Volume Twenty-Four, Number Two|March – March-April, 2015
Global Talent Analytic Measurement Strategies
Looking at Employee Wellness Programs through an Independent ROI & NPV Lens

“Next steps in advancing studies of the financial impact of workplace health promotion programs includes . . . engaging independent third parties to evaluate programs” 1

Employers in the U.S., Asia and Europe have never been more interested in work force health and productivity management investments as something that can be leveraged into a distinctive competitive talent advantage and a measured ROI and NPV. Indeed, according to Aon Hewitt's 2014 Health Care Survey, progressive employers are evaluating emerging health management opportunities, selecting and advancing the right strategies for their businesses, and implementing those strategies with a keen focus on measuring results and improving the ROI and NPV of their health benefits investment.2 But in a recent PwC CEO survey, approximately 80% of the 1,250 CEOs signified they considered ROI important, but only 12% indicated they receive sufficient human capital ROI information.

Employers are now using more objective methods to obtain real/near-time data, and view a scorecard - designed to provide the relevant insight required by business leaders - as pivotal toward implementing ongoing process improvements, and for securing commitment to differentially sustain wellness program investments. A "best practice" of successful programs entails the implementation of more objective measurement strategies that capture leading indicators of operational and program performance as well as health and financial outcomes. Companies are seeking to move beyond assessing static program participation and instead quantify the improvement of change in health risk within their employee population known as "return on health," and to accurately validate that wellness initiatives are working as designed and executed. 3

Further, Towers Watson's 2013 Health Care Changes Ahead Survey indicates that in order to help examine the financial implications and solve cost challenges, CFOs are becoming more actively engaged in making health care strategy decisions, with nearly half of firms reporting that finance executives are more involved in influencing ROI-related wellness investment decisions than they were 3-5 years ago. 4

Independent ROI Employee Wellness Program Evaluation

According to the Aon Hewitt report, only about a third of all large employers have formally measured the ROI of their health management programs, even though C-suite and board managements expect a more substantive, objective, and robust measurement that will provide an indication of potential and/or actual financial payback and investment return. Supporting the Aon Hewitt findings, a recent CEB 2013 study found that almost two-thirds of companies lack a formal approach for measuring the ROI of their wellness initiatives. Of the 33% that do, unexpectedly, 60% have an in-house team complete the measurement analysis rather than relying on outside, independent consultants or specialist, wellness assessment firms. But the referenced AJHP article, however, points out that " . . . we need to be cognizant of the real, or perceived, bias of the team conducting the evaluation. When the evaluation is conducted by the external vendor getting paid to design or manage the program, or by the internal program manager whose job depends on it being successful, it is difficult to avoid the perception of bias, even when the integrity of the people is beyond reproach. One feasible solution is for employers and/or vendors to hire independent, third party organizations to evaluate their programs."

Further, workforce health promotion programs are often held to a significantly higher standard of generating a financial gain, or "profit," computed in dollar terms - to justify their value to companies that have them in place compared with employer-provided benefits such as health insurance. 5 Many measurement initiatives - using independent third party evaluators - reporting ROI results, provide indicative, unbiased evidence of a positive return. In addition to measuring the impact of the wellness program on financial outcomes, program investments must be tracked to compute a benefit/cost ratio through an independent assessment as well.

And according to Goetzel et. al. in the JOEM article, "conducting a rigorous and credible ROI analysis is time-consuming, expensive, and requires a high level of expertise in statistical analysis, health services research, econometrics, and benefit plan design. Well-designed studies of health promotion programs are rare, and even the best of these studies contain methodological flaws because they are conducted in real-world settings with limited ability to control for confounding factors, such as self-selection into programs, high attrition rates, changes in employee demographics, benefit plan design modification, alterations in third-party fee schedules, lack of statistical power to show effects, non-normal distributions of data, and legal and practical constraints related to the conduct of randomized trials." Many of these measurement challenges, however, can be effectively managed and addressed through an independent, third party program evaluation process.

Case in Point - Independent Wellness Program Evaluation

As an independent evaluator, we have been working with a global company in measuring the financial and non-economic impact of an enterprise-wide, employee wellness program and process, led and managed from the corporate center using a linkage measurement approach. 6 The 4-year measurement initiative initially involved completing a pro forma financial valuation of the wellness program provided through an international vendor/provider firm. Even though the vendor offered wellness program evaluation capability, the client elected to have our firm plan for and conduct the multi-year assessment to ensure objectivity. Years 2 - 4 entailed computing actual, cumulative ROI and NPV results of various wellness program investment initiatives.

The pro forma, Year 1 analysis involved examining the types of various health risks and their prevalence rates, multi-year investment costs for the wellness programming, the firm's discount rate under various cost of capital scenarios, and assumptions surrounding the impact of the wellness initiative on employee productivity; that is, absenteeism and presenteeism. Other "input" data included varying employee wellness program participation levels, medical payments per employee in the base year, wellness program costs per employee, and applying a 3-year project time horizon for the investment analysis. Health risk change benchmarks wee used to estimate expected changes to health risks and employee productivity. Benefits (i.e., medical expense savings) were compared to program costs. Projected, 3-year ROI results ranged from a low value of $2.06 to a high value of $2.15, depending upon the discount rate and employee productivity assumptions used in the valuation modeling.

Actual measurement of ROI results for Year 1 of this initiative resulted in savings of $1.55 for every dollar invested, with net annualized savings of $2.6M. Combined, Year 1 and Year2 actual measurement resulted in an ROI of $2.98 for every dollar invested, and a cumulative NPV of $11.7M for the two years, using the firm's selected discount rate of 14%. Finally, a comparative, cumulative 3-year actual ROI - involving over 19,000 employees in the data analyses - was computed to be $4.69 with a cumulative NPV of $27.6M. Comparative meta-analytic, benchmark data was analyzed involving 61 studies and indicated a cost-benefit range from l.65 to 19.4, with an average cost-benefit ratio of 5.56, or for every dollar invested, a return of $5.56 was realized.

An objective, unbiased financial and non-economic evaluation of a company's employee wellness program by an independent evaluator ensures that the derived results are unbiased, accurate and objective. Moreover, it is prudent to recognize that employers and employee wellness program vendors are the ones who care about outcomes. Our experience suggests that the quality and objectivity of the wellness program evaluation influences companies' ability to design effective and targeted employee wellness interventions where the ensuing payoff will be the greatest.

1 American J. of Health Promotion, 2015, Vol. 29, No. 3, pp. v – viii.
2 Aon Hewitt. 2014 Health care study.
3 Ibid, Aon Hewitt.
4 Towers Watson. 2013 Health care changes ahead survey.
5 R. Goetzel, et. al., Do workplace health promotion programs work? JOEM, Vol. 56, No. 9, September, 2014.
6 V. Simpson, et. al., Lifestyle behavior change and repeat health risk appraisal participation. AJHP, 2013, Vol. 28, No. 2, pp. 128 – 135.

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