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Employers are investing in ways to contain health-care costs, but few know what they're getting back.
Alix Stuart, CFO.com | US
January 13, 2010
While employee health-improvement programs have become more and more popular as a way to contain firms' health-care costs in recent years, very few companies actually know how much their investments in such programs as on-site flu shots and free annual checkups are yielding, according to a recent survey of large employers by Fidelity Investments and the National Business Group on Health.
Virtually all companies now offer some element of health-improvement programs, with such items as employee-assistance programs and on-site flu shots nearly standard. Other popular programs include nurse hotlines, fitness and nutrition counseling, disease-management programs, and health fairs or other on-site education. Even the least-popular program included in the survey, on-site health clinics, is being used by a sizable number of firms — 32% — and several experts believe the number will grow soon.
However, less than half — around 40% — aggregate return on investment across all programs. Furthermore, only 19% of companies are accurately capturing the costs of such programs, while 62% are underestimating the amount they spend, according to independent estimates calculated by Fidelity.
Rather than a stunning lack of discipline, the results indicate the inherent difficulty of trying to measure health-care outcomes, says Helen Darling, president of NBGH, an advocacy group for large employers. "It's really hard to quantify the success of these programs in a rigorous way," she says.
A big complicating factor is that most companies have multiple programs with multiple vendors, and not all vendors are likely to translate outcomes into the common denominator of dollars. According to the survey, 58% have two to five vendors for health-improvement programs, and 30% have six or more. On top of that, the best outcome in many cases is a cost avoidance, such as prescriptions not needed, which in itself can be hard to track and define.
Data-storage giant EMC, for example, has several key initiatives under way to improve employee health, including personal electronic health records, a dietary program to stop hypertension, and opportunities for people with chronic diseases to be monitored remotely. Each program is being developed with different partners, and not all can produce crisp data since much of the savings is in cost avoidance. "You might be able to choose a lower-cost drug or avoid a lab test with a new doctor by virtue of having your health record so easily accessible," but employees wouldn't necessarily report such savings in a systematic way, says Delia Vetter, EMC's senior director of benefits and programs.
That's not to say there's no effort to measure savings. A pilot of the dietary program showed the company avoided nearly $1,000 in medical and drug costs per participant, and EMC is hoping to eventually get a measure of the productivity gains that go along with that. In general, though, "it's just intuitive — if employees aren't at the doctor's office and they're feeling good, they're more productive," says Vetter.
Even the numbers companies get from their vendors should produce some skepticism, Darling says, because much depends on timing. Many smokers, for example, attempt to quit many times before they give up for good, just as many people trying to lose weight often have trouble maintaining the loss. "Multiple quits and failures are very common, so whether a program is considered a success or a failure depends on how you do the cut and when you track the data," she notes.
Of the 40% of companies that do track ROI across all programs, about half say they see a two-to-one return on their investment. About one-quarter see greater returns, while the other quarter says they are just breaking even or even losing money.
In fact, some programs can raise costs in the short term. Snyder's of Hanover, for example, managed to keep health costs per employee month flat for five years between 2003 and 2008, in part due to sophisticated data analyses and efforts to steer employees toward annual physicals and top experts in any given field. Last year, however, several health-screening fairs at the Pennsylvania-based pretzel-maker's various manufacturing facilities turned up employees with serious illnesses, saving at least one employee's life, according to Penny Opalka, manager of benefits and compensation. Those discoveries, in combination with the acquisition of a company that did not take such proactive steps, drove up 2009 health-care costs by 15% — "but once they have those illnesses under control, those levels will start to come down," predicts Opalka.
Despite the complexities of measuring progress, few companies plan to back away from such programs. At this point, at least, health-care reform doesn't seem to be an inhibiting factor, either. Ninety-one percent of survey respondents say it would have no impact on their interest in the programs. "Even if tomorrow the financing part of coverage were done by someone else, employers would still have to be concerned about the health and productivity of their employees," says Darling.
What CFOs can do, short of obtaining precise dollar-denominated ROIs, is take an inventory of all the programs they currently have, and consider the current cost and benefits they carry. "The most useful thing would be to make sure the company fully understands what [it is] paying for, what difference it is making, and what the results are," years beyond the initial intervention, Darling advises.
Not to mention it doesn't hurt for a CFO to join a fitness challenge or submit to a cholesterol test at a health fair. Executives like the CFO "are both role models and champions. They can drive a lot in the company if they choose to, and there are very real benefits to that," says Darling, often including a decreased need to provide monetary incentives to employees to participate in the programs.