Fortune 1000 companies have been using wellness programs for years to combat the rising costs of health care. Given the evidence that healthier employees lead to lower insurance premiums, why aren’t smaller companies using this proven method to lower their health care costs?
“Most likely they have tried things that didn’t work,” says Randy Boss, risk architect for Ottawa Kent Insurance in Jenison, Mich. “There seems to be a wellness vendor on every street corner these days, and many use ROI from Fortune 1000 wellness programs as their own, yet they had nothing to do with that program.”
Companies must keep in mind all wellness programs are not equal when considering the best option for their employees. “Businesses tend to think short term and not long term, and expect to see solid and immediate savings on their health care costs,” Boss says.
The benefits of employing healthy workers transcend reduced health care costs, including lower workers’ compensation and absenteeism. Healthy workers are less prone to injury, and if they are injured, they recover quicker. Out-of-shape workers are at a higher risk for injury and healing is often delayed or complicated by other health factors. If workers change and modify their lifestyle and reduce their health risks, medical costs decline.
But, the connection between wellness and workers’ compensation has been slow to take root because of separate risk management departments overseeing workers’ compensation and group coverage, as well as concerns about expanding the employers’ liability for work-related injuries.
Investments and Rewards
According to a recent Duke University study, the cost of obesity among full-time employees is estimated to be $73.1 billion a year. This is the first study to quantify the total value of lost job productivity as a result of health problems, which is more costly than medical expenditures.
The report recommends employers promote healthy foods in the workplace, encourage a culture of wellness from the CEO on down, and provide economic and other incentives to employees who show signs of improvement.
A University of Michigan study found this approach can work for employers.The study of a Midwest utility company’s workplace wellness program found the firm spent $7.3 million for the program and reaped $12.1 million in savings during a nine-year period. Medical and pharmacy costs, time off and workers’ compensation factored into the savings. The study, which took into account indirect costs such as recruitment and the cost of changing menus, showed wellness programs work long term even though employees aged over nine years.
Overall, the program cost the employer less than $100 per employee. The cost of lost work time, workers’ compensation, and pharmacy and medical expenses among employees who participated each year increased by $96, compared with a $355 increase among employees who did not participate.
This is good news for employers. Amid heightened cost pressures and leaner staffs brought about by the prolonged economic downturn, employers need to reduce absences to maintain productivity. While employers tend to focus their energies on controlling highly visible health care costs, which are more easily shifted, there are significant opportunities to control other costs with wellness programs.
On average, employers can see a 30 percent reduction in workers’ compensation and disability claim costs, according to a review of 42 published studies involving the economic returns of wellness programs. Moreover, wellness programs can reduce the costs of absences that, according to the 2010 Kronos/Mercer Survey on the Total Financial Impact of Employee Absences, add up to 8.7 percent of payroll costs—more than half the cost of health care.
“Businesses should allocate 2 percent to 3 percent of their budget to an effective program that includes at least 90 percent participation by employees,” Boss says.
Guidelines for Success
Although budget and staff size will dictate what a company can implement, consider the following five steps before launching a wellness program:
- Evaluate cost drivers.Analyze workers’ compensation, health care and absenteeism data to identify common issues and trends. Understand the legal regulations governing wellness programs.
- Do a workplace assessment. Examine the physical and cultural framework in which the wellness program would operate. Consider opportunities for onsite physical activity, partnerships with community wellness providers or local gyms, health and nutrition classes, and onsite vending machines or a cafeteria. Identify the interests and motivation of employees, as well as barriers to participation, through surveys, committees and an analysis of past efforts.
- Educate employees.For several years, businesses have been shifting more of the costs of health insurance to workers through increased premiums and higher deductibles. Since 2005, workers’ contributions to premiums rose 47 percent, while wages increased 18 percent. Employees are feeling the pinch. Show them how participating in a wellness program can affect premiums.
- Obtain management support.A wellness program will not succeed without the ongoing support of management. Communicate the goals of the program and assess the commitment of supervisors.
- Identify goals and metrics for measuring success. When implementing a wellness initiative, senior management will want to see a return on investment. Establishing a consensus on the goals or metrics for measuring progress will help shape the program and ensure its success.
When it comes to implementing a wellness plan, it’s really about risk versus reward. The rewards can be huge, but only if the plan is properly implemented and the management team is committed to its success.