[Editor’s note: This article was edited from the original published version after CFO discovered inadvertent editing errors were made in the article’s “Reason #6.” CFO regrets the errors.]
[Editor’s note: This article outlines the reasons why wellness programs are thought to more than justify an organization’s investment in them. For an opposing viewpoint, click here.]
All financial executives have a clear responsibility to critically evaluate the claims of financial returns made by both external vendors and internal “proponents” of a decision to buy something. Predictions on the return on investment from work-site wellness programs are no exception.
Vocal proponents of wellness programs for working populations frequently make claims that seem ridiculous. How can a proposed program produce 300% return on investment in the first year?
I am a strong supporter of the “underpromise and overdeliver” school of management thought, especially when it comes to claims about economic return. I would rather have wellness proponents lower their ROI claims and then actually deliver a higher level of return. But in taking this position, I also want to stress that the ROI of a wellness program is profoundly influenced by how you do it. You can mess up just about anything if you are not careful, and you certainly can mess up a wellness program right out of the starting block. Having worked on more than 1,000 such programs in the past 35 years, I know that all too well.
Worksite wellness programs do produce a positive ROI – if you design them well and implement them appropriately. Why do I take this position?
Reason #1: Even with Obamacare, there continue to be key market imperfections in our health-care system. One of them is the role of insurance in insulating individual patients and consumers from the financial consequences of their lifestyle and health-care choices. Another important market imperfection is the sparse availability of information about the quality, cost, and value of health-care services; and even if such information were widely available, there wouldn’t be a compelling reason to use it because most health plans cover the vast majority of cost.
Those market imperfections, combined with health-care providers’ incentive to generate more revenue from patients, will continue to produce high annual increases in health-care costs. These higher costs will create more pressure to engage in more serious wellness efforts, increasing the probability of higher economic returns. Costs will continue to increase.
Reason #2: There is an enormous amount of scientific evidence that unhealthy behavior and modifiable health risks significantly increase health-care costs in all working populations. For more than three decades, researchers have been studying the higher costs associated with such behaviors as smoking, obesity, lack of exercise, poor eating habits, not using seat belts, and excess stress, among a host of others. The more unhealthy behaviors and risk factors people have, the exponentially higher their health-care costs will be. Costs are modifiable.
Reason #3: Unhealthy behavior and modifiable health risks are very common in all working populations and are generating more costs as the population ages. Costs will go up at an even greater rate than they have, if we don’t do something.
Reason #4: There are more than 500 well-designed scientific studies that document the ability of wellness programs to change unhealthy behaviors and modify health-risk factors. Behavior and risks can be modified.
Reason #5: There are more than 70 peer-reviewed studies of the economic return of work-site wellness programs that show average annual ROI from 150% to almost 2,000%. The average for more than a dozen “traditional” work-site wellness programs in the literature is 300%. Cost reduction has been documented.
[Editor’s note: The figures in the above paragraph are cited in this article by Larry S. Chapman. Many organizations do not realize such a high ROI, but Chapman says the higher figures are quite relevant because “first, they are in the peer-review literature and need to be recognized as someone’s actual experience, and second, they get the reader’s attention about the potential economic return, which you don’t get without doing more than most employers are currently doing.”]
Reason #6: There is an independent meta-analysis from Harvard of 44 peer-reviewed studies that found $3.27 savings on medical claims costs, and $2.73 of savings in sick-leave absenteeism cost, for each dollar spent on wellness. And this month an independent actuarial study was published in the peer-review literature that identifies wellness programs as potentially affecting approximately 25% of health-care costs for working populations. Cost-reduction potential is large.
Reason #7: Besides health-benefit costs, worksite wellness programs also reduce costs related to sick leave, workers’ compensation, disability insurance, and presenteeism. Current economic returns are actually much higher than we think, because virtually no employer has looked at all of those cost reductions together. When employers do, wellness becomes more of a strategic business concern than just a tactical solution for health-care cost increases. Multiple types of cost reduction are possible.
Reason #8: There are also a large number of additional programming strategies (like medical self-care and injury prevention) that can significantly increase the ROI of current worksite wellness programs. If we focus on the cost drivers for all five types of health-related costs and intentionally program to address the underlying causes, we stand a much better chance of maximizing the economic return associated with expanded wellness programming. Multiple ways exist to further enhance economic return and cost reduction.
Reason #9: Few employers spend more than $500 per year per employee, while the average health-benefit plan cost per employee per year is more than $12,000. Some have estimated that for an average company, the combined cost of health plan, sick leave, workers’ compensation, disability insurance, and presenteeism amounts to more than $35,000 per employee per year. Five hundred dollars is about 1.4% of $35,000. Wellness is cheap.
Like all things human, there are lots of caveats, but the basics allow a guardedly bullish opinion on the potential of work-site wellness programs to deliver economic goods for American employers.
Larry S. Chapman is president and CEO of Chapman Institute, which provides a certification program for work-site wellness practitioners.