Benefits - Finding Wellness's Return on Investment

By Susan J. Wells Jun 13, 2008
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HR Magazine, June 2008Calculating wellness programs' ROI is sometimes complex, but it can be done.

As employers increasingly recognize the crucial role they can play in improving the health and well-being of employees, they are searching for hard evidence that their mounting financial investments in wellness programs are paying off. Despite numerous challenges in quantifying wellness programs' bottom-line results, some employers are digging up the proof they need. Recently, Highmark Inc., a 12,000-employee health insurer based in Pittsburgh, set out to measure the return on investment (ROI) of its various wellness, preventive and condition management programs for employees. It was one of the most comprehensive and scientifically sound studies undertaken to date on wellness ROI, and Highmark leaders were pleasantly surprised with the findings, which were published in the February 2008 Journal of Occupational and Environmental Medicine.

In 2001-05, medical claims for 1,900 Highmark employees who participated in its wellness programs were compared with the claims of employees with similar health risks who did not participate. The analysis shows that the company saved $1.3 million during the time of the study, mainly because its annual health care expenses for participating employees were $176 lower per employee. Highmark's total expenses for its wellness programs were $808,958 during this time, yielding an ROI of $1.65 for every dollar spent on wellness initiatives.

The study illustrates "the real savings of a comprehensive wellness program," says Brian Day, director of advanced analytics at Highmark. It also shows that such initiatives helped "improve the health of employees [and] slowed the rate of health care cost increases while generating a positive return on investment in the program."

Experts find the Highmark data noteworthy because few studies to date have tracked such large numbers of employees or have measured and documented ROI so precisely. Such studies are scarce because many HR and benefits leaders have found producing them to be a complex, confusing and elusive goal.

The reason: There is no one standard way to measure wellness ROI, says John Asencio, senior vice president and health practice leader at Sibson Consulting, a division of HR consulting firm The Segal Co. in New York.

Nonetheless, efforts to devise formulas for determining wellness programs' ROI are under way and gaining attention as employers' stakes in such programs increase.

Pressure for Proof

Wellness programs involve a substantial investment. Almost 40 percent of large companies in the United States spend more than $200,000 annually on wellness programs, and 20 percent spend at least $1 million, according to a report released last fall by the Business Roundtable, a Washington, D.C.-based association of chief executive officers of 160 large U.S. companies representing a combined workforce of more than 10 million.

In addition, the popularity of health promotion as a standard benefit is rising: Sixty-eight percent of employers offered wellness benefits in 2007, compared with 57 percent in 2003, according to the Society for Human Resource Management's 2007 Benefits Survey Report.

Despite the increasing adoption of wellness programs, however, a separate survey, conducted in 2006 by the International Foundation of Employee Benefit Plans, shows that 87 percent of 464 benefits professionals and plan sponsors didn't know the ROI of their programs. Among members of the Brookfield, Wis.-based organization are multi-employer plan trustees. Its survey report concludes that the result "underlines the belief that return on investment for wellness programs is difficult to measure" and "there is no standardized, widely accepted methodology for measuring the savings."

What makes wellness programs' ROI so difficult to calculate?

"Demonstrating financial return has always been an Achilles' heel for wellness programs," says Barry Hall, a principal with Buck Consultants LLC, an HR and benefits consulting firm in New York.

In a survey released last fall, Buck analyzed the effectiveness of workplace wellness strategies at 555 organizations representing 7 million employees and assessed whether the programs were achieving business goals.

U.S. employers' top goal for wellness programs is health care cost reduction, according to the survey, and one-third of respondents reported that they have reduced costs as a result of their initiatives. About half of those -- 49 percent -- reported reductions of 2 to 5 percentage points per year.

"That's a significant financial return," says Hall, who directed the survey. "But consider that remaining 67 percent." Their lack of measurable success, he says, is likely attributable to a combination of factors. "Many newly minted wellness initiatives haven't yet had time to generate a measurable impact, and some employers may not have the capability to measure such results." In addition, not all employers have found effective tools and programs to achieve the impact they want or expect.

"Clearly, many employers still have work to do to demonstrate the ROI necessary to ensure senior management's continued support of their programs," Hall says.

Developing a Standard

The Alliance for Wellness ROI Inc., a nonprofit coalition of five large employers -- BMW of North America, Henry Ford Health System, Kraft Foods Global Inc., MasterCard Worldwide and Schlumberger Ltd. -- was formed in 2005 specifically to address the lack of consistency in proving the value of wellness programs.

The alliance strives to standardize how wellness benefits are defined; it currently identifies 12 types of initiatives as wellness programs (see "What Constitutes a Wellness Program?" below). It is developing a valuable database of wellness records -- health claims data and wellness program participation -- from the five companies and others nationwide. And it plans to launch an ROI valuation methodology for wellness programs this summer, according to Lillian Petty, president and founder, and former manager of employee benefits at Schlumberger, North America.

"We're in the world of 'what's it doing for me lately,' " Petty says of today's expanding corporate wellness strategies and the need to prove their economic value. Wellness programs can be objectively measured -- and their time has come, she adds.

Meanwhile, the National Committee for Quality Assurance (NCQA), a Washington, D.C., nonprofit, certifies and accredits a range of health care organizations, and it plans to roll out a quality measure for the wellness industry by early 2009.

Members of the NCQA have spent the past year researching the wellness field and establishing a comprehensive grading and evaluation system for providers -- on whom many employers rely to administer, manage and analyze results of their wellness strategies. Because the NCQA intends to create standard definitions, it may become easier to compare wellness programs' ROI across organizations. The nonprofit will seek public comment on its proposals in June.

"Our intent is to bring some order to the chaos -- what one of our members calls 'the Wild West of health care fields' " -- by establishing standards for the ways wellness information, services and value are presented, says Patricia Barrett, NCQA's vice president for product development. So far, the organization has examined more than 100 wellness providers.

Crunching Numbers

ROI is a common financial measure, of course. Typically, it is expressed as a ratio of savings to spending. It can be estimated prospectively or retrospectively.

When estimating ROI in dollars and cents, however, many companies find the calculation harder to make. Although costs such as salaries, vendors' fees, facilities, equipment and assessment tools are readily known, the value of improved health status is harder to express in numbers.

Employers use qualitative as well as quantitative measures to place real dollar values on their program results.

The impact of wellness programs typically is measured by determining the ratio of medical expenses not incurred and sometimes productivity to the total internal and external costs of wellness, including incentives paid to employees to participate, such as insurance premium discounts or cash, says Ron Z. Goetzel, Ph.D., research professor and director of the Institute for Health Productivity Studies at the Rollins School of Public Health at Emory University in Atlanta. He is also vice president of consulting and applied research at Thomson Healthcare, a health care information company based in Stamford, Conn.

To measure health outcomes of wellness programs, employers generally use the results of health risk assessments and clinical screenings to divide employees into low-, medium- and high-risk groups based on the number of their risk factors, such as high cholesterol, obesity and tobacco use. Then employers track annual changes in risk status.

An ROI in the range of 1.5:1 to 3:1 -- the range commonly cited for wellness programs after three to five years, Goetzel says -- means that for every dollar invested in wellness, employers saved, or can expect to save, between $1.50 and $3.

Delve deeper, however, and calculations get tougher. For many reasons, it's hard to produce a single ROI for wellness. "There are too many moving parts," explains Sibson's Asencio. "It's hard to achieve a controlled environment." For example, an employee may follow a wellness program and register a significant health improvement. "But was it truly due only to the wellness program?" he asks. "Or was something else going on at the same time that led to the result? It's tough to tell for sure."

Changing participation rates, health plan design shifts and employee turnover are three factors that can affect the validity of wellness ROI measures, Asencio notes. "If turn over is high," for instance, "employees probably aren't staying long enough to make a true impact [on the program], and that will skew the data."

Calculations also get tougher as employers continue to add measures to the mix.

A 2007 survey of 2,172 senior HR leaders and benefits managers by Chicago-based Aon Consulting found that employers increasingly are investing in data warehouses and diving more deeply into the claims data supplied by health carriers to understand disease and track cost drivers.

Specifically, there's growing interest in using predictive modeling (analyzing health data to forecast the likelihood of health problems among employees), intensive health risk appraisals and biometric testing to identify employees at risk for health problems.

Some employers also are considering the impact of employee health on worker productivity indicators, such as absence, disability and presenteeism, when making decisions on wellness programs and measuring their current and future financial impact, Aon reports.

Ultimately, adds Buck Consultants' Hall, "The fact that employers continue to offer wellness programs suggests their intuitive value. This remains a major motivator, even if program effectiveness proves difficult to quantify."

The author, is a business journalist in the Washington, D.C., area and a contributing editor of HR Magazine.

Web Extras

Sidebar: The Debate Goes On

Sidebar: A Surge of New Tools

SHRM survey report: 2007 Benefits 

Study: The Impact of the Highmark Employee Wellness Programs on 4-Year Healthcare Costs (Journal of Occupational and Environmental Medicine) 

Press release: Buck Consultants Reports Wellness Programs Are Truly Global; Objectives Vary by Region (Buck Consultants) 

Web site: Alliance for Wellness ROI Inc. (HR Magazine)

Web site: Wellness Councils of America

Web site: National Committee for Quality Assurance

Web site: Rollins School of Public Health, Emory University

SHRM article: Getting Personal (HR Magazine)

What Constitutes A Wellness Program?​

According to the Alliance for Wellness ROI Inc., the following initiatives are components of wellness programs:
  • Disease management programs.
  • Employee assistance programs.
  • Fitness programs.
  • Health risk appraisals.
  • On-site medical programs.
  • Personal wellness profiles.
  • Screenings and preventive care.
  • Smoking-cessation programs.
  • Telephonic wellness services.
  • Weight management programs.
  • Wellness education and communication.
  • Work/life balance programs.
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