What is Your Company’s Employee Health ROI?

Understanding the real value of your health management program can drive costs in the right direction

September 13 2010 by Paul E. Terry


The measurement and evaluation tools that CEOs and CFOs need to build a strategic advantage based on improved employee health are now readily available. Yet, despite the availability of these tools, there remains a large gap between companies that know what they should do and those that are actually doing it. And when it comes to employing industry best practices in employee health management or workplace wellness, such as using multiple intervention modalities, measuring program outcomes and tracking the program’s return on investment, that large gap becomes more like a quality chasm.

The measure that matters most to your CFO: Health ROI

Research indicates that only a small percentage of companies offer “best practices” health management programming. In fact, one national research study concluded that fewer than eight percent of all worksite health programs could be described as comprehensive. But do best practices really make a difference when it comes to results? Absolutely.

A 2010 scientific review of worksite wellness programs, led by Katherine Baicker and other Harvard health economists and published in “Health Affairs”, showed that well-designed programs achieved an average of a 3:1 return on investment. And, although it’s possible to achieve an ROI in a year or two with well-targeted programs, it’s much more viable to expect substantial returns by year three and beyond.

As in all aspects of running a business, decisively acting on data brings value to the measurement process. For Bob Ihrie, senior vice president of employee rewards and services for Lowe’s Companies, Inc., this action orientation turns trial and error into continuous learning and improvement.

“Over the years, Lowe’s has experimented with different programs and we’ve also dropped a few programs because we found that employees weren’t engaged or the programs weren’t effective,” said Ihrie. “For instance, we used to offer a nurse line for employees, which we discontinued because employees weren’t using it, therefore the cost per call was very high. Now, we offer health advocate calls and a handbook that helps people self-diagnose for some of the most common illnesses. We’ve received very positive feedback on this and we know employees value the information and hang on to it from year to year.”

A measurement strategy that can guide you to a positive ROI requires routine collection of health assessment data that is broad enough to capture physical, mental, social and cultural drivers of health care costs. This explains the current trend of employers offering a health plan as an alternative to the usual sick care insurance model, in which completing a comprehensive employee health assessment is a gateway for eligibility to the preferred health promotion and disease prevention oriented coverage.

In 2009, StayWell Health Management published a case study of the health management program implemented by a large, automotive manufacturing company that illustrates the pathway to a positive ROI but provides a best-practice evaluation methodology that can produce the more formidable “value of investment,” or VOI.

This particular company saw medical spending increase by 5 percent for employees who did not participate in the program during the two-year study timeframe. Conversely, costs decreased by 3 percent for program participants. This difference produced a $3.1 million savings from the program; enough to have the program pay for itself by year two. But the overall value of the effort far surpasses the impact on the bottom line: More engaged employees, higher self-esteem, fewer health risks and greater satisfaction with the company.

“Our medical spend drives a lot of our planning, but I often remind senior leaders that we need to cast the net broadly to be successful at containing health related costs,” said Tammy Green, regional director of health management at Providence Health & Services Alaska in Anchorage. “In some respects, medical costs are easier to predict and intervene on than workers’ compensation, FMLA, disabilities, productivity and absenteeism. The impact of poor health will show up somewhere, and it’s not always the doctor’s office.”

Found money for your COO: Health and productivity savings

Where a program ROI and reduced medical spending can capture the attention of your CFO, getting more products and services out the door should just as surely have your COO take notice. Better yet, combine these two and you’re addressing the CEO’s imperative to maximize overall shareholder value. Though much more difficult to quantify than the simple arithmetic needed to calculate an ROI, it is possible to monetize the impact of employee health improvement on productivity.

Another research study conducted by StayWell quantified the difference between the productivity of workers with poor health habits and chronic conditions, and those without. The study monetized these differences and provided key benchmarking data about which employees are most affected by their health risks and which are most willing and able to improve them. By examining health and productivity data from a sample of 106 employers within five industry sectors, researchers found that employees with an average number of risks lost 8.4 percent of their productivity on the job. That’s five percent less productivity or, viewed another way, 2.6 weeks of lost work time. According to these estimates, people with three health risks cost $4,480 more per year in on-the-job productivity loss than people without risks. More alarming still, a person at risk for eight risk factors was 24 percent less productive. A factor analysis of the various productivity pirates showed back pain as the biggest culprit, with depression, stress and tobacco use following closely behind.

“We’re beating them a bit with a carrot.”

That’s how Tammy Green describes her strategy to tune up financial incentives at Providence Health in a way that increases employee accountability while supporting employees with more tools to help them improve their health. Green, who has a background in epidemiology and experience in statewide public health practice, tracked numerous sources of company health metrics to hone in on heart disease and stroke as top cost drivers.

“I advise our CEO and senior leaders to keep expectations realistic and make the long-term commitment to employee health. That means it’s less about financial penalties and more about behavioral economics. Matching our incentive strategy with robust offerings tells our employees we’re prepared to meet them half way,” said Green. “My goal is to quickly switch employee reliance on extrinsic motivators like financial incentives, to the more lasting intrinsic motivation that will come with their participation in effective programs.”

This is a philosophy that has Providence piloting, among other things, a pre-hypertension management project. Green notes that blood pressure is among the most tangible risk factors to monitor, and following a cohort over two to three years will give Providence insight into trends in related risks, such as obesity, tobacco use and fitness.

This penchant for using data to set strategic priorities and then moving quickly to launching tactical projects also has been in the DNA of leaders at Lowe’s.

“We’re always looking at the ROI, so when we’re considering a program change, we look at the five disease stages and our 10 highest risk factors,” said Ihrie. “Then, we determine where it makes the most numeric sense to implement changes.”

Like Providence, Lowe’s also has been tracking hypertension from both a lifestyle management and a medical management vantage point. Research shows that almost half of patients with chronic conditions stop refilling prescriptions within one year. The greatest barriers to adherence include limited knowledge, unwillingness to change behavior and the belief that medications will not improve their health. Health coaches use motivational interviewing skills to overcome the barrier and ambivalence employees feel about taking meds. But what about the practical hurdle of forgetfulness and the inconvenience of keeping up with prescriptions?

An initiative that addresses such barriers to medication adherence—and one that put Lowe’s in the national spotlight among health benefits administrators—was a classic win-win for employees and the company.

“Lowe’s is very aggressive about trying new things, as long as we don’t think they will negatively impact the employee experience and the care they receive,” said Ihrie. “For example, we have historically had a very high non-mandatory generic substitution rate for employees who take maintenance medications, but our mail-order rate was low. We know that people who use mail order for maintenance medications experience greater accuracy, they are less likely to forget to renew prescriptions, and they have greater adherence with their medication program. We also estimated that by converting more employees to the mail-order program we could save a combined $5 million between what Lowe’s and our employees spend on maintenance drugs. In the end, we tripled our percentage of home delivery prescriptions for maintenance medications, saving the company and our employees $5.2 million in the first year.”

How much data is enough?

So, how much should you invest in measurement? One rule of thumb is to invest between five and 10 percent of your health management budget in measurement. Most organizations can evaluate and benchmark adequately, and more inexpensively, by using cost models and comparative metrics derived from other studies and commercially available surveys.

For example, many consulting firms (AON, Hewitt, Mercer, Towers Watson) produce annual reports against which you can judge your progress and build a case for continued and deeper investment in employee health. And the risk of coming late to this game can be very high. According to the 2007/2008 Watson Wyatt “Staying@Work Report,” companies with the most effective health management programs can see:

  • 2.4 percent versus 11 percent health care cost trend
  • 20 percent more revenue per employee
  • 16.1 percent higher market value
  • 57 percent higher shareholder returns

Similarly, population health management organizations can offer their clients a cost impact model that estimates cost and productivity savings based on reductions in employees health risks.

As a practical matter, if your program will be subject to a high level of scrutiny and visibility within your organization or from your board of directors, that alone may justify a greater-than-usual investment in evaluation. In this case, you can use a comparative model that assesses your company’s baseline health care cost trends prior to program launch and then evaluates the program’s impact on trends after launching a population health management program. You can add another layer of reliability to your findings by comparing your trends during this time frame to other organizations like yours. This approach should offer most organizations a reasonable level of confidence that their interventions are making a difference in trends.

Though each of the approaches above have value, for some organizations a claims-based analysis rather than a cost model or comparative model is considered imperative. If your program is highly unique or your investment in employee health will far surpass that of published studies, commissioning an independent analysis may be the best approach.

Though the randomized controlled research trial is considered the gold standard for definitively assessing a program’s impact, nearly all organizations will use a quasi-experimental study because they are not willing to provide some program offerings to some employees and withhold the offerings for others. Such a study closely tracks data that compares program participants versus nonparticipants’ health care utilization trends over time.

In the end, adopting health as a core business value requires data credible enough to illustrate that the strategy is about much more than improving your employees’ health and productivity. You also need to choose measures that clearly demonstrate how your investment in health is making your company run leaner, allowing you to recruit and retain better talent and ensuring that you can out-innovate and out-execute your competitors.

Ihrie sums up the benefits of evaluation and measurement in a way that a CEO intent on excellence can readily relate to. “For a large employer like Lowe’s, the investment in measuring our program is small compared to the large return that we get from this effort, both in terms of using the information to guide what we do and improving our ability to choose programs that are effective.”

Paul Terry, PhD is president and CEO of StayWell Health Management, a national provider of workplace health management programs and industry research.