When most companies measure their health costs, they tend to calculate them by categories, such as medical visits, medication, and disability claims.

A recent study found this method is strong on catching direct costs, but misses a huge chunk of overall cost – lost productivity.

Companies surveyed lost four times more money on productivity than was spent on medical and pharmacy claims. In actual dollars, annual medical and drug costs for back and neck pain came to about $170K per 1,000 employees. When productivity was measured too, the total bill came to over $500K!

Cancer, back and neck pain, and coronary heart disease are the costliest employee health conditions for employers. But that’s only the case when the traditional method is used to measure cost.

When researchers took production costs into account, the list was very different. The costliest problems are:

• musculoskeletal conditions,
• depression, and
• fatigue.

In general, only one firm in five has seen stabilization in its overall health costs over the last five years. Much of the reason is due to failure to track indirect costs.

Know the impact

Experts are worried that American companies are falling behind in the global market by not taking into account the full impact employees’ health costs have on their bottom line.

The American College of Occupational and Environmental Medicine and the Integrated Benefits Institute have both launched initiatives encouraging employers to consider the full-cost of employee health. They’re assisting employers in weighing the cost of employee health problems against things like wellness programs.

Both organizations are offering free online tools. ACOEM’s program is “Blueprint for Health.” Visit its Web site for more information. IBI’s program can be found here.

What has worked best for your firm in controlling costs?

When it comes to wellness programs, it can be tough to get past all the hype. Here’s how to avoid the three most common traps employers fall into.

Trap #1. The “one-size-fits-all” approach

For good reason, your organization doesn’t simply copy other firms’ 401(k) plans or compensation designs. Yet, all too often, firms adopt ill-fitting wellness programs based on things that have worked elsewhere.

Your CFO may have seen data on the cost savings other employers have achieved via certain wellness incentives. Or an old colleague of your CEO swears by the program at his or her own firm.
In response, the top brass pushes for a copycat program – for instance, offering smoking cessation incentives.

That might be a good idea, as long as smoking-related illnesses are a key driver of your company’s health costs. But how can you be sure? Is it good enough to have your employees undergo a health risk assessment?

Typically, the answer is no.

Health risk assessments are a great starting place, but it’s often a mistake to stop there. The assessments help you get a feel for what your employees’ baseline physical problems are before you try to design a program around them.

This creates rough outlines of what your program goals should be and where to target employee initiatives. If you want the maximum bang for your wellness buck, you’ll have to dig a little deeper for information. Key places to look:

• your organization’s medical-claims breakdown for the last three years
• prescription-drug claims
• employee absence information
• EAP use
• disability claims, and
• employee demographics (workers’ ethnic, gender, age and dependent coverage status points to greater – and lesser – health risks associated with each category).

Trap #2. Leaving the program on autopilot

Many wellness programs often get off to a good start and then fizzle out. Employers are left wondering what went wrong. Their mistake: They failed to revisit the program on an ongoing basis – at least every other year.

Why it’s crucial: Your cost-drivers can easily shift as employees come and go from the company.
Example: This year, emphysema and other smoking illnesses may be your biggest cost driver. But two years from now, it might be obesity and diabetes.

Unless you continuously track the program and adjust your goals as necessary, you may not be prepared to meet those new challenges.

Trap #3. Unrealistic expectations

Generally, it takes at least a year and a half for employers to break even on the cost of a wellness program. As a rule of thumb, the average program cost per employee per month to the employer is about $3 to $5.

If, after three years, you still aren’t seeing results, something went wrong. Currently, the benchmark ROI after the third year of a wellness program is $4 to $5 saved for every dollar spent.

How can you manage the cost in the short-term? In many cases, employers pass the cost of the wellness program on to the employees. For example, let’s say you want to roll out a wellness program effective January 1 (or whatever your first day is of the new plan year).

You can roll that $3 to $5 per employee per month cost directly into the employee’s monthly share of their healthcare premium. That makes the wellness program a budget-neutral expense for your organization.

But remember: You get what you pay for – both in time and money invested. The less guesswork that’s involved in the planning and execution, the better the chance for success.