because they don’t feel well.

Improves workplace morale, because workers feel like they are treated with respect and not like machines.

Finally, consultants and vendors can assist organizations with financial modeling of escalating health care costs based on surveying the organization’s workforce. This can help benefit managers demonstrate the financial value of looking beyond one fiscal year and toward the total health of the population. Once a dollar value is assigned to investing in employee health, it might be easier to convince others in the organization that a long-term perspective is the better investment.

Amy Neftzger is an industrial organizational psychologist who has worked as an HR consultant for a number of years and is currently a researcher investigating workplace well-being, employee health and human capital.

Related Articles: 

Finding Wellness's Return on Investment, HR Magazine, June 2008

The ROI of Wellness Programs: From Perk to Priority Investment, SHRM Online Benefits Discipline, January 2007

Wellness: Designing an Effective Wellness Program, Step by Step, SHRM Online Benefits Discipline, January 2007

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