Human Capital & Careers

Do the Wellness Math Yourselves, CFOs

Counterpoint: Much of the common wisdom about the economic value of wellness programs is mere fantasy.
Al LewisJanuary 4, 2013

[Editor’s note: This article exposes some potential flaws in the traditional view of the value provided by wellness programs. Click here for an opposing viewpoint.]

Healthy workers are more productive than unhealthy workers, just like workers in some countries are demonstrably more productive than those in others. Yet while no one would propose solving a struggling country’s economic problems by paying its workers to act more German (for example), the average Fortune 500 company pays unhealthy workers $460 per year to act like healthy workers.

That is the value of incentives employees at such companies got for participating in wellness programs in 2011, according to a study by the National Business Group on Health. Oh, and the already-healthy workers got the incentives, too. And the $460 figure didn’t even include the programs’ costs.

The kicker is that, unfortunately, the investment does not reduce health-care spending at all, let alone by the 25% claimed by my opposing party in this point-counterpoint package in his meta-evaluation of wellness programs, published last spring in The American Journal of Health Promotion.

In fairness and respect, Mr. Chapman’s advocacy of wellness programs inspired me, when I was the CEO of a Nasdaq-listed company, to offer a wellness program to increase employee morale. But I found zero health-care cost savings. Incentives to make healthy food choices and participate in fitness programs were appreciated by the (easily predicted) subset of my employees who valued their health, but failed to convert the others.

I never bothered with health-risk assessments. It seemed to me that smokers already knew they should quit, respondents might lie, and of course such assessments are anonymous and voluntary, making them impossible to tie to claims costs, which in any case wouldn’t budge for years after people changed their behavior.

Despite all those impediments, somehow one major vendor claims a massive (and massively precise) 14.3-to-1 return on investment on its health-risk assessments. That provides an excellent segue into the many fallacies regarding the measurement and efficacy of wellness programs. The following examples are all documented in my book, Why Nobody Believes the Numbers (Wiley, 2012).

First, most studies and vendors “find” that participants outperform nonparticipants in terms of trends in annual per-worker claims costs. But that is caused not by the program itself. It is caused by separating the population into motivated and nonmotivated people. In one case, a company’s claims costs for participants in a wellness program declined 9% from the Year Zero baseline year to Year One — but the actual program didn’t start until Year Two!

Second, most studies and vendors focus programs on high-risk people and then “demonstrate” that their risks declined. That’s like taking 10 coins that are lying on a table heads-up, flipping them, and taking credit for the ensuing 50% reduction in heads-up coins. University of Michigan professor Dee Edington, a leading authority on health-risk factors, has demonstrated a “natural flow of risk” in which a high-risk group’s risk factors tend to decline on their own over time, and vice versa. Yet most vendors count only the former when making claims of savings.

Third, in their efforts to show unsophisticated buyers massive ROI, vendors and consultants claim mathematically impossible savings, as was the case in a recent, well-publicized analysis of Medicaid in North Carolina. At least two vendors claimed savings even in the absence of risk reduction. Another vendor has coined an oxymoronic term, “undetected claims costs,” once finding $21 million of such costs for a customer, even though the customer spent only $6 million on health care.

Fourth, wellness has no basic outcomes standards. Despite the need to show massive reductions in events such as heart attacks that one would expect wellness programs to reduce in order to justify claims of massive ROI, I am not aware of any study or vendor that has ever measured employerwide reductions in wellness-sensitive medical events. Moreover, I am not aware that anyone has even published a list of wellness-sensitive medical events. (By contrast, there are long-established lists of medical events that are potentially preventable by both disease management and primary care.)

Fifth, even the iconic Safeway story of achieving a zero medical-cost-inflation trend through wellness — the inspiration for the wellness provisions in the Affordable Care Act ­— is made up. The Washington Post observed that the trend predated Safeway’s wellness initiative by several years.

Sixth, consider marketplace behavior. If indeed wellness programs reduced costs by 25% for self-insured employers, wouldn’t health-insurance companies pay fully insured customers to implement such programs, too, and capture the benefit for themselves in lower loss ratios? Yet none does.

Finally, the 25% reduction-in-cost math is fanciful. Excluding unavoidable hospitalizations, companies don’t even spend 25% of their costs for in-patient care, according to the Agency for Health Research and Quality. And other costs, such as for primary care, tend to rise after a wellness program takes effect, as employees are often encouraged or even paid to go see their doctors.

Employers have been fooled by get-well-quick schemes because the process-oriented human-resources department is being burdened with analytic responsibilities. The idea of the CFO carving out those responsibilities is one whose time has come.

Al Lewis, widely credited with inventing the discipline of disease management (as currently defined), is president of the Disease Management Purchasing Consortium. He thanks health-and-wellness consultant Vik Khanna for his collaboration on this article.

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