Magazine article Strategic Finance

Saving Money through Wellness Programs: If Companies Can Help Keep Their Employees Healthy, They Can Stem Rising Healthcare Costs and Create a Happier, More Productive Workplace

Magazine article Strategic Finance

Saving Money through Wellness Programs: If Companies Can Help Keep Their Employees Healthy, They Can Stem Rising Healthcare Costs and Create a Happier, More Productive Workplace

Article excerpt

In recent years, many employers have begun to offer employee benefit plans that include a wellness element. They cobble together a gym membership, a coaching session, and a smoking cessation plan, then slap a "wellness plan" label on it. The more-sophisticated programs include weight-loss plans and a multitude of other benefits for prospective recruits, helping them to take better control of their health and potentially extend their life spans.

Employers aren't doing this all in the name of altruism, of course. Even the most basic wellness plans improve the overall health of companies by saving money and boosting the bottom line. In a meta-analysis of literature on costs vs. savings associated with such programs, "Workplace Wellness Programs Can Generate Savings," published in the journal Health Affairs, researchers found that medical costs fall by about $3.27 for every dollar spent on wellness programs and that absenteeism costs fall by about $2.73 for every dollar. In most cases, according to one industry leader, it takes about two to five years after the initial program investment to realize these savings. Moreover, companies with established wellness programs are in a better position than companies without such programs to bargain with health insurance companies for a discount on premiums because they can demonstrate less risk among those employees who are part of the program.

According to numerous estimates, healthcare costs have nowhere to go but up. In 2011, for instance, the Kaiser Family Foundation predicted a 9% annual growth rate. As health insurance costs continue to rise, more businesses will consider starting wellness programs or improving existing ones. But despite its many advantages, a well-intentioned wellness program can fail to catch on with employees if it isn't fully planned, implemented, and supported. Employees won't benefit from it, and the company will have wasted time, money, and effort. To help keep this from happening, we'll discuss how a company should go about planning and implementing a wellness program. Then we'll highlight some of the benefits and challenges to consider in the process.

As management accountants and other financial professionals whose job it is to support proposals and other ongoing initiatives with numbers, you'll certainly want evidence of the financial benefit of wellness initiatives over time, which is the main focus here. We'll share with you a model we developed that allows you and other decision makers to input variables such as annual payroll, inflation rate, insurance discount rates, and costs associated with constructing a wellness facility. There are unlimited combinations, but we'll use several unique scenarios to illustrate the return on investment (ROI) and internal rate of return (IRR).

Our model is software-based and transferable to any size company because it allows for multiple variables. We've found it very useful in forecasting ROI and IRR for a company--yours, perhaps-that's considering the effect of the time value of money on investment in a wellness program.

CONSTRUCTING A WELLNESS PROGRAM

Implementing a wellness program requires a cultural change for most companies. Employees value their personal time, so anything a company does to influence the way employees spend their free time might be seen as intrusive. Smaller companies tend to have a more close-knit culture, so it may be less difficult for them to implement wellness programs.

Either way, small companies have a greater incentive to manage their healthcare costs since they're more impacted by medical claims and don't have the economies of scale to spread out increases in premiums that large companies do. Smaller companies also feel more of an impact in terms of productivity when employees call in sick, whereas larger companies can absorb a greater number of worker absences because of illness.

In the mid-1990s, the Wellness Council of America (WELCOA), led by David Hunnicutt, began forming the cornerstone of the workplace wellness movement. …

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