Wellness program pay-off: How long is too long to wait?
February 4, 2009 by Bill MeltzerPosted in: Special Report, Wellness
Wellness programs are a long-term investment. But how long should you wait for results?
Finance and the CEO want hard numbers to show return on investment (ROI). And wellness ROI is tougher to calculate than, say, a 401(k).
18-month guideline
Recent studies have established some benchmark data on wellness ROI you can use as a guideline. It’s useful whether you already have a wellness program or are thinking about starting one.
It usually takes at least 18 months from the launch of a wellness program to see any results in your healthcare plan bottom line.
For many firms, 18 months is the point at which workers’ improving health starts to cancel out the cost of sponsoring and administering the wellness program.
By and large, the long-term cost savings from a wellness program will be driven by how much you’re willing to spend. Generally, companies get what they pay for – both in time and money invested.
As a rule of thumb, the average cost to the employer is about $3 to $5 per participating employee per month. Within three years of launch, you should be seeing significant savings.
The typical ROI tends to be about $4 to $5 saved for every dollar spent. So how can you manage the costs in the short-term in order to achieve the long-term savings? And how can you maximize the long-term payoff?
Consider making it budget-neutral
For many employers, the most effective way to manage the cost of a wellness program in the start-up phase is to make it a budget-neutral expense.
In other words, the program neither adds to your health costs at the outset, nor reduces them. Example: You plan to roll out a wellness program effective Jan. 1. The program will cost the company $5 per employee.
You can roll the $5 per month cost directly into the employee’s monthly share of their healthcare premium. In this age of continuous cost-shifting, most employees are used to seeing small increases in their monthly contributions each plan year.
Just be sure you’re not hitting folks with a big hike on top of that $5. Comparably designed wellness programs pay off about the same – meaning employees buy in and participate at the same rate – whether they’re budget neutral or the employer absorbs the cost.
But when employees get clobbered by large-scale contribution hikes at the outset, they often resist the wellness program. The long-term ROI for these initiatives is often disappointing.
If you’re faced with a situation where achieving a budget-neutral program would trigger push-back, your firm is better off absorbing most or all of the wellness costs.
The biggest hurdle is to get over the hump for those first 18 months or so.
Tags: wellness programs
February 5th, 2009 at 4:09 pm
I certainly can confirm based on my research that it takes the vast majority of companies with wellness programs 18 months or more before they can demonstrate a positive ROI. In many cases it is three to four years. At the same time there are companies that have been able to demonstrate a positive ROI after as little as 6 months from program initiation. One particular company I like to reference is investing over $25 per employee per month to support a comprehensive health and productivity improvement program. The program delivered a 5:1 return on investment after just 12 months. In my opinion an impressive result for a mid-size manufacturing company with 400 employees. Furthermore, I would like to suggest that there are other (more) critical measurements that indicate program effectiveness than bottom line ROI, especially over the first 12 – 24 months after program initiation. One of those numbers is the change in health risks factors among the insured population.
February 21st, 2009 at 8:46 am
Does anyone have an actual causality study? Most of the ROI calculations are estimates where average claims and absence expense information is used to estimate the financial impact on a change in behavior. Similarly, even where companies show reductions in medical spend, or reductions in the rate of increase, I’ve seen where those changes were more a function of the sentinel effect (from introducing a H&P/Wellness program) or from benefit design changes introduced concurrent with the H&P/Wellness program.
So, who has the proof? Who has a health plan vendor, insured or self-insured, who has guaranteed reductions in health claims/absence experience? Or, comparably, who has the health actuary who has reduced FAS 106 expense as a result of applying a H&P/Wellness program to retirees or older associates?
I (plan actuaries) can document the impact of a change in copayments, deductibles, etc. and I can estimate the impact on utilization as well. Have yet to see study that confirms true causality.