Employers today have three key business concerns: health risks across their workforce, medical costs and lost productivity. So the debate on employer return on investment (ROI) for wellness programs is louder than ever.
It’s time to end the clamor. Traditional medical-cost-based ROI methodologies have been challenged as overly optimistic, and sometimes flawed. What’s actually working and how do we know? What are employers actually getting for their money? What’s the real business value of a healthier working population?
To get the full picture of your health and wellness programs’ financial viability – and how they are more broadly affecting company costs and operations – you need to take a different perspective. Rather than focus on the ROI, consider the value on investment, or the VOI, if you will.
What’s at Risk?
The Integrated Benefits Institute shows that health and productivity can be viewed in these proportions:
- 20% wage replacement
- 40% medical and pharmacy costs
- 40% lost productivity
All told, the poor health of employees costs employers $576 billion a year.
There are many ways for employers to mitigate increasing health care costs. By integrating health management practices, such as value-based benefit design, health and safety policies, and population-specific programs to promote prevention and risk avoidance, organizations can proactively address the health and productivity of their workforce.
Looking Beyond Medical Costs to Increased Value Overall
There’s a growing body of evidence suggesting that when companies invest in comprehensive health and wellness programs, they see better business returns and greater profitability, compared to peer companies that have not made such investments or that provide ad hoc programs.
A recent literature review by the American Journal of Health Promotion, which included 51 studies, evaluated the financial impact of workplace wellness programs. It found that program ROI differs based on the quality of the methodology used to evaluate it. Businesses in Western nations typically calculate ROI as benefits divided by costs, whereas economists typically calculate ROI as benefits minus costs divided by costs. The economists’ calculation method produces an ROI estimate that is 1.0 less than the Western business method.
The review employed calculations using the economists’ method and concluded that mean weighted ROI in the programs demonstrated a positive return. This shows that worksite wellness programs make good business sense – when implemented effectively.
Additionally, wellness programs bring a host of other dividends over time, such as
- Improved workforce morale and lower employee turnover
- Less absenteeism and increased presenteeism (and their attendant costs)
- Improved day-to-day operations – and more.
More companies realise that increasing employee morale, engagement and productivity will improve their culture and their bottom line. Many employers are moving away from looking solely at their medical cost trend and are more interested in boosting productivity. The latest Working Well survey found that 15% – 30% of companies are measuring wellness outcomes in such areas as safety, productivity and reduced absences.
Shaking off the standard ROI mindset and embracing a VOI approach to health and wellness programs can help employers not only address their concerns about workforce health risks and related cost but also improve productivity — and in turn, their bottom line.
Employee Benefits / Employment Law