Thursday, January 24, 2013

ROI Formula for Corporate Wellness


Despite the recession, hard times, and the fiscal cliff, owners of small corporations, small municipalities, schools and even governments can take advantage of programs to help their employees, and it doesn't have to break the budget.

The problem is that we don't often think that spending money will save us money.

The statistics favor corporate wellness programs.

  • Preventable illness makes up at least 70 percent of all illness and the associated costs
  • The total cost of obesity to U.S. employers is $13 billion per year
  • Obese Americans spend about 36 percent more on health services and 77 percent more on medications than people of healthy weight
  • Workplace alcohol, tobacco, and other drug use costs over $100 billion each year
  • Job stress is estimated to cost $200 to $300 billion annually in absenteeism, tardiness, and lost productivity
  • Workers' compensation costs for a smoker averages $2,189 compared to only $176 for a nonsmoker
So, what's a small corporation, school, municipality, or government to do?  Here are some options:

1.  Employees pay the cost.  Employers can offer to employees a menu-driven list of health benefits (often negotiated at a lower cost for bulk savings).  These benefits may include:  wellness assessments, fitness club memberships, and wellness email programs/personal phone coaching to name just a few. The employee then has a voice in how much he/she is willing to spend on wellness.  That amount is deducted from the paycheck, similar to insurance premiums.  Consider, if an employee accepted a $.50/day deduction, that would equal approximately $180 towards that employee's wellness.  It should be noted, however, that many employees protect their paycheck fiercely, unless they see the benefit.

2.  Employers share the cost with the employee.  Not only can employers negotiate up front discounts, and pass the savings along to the employee, but they can offer to share that expense 50/50 (or any other appropriate split).  The employer wins, because he/she is offering to pay to keep the employee well, which directly improves his bottom line.  The employee wins, because he gains improvements in his health, work productivity, and overall happiness.

3.  Employers can accept 100% of the cost of a wellness program.  And, this doesn't have to be expensive.  Employers should learn to negotiate discounts on behalf of their employees.  Additionally, the employer can then budget directly how much they can afford, and can then pass along those wellness programs to their employees.

Here's how you can easily calculate ROI for your company:

You'll need:
  • # of employees
  • total compensation to all employees paid last year
  • total number of sick days by all employees last year
  • Total cost of an employee wellness program being considered
  1. Total compensation/# of employees = average annual compensation per employee
  2. Average annual compensation per employee / 365 days = average compensation per employee per day
  3. Average compensation per employee per day  x  # of sick days taken last year = cost of sick days
  4. Assume a conservative 10% savings in sick days alone (see article, below), or 10 days.
  5. ANSWER:  Cost of sick days x 10% x # of sick days taken last year = savings by incorporating a corporate wellness program

Is it worth it to you?

This is a very conservative approach to a ROI calculation based solely on the cost of sick days.  This calculation does not include other benefits that may include:
  • A reduction in insurance premiums
  • Reduced disability
  • An employee's direct health benefits (lower blood pressure, cholesterol, diabetes, BMI, decressed stress, and decreased depression and anxiety to name just a few).
  • An employees "presenteeism" (being more productive while at work).
  • Company "profits/sales" from decreased employee absenteeism.
These non-financial outcomes might also be expected to translate into positive financial outcomes through reductions in direct medical spending and improved worker productivity. 

But, based solely on the conservative calculation above, an employer can do a simple cost benefit analysis based on the estimates they have obtained for corporate wellness.  

CONSERVATIVE ROI = Cost of wellness program - Cost of sick days

Since it is well documented that a corporation can save $3 for every $1 invested, we can create a more accurate formula:

MORE ACCURATE ROI = Cost of wellness program/3 - Cost of sick days

Therefore, if the estimates that you receive for a corporate wellness program are less than a 1/3rd of the cost of your sick days, it would be in your benefit to implement a program.  Once the decision is made to proceed with a program, you can decide what benefits can be offered to employees at 100% cost, or as a hybrid program of cost sharing.

Please remember that 365fitt can develop a cost benefit analysis and a program for your company.  Please check out the information on my website. Feel free to send me an email with any questions or inquiries.

Living 365fitt,
Coach Kathy

Source:  Corporate Wellness Magazine (great article, by the way!)

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