With rising healthcare costs becoming a growing concern for employers, it is increasingly important for organisations to weigh the costs and benefits of investing in employee wellness. Should employers hold back on making these investments? Or, will it be a worthwhile investment whereby paying now creates greater savings in the long run for a wellness ROI?
The healthcare costs borne by employers
Healthcare costs for employers are set to be on the rise — Pricewaterhouse Coopers’ Health Research Institute (HRI) estimates that medical costs for U.S. employers will increase by 6.5 percent in the year 2016. Based on this percentage rise, organisations that do not make any investments in employee wellness can expect to pay an additional sum of US$ 400-800 per year for health insurance.
Costs borne by employers are not limited to healthcare and insurance spending. They also arise in other forms, such as a drop in productivity levels or a rise in absenteeism. These factors create additional costs amounting to about US$3,000-4,000 per annum for the average employer.
Another significant factor for organisations comes in the form of obesity — a rising problem in North America. Obese men on average, are taking 6 more days of leave compared to peers with a healthy weight, while obese women took 9.4 more days. Such obesity-related absenteeism doesn’t only affect the individual performance of these individuals, but also creates a negative impact on healthcare costs that companies account for. The estimated costs of absenteeism amounts to a whopping $6.4 billion for employers countrywide.
Over the long run, the increase in healthcare costs may put businesses at risk of losing their competitiveness. Results from a Harris Poll commissioned by Castlight Health points towards this fact; findings revealed that 90 percent of chief financial officers surveyed felt that they could have invested more in their businesses if organisational healthcare costs were lower. Furthermore, a staggering 93 percent of survey respondents agreed that the high healthcare costs gave foreign companies a material advantage over competitors based in the U.S.
Employers strive to curb rising healthcare costs
Despite the rise in healthcare costs, the 2014 Towers Watson Health Care Changes Ahead Survey indicate that the majority of U.S employers (83%) continue to regard health benefits as an essential element of their value proposition for employees. Employers adapt to growing costs by adopting a variety of measures. Changes to healthcare subsidies for dependents and spouses, placing a cap on healthcare coverage for active employees and utilizing technology-based solutions, such as fitness apps or social media are some of the cost mitigation tactics employed.
Increasingly, rather than being regarded as an additional measure that is ‘nice to have’, employee wellness programs are viewed as an effective strategy that can boost the organisation’s bottom line, as well as equip employees with knowledge and skills to make improved health-related business decisions.
After all, it’s no secret that healthy employees tend to be happier and more productive. Findings from a joint research by the Health Enhancement Research Organization (HERO), Brigham Young University and the Centre for Health Research at Healthways point to this outcome. Results from the study showed that absenteeism was 27 percent lower for individuals who ate healthy meals and exercised on a regular basis. These employees also performed better at work — their job performance measured 11 percent higher relative to colleagues who were overweight.
But, are employee wellness programs a worthwhile investment?
What are the costs of implementing an effective wellness ROI?
Employers can expect to invest about US$100-400 per employee each year. This recommended cost range is derived from suggestions by a variety of organisations. The Wellness Council of America recommends an expenditure of at least US$100-150 per employee each year, not including additional expenses for incentives and health coaching. Dr Goetzel, Director of Institute for Health and Productivity Studies at Cornell University recommends an investment of US$150, while Dee Edington, wellness ROI expert at University of Michigan suggests “about US$300-400 per employee if you expect good savings and a positive wellness ROI.”
Investing in employee wellness: Pay now, and save later
A cost of US$300-400 per employee may appear like a hefty sum to invest, particularly for large teams and organisations with an employee headcount totalling in the hundreds or thousands.
However, this figure is notably lower compared to the estimated annual increase of US$400-800 for health insurance costs for each employee. However measuring short term wellness ROI may be a red-herring, more often than not employee wellness programs are only truly effective when results are measured over the long run.
Typically, most organisations can expect to see a return after a period of three years; this duration ensures that inconsistencies in claims are normalized, allowing for the effectiveness of the program to be accurately assessed. Successful case studies of organisations such as healthcare giant Johnson & Johnson, as well as Anderson Cancer Centre attest to the long-term impacts of employee wellness programs. The former has achieved healthcare savings totalling US$250 million over the past decade, while the latter saw a 80 percent reduction in lost work days, as well as healthcare savings amounting to US$1.5 million over a period of six years.
Benefits do not only come in the form of hard-dollar returns. Holistic and well-designed wellness strategies help create a workforce that is motivated, happier and better adept at stress management. Such strategies also foster a greater level of trust between the organisation and employees, and to build a more cohesive company culture. These factors have a direct impact on the attractiveness of the workplace environment, and are critical for employee recruitment and retention.
And then there is the value of data intelligence, but that’s another story entirely. For more on data value, refer to What Intelligence is your Wellness Program Providing You?
The returns of investing in employee wellness — either for healthcare savings or improvements in employee health and engagement — won’t occur in the blink of an eye. However, if you implement a well planned, well executed wellness program you will gain that positive ROI initially sought as well as the intangibles of a group of culturally connected and commercially contributing employees. What more could you wish for?
- Globetrekker Challenge is a corporate health technology company for employee health engagement and HR data analytics. By integrating multiple features across wellness, technology and social, Globetrekker Challenge creates robust outcomes to improve employee retention, performance and culture.