5 ways wellness reduces costs – Part 1: health plan costs

Wellness ROI piggybank

Flickr image from taxcredits.net

Last week’s post made the case for broadening the economic argument for your wellness program. As I noted before, the five economic factors that respond to wellness programming are health plan cost, sick leave absenteeism cost, workers’ compensation costs, disability management costs and presenteeism costs. I will take the next five posts to dig into each of these areas to give you a path to fleshing out the economic case for wellness.

Measuring wellness’ effect on health plan costs

Now let’s dig into health plan cost savings. The average U.S. employee costs their employer about $12,000 per year in health plan cost—lots of room for meaningful savings! There are many ways to do this analysis, but the one I advocate for most organizations is a basic claims analysis.

In simple terms, this kind of analysis just compares people who participated in wellness programming to people who didn’t. By comparing how fast health plan costs are growing in one group with growth rates in the other group, we can infer that any difference between the two is attributable to participation in wellness programs.

To do this analysis, you need:

  • At least a 1,000 lives to make sure your population is “actuarially credible” or large enough to reach statistical confidence.
  • Claims data so you can look at the yearly cost experience of both program participants and non-participants over time.
  • Analytic resources to compute the average claims cost per employee per year–a consistent measure of health plan use for both participants and non-participants.
  • Outlier removal so that extremely large claims don’t mess up the analysis unfairly.
  • Consistency in the health plan design and claims payment process, so the data is comparable.
  • Consistency part two–Use of consistent time periods and definitions (So that your analysis is valid and defensible.)

The major challenge for wellness program managers is usually getting access to health plan claims data in order to sift the data to isolate how much each group’s average claims costs were in each year. You also have to be careful about any significant change in the cohort groups from year to year (participants and non-participants), such as big changes or shifts in age, gender distribution or geographic pricing patterns often caused by people dropping out of your sample cohort groups mid-year.

When computing the economic return from health plan claims cost effects I usually recommend that you determine the growth rate of per employee health plan costs from year to year for non-participants and participants and then compare the non-participants’ growth rate to participants’ growth rate. This gives you a low cost yet valid way of identifying the savings associated with your wellness program. The non-participant’s growth rate functions as a kind of ‘control’ group to compare with the same metric for your participant group. Any difference can be reasonably explained by your intentional programs whose very purpose is to shift the very behaviors that would cause individuals to consume less health care.

If you don’t have access to health plan claims data you can use changes in the prevalence of specific health risks in the participant population over time to estimate the economic return from your wellness program. For example, if 100 individuals completing an HRA last year indicate that they are smokers and then this year only 50 of that same group indicate they are still smoking, 50 individuals have stopped smoking presumably due to the effects of the wellness program. If we then take those 50 people that stopped smoking and multiply them by the average annual excess cost associated with smokers (depends on the study you look at, but it’s roughly $1,500 per year) then the economic return associated with the reduction in smokers from the effects of the wellness program amounts to (50 x $1,500 = $75,000) $75,000.

These two methods for determining the economic return of your wellness program are covered in-depth in the WellCert Wellness Certification Program. Measuring the impact is great, but future posts will cover how to maximize the employee health plan cost savings from your wellness program actually drives!

Next week we will dig into how to measure sick leave absenteeism savings.

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