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Results-Driven Worksite Wellness

5 ways wellness reduces costs – Part 2: sick-leave costs

Monday, November 3rd, 2014

From Flickr & Anthony Cain

American workers are absent from work due to sickness an average of 8 days a year. Wellness programs have been documented to reduce that amount by 25% or an average of 2 days a year. That reduction in absenteeism represents economic return that is potentially attributable to your wellness program, but it takes some effort to capture the data needed to make that case.

In simple terms, we just need to compare the trends in per-employee sick leave use of employees who participate in wellness programs to the employees on the sidelines. By making this comparison, we can infer the effect our wellness programs have on sick days. Of course, gathering the data to make this comparison can be tricky depending on the structure of your sick leave benefits—a factor that drives what data your organization already collects.

‘Dedicated’ Sick Leave

Dedicated sick leave refers to arrangements where there is a formal policy about the number of sick leave days earned by each employee per year. It’s easier to get data on dedicated sick leave because employers have to keep track of it. Some employers provide 6, 8 or 10 days of dedicated sick leave per year. This makes it easy to get the data on sick leave for participants and non-participants in your program.

Combined Leave

Another common type of sick leave is called “combined” leave. If your organization uses “combined leave” (also called “Paid Time Off”), all the distinctions between types of leave including administrative, sick, vacation, jury duty, family emergency, etc. are eliminated and each employee gets a lump sum of annual leave. Sick leave is converted into annual leave and is expected to be taken with adequate advance notice. When employees are sick the leave is arranged usually within 24 or 48 hours of its use, giving us a proxy for the amount of sick leave used by the population. If you can get data on each employee’s unscheduled leave within a year, you can do the comparison between wellness program participants and non-participants and measure the reduction in sick leave.

Using an HRA to measure sick leave trends

In many organizations, there are holes in the data a wellness program manager can get their hands on to gauge their impact on sick leave. As a result many wellness program managers use a question in their annual HRA that asks about sick leave usage. A question like: ”How many days in the past 12 months were you absent from work due to a personal illness or health problem?” can be used to track sick leave over time. If you ask a question like this at the beginning of your program, the result can be used as a baseline, as it gathers information about the 12 months prior to the launch of the program.

If lots of people complete the HRA then it can become your baseline sick leave measure for the entire population. The same question can also be used as a reference point for the individual participant in your wellness program in what is called a “cohort” analysis. This is when you compare the participants’ own sick leave usage in year one of the program to their usage in year two, etc. (Also called “participant to participant” comparison). In both these methods you are expecting to find a reduction in sick leave usage as participation in the program increases.

Monetizing the benefits of reducing sick leave

Using one of these data collection approaches, you can compare the trends in sick leave use in populations who have participated in your wellness program to those who haven’t. Once you have the raw number of days of sick leave reduction attributed to your program, you have to come up with the right cost-basis to use for each day to translate days into dollars of savings.

In many cases, all you need to do is take the average salary costs and apply them to the number of days saved to quantify the benefit to the organization. You can assume that each lost day of employee work is worth at least as much money as the organization was willing to pay them for it!

There are two ways to calculate the wage/salary savings. The first uses an estimate of the average labor cost per day of work. To use this method you need: the total wage/salary cost for all employees for the year, the average number of Full Time Equivalents (FTEs) employed during the same year and the average number of work days expected to be worked per year. It is typical in this method to arrive at an average wage/salary amount of $400 to $1,200 per day per FTE. This number then gets multiplied by the number of sick leave days reduced by the wellness program to derive a total amount of economic return.

The second method for uses the actual labor cost per work day of the program participant. This method is similar to the average method, but uses the actual labor cost of each day of work of the specific program participants that have experienced lower sick leave usage. Of course, this requires that you identify the labor costs of the specific individuals who saw a reduction in their sick leave use.

However, this simple approach breaks down in situations where employees can simply use the days they aren’t sick to extend their planned vacations! This is a great benefit for the employees who are now healthier, but it doesn’t result in bottom-line savings to the employer who still has to pay for those days off…or does it? In organizations with combined leave arrangements, there is often the false assumption that wellness programs don’t drive economic returns from a reduction in sick leave. The reality is there are additional savings we can calculate—costs from unscheduled absences.

Unscheduled leave is a nuisance to managers particularly in manufacturing, school and retail settings. It may lead to line delays, service level reduction and the use of lower-skilled substitute labor. If it is possible to estimate the economic value of the elimination of an “unscheduled leave” event then that value can be used to monetize the reduction in sick leave absenteeism. This can be achieved by estimating the average labor cost per work day and then taking a fraction of that cost, for example 10%, 25%,or 33% of that cost. The unscheduled leave event may lead to bringing in a substitute teacher for a school district, hiring a temporary for a call center, reducing a manufacturing goal or losing a fraction of sales for a retail outlet. Just make sure you make the assumptions explicit so everyone knows how you are coming up with your numbers.

Remember: always make your methods for estimating savings transparent so if critics have concerns they can be challenged to come up with a better approach.

Check out our wellness economics series course on measuring the impact of wellness on sick leave absenteeism to go deeper on this topic.

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

Friday, October 24th, 2014

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.

Don’t make this common mistake in your wellness program…

Thursday, October 16th, 2014

Not the best defense…

A major mistake many worksite wellness practitioners make is using a narrow economic rationale for wellness programming. As I emphasized in my post last week, communicating the impact of your wellness program in ROI terms is critical. However, I have seen many managers who set out to communicate the ROI of their efforts focus narrowly on health claims. Rapid increases in health benefit cost have historically spurred investment in worksite wellness programs. Employers wanted to do anything they could that might slow the rates of growth in per employee health plan costs. This fueled some major expansion of our field. But this narrow economic perspective focused only on health benefit cost has its own problems. I think it makes us way too dependent on societal trends affecting health costs. If the ACA actually results in low growth rates for health plan costs (which I don’t think it will – keep your eye out for a future post on that) then “do we really need to invest time and money in wellness?”

My read is that humanitarian reasons for doing wellness (“It’s the right thing to do!”) are not adequate to secure a long-term employer commitment to well-funded wellness programming. My experience is that business cycles can be devastating to wellness efforts. It seems that many people in our field want to believe that enlightened humanitarianism should be what we rely on to secure long-term investment. To that my response is “fat chance”! Without a tangible, sustainable and broad economic rationale for worksite wellness I believe we will ultimately be relegated to the dustbin of management history, as an innovation that lost its way in the early 21^st century because though it felt good, it didn’t prove itself to impact the bottom line.

How can we protect wellness from capricious management fads and economic cycles? We have to move to take a results-oriented approach to worksite wellness that focuses on health improvement and impact to five economic costs that all employers should care about. The big five economic costs are:

Health plan cost: We are all familiar with this one (though many are not familiar with all the tools wellness programs can use to affect these costs).
Sick leave absenteeism costs: It’s not a good thing for people to be sick and it adversely affects all work organizations in a wide variety of ways. Workers don’t get much done for the business when they are home in bed!
Workers’ compensation costs: Work related illness and injury are often a significant issue for employers, particularly by type of industry and occupation.
Disability insurance costs: Prolonged absence from work is growing as our work force ages.
Presenteeism costs: When we chose to be at work with an underlying health condition, like allergies, headaches, or colds, productivity suffers.

Best-practice wellness programs have a measureable impact on all these cost areas (if you want to learn how take our Wellness Certification)! Wellness practitioners who don’t measure and articulate their impact on these cost-drivers are like soldiers going into battle with only a few bullets in their guns!

I believe that we should be building a strong economic rationale for worksite wellness around these five economic variables and thereby help wellness to become as non-negotiable as any other mission-critical part of the organization—just like accounting, HR, or the legal department! Getting to that point isn’t easy, but I believe that the benefits of making effective wellness truly ubiquitous are surely worth the hard work required to win over the hearts and minds of financially-driven decision-makers.

How wellness can impact these economic costs is covered in our Wellness Economics Series of trainings.

Let me know what you think in the comments below!

How do you build executive support for Worksite Wellness?

Thursday, October 9th, 2014

Building sustained executive support for Worksite Wellness is often one of the most important roles of a wellness professional. In my decades working with over a thousand organizations, here are the top three best practices with the biggest impact:

Starting with number three…

#3: Dig into the details and show them the plan.

None of us really enjoy putting proposals and plans together, but I have found it to be absolutely critical to getting senior management buy-in for an employee wellness program. All managers want to be seen as good decision-makers. This means they need to be taken through the details so that they can satisfy themselves that the program will deliver results and mitigate any risks. A well-written proposal for an employee wellness program should answer all the major questions that a good manager should be asking.

Questions I hear senior managers ask are: What will the program cost? How much new overhead will it add to our costs? How will we measure its impact? What economic impact will the program have on our organization? Will employees adopt it? Will they like it? How will the program be rolled out? What policy and physical changes will be necessary? How soon can we see the results? What future actions are we going to be committed to taking? What are our main competitors doing about wellness? A well-written proposal becomes your best defense against potential critics while it also creates a blueprint for implementation. A carefully prepared proposal for a wellness program is an incredibly important strategy for building strong senior management support for wellness.

#2 Cultivate a “C-level” champion.

Your program won’t thrive without a senior executive talking it up to the organization’s top decision-making group. Most of the time this leadership comes from the VP of Human Resources, but sometimes it can be the Chief Financial Officer (CFO). Someone needs to speak on behalf of the wellness program and be a credible advocate. Once I was sitting with a group of senior managers for a signature national company and I watched the CFO make a fool of himself by citing a number of deeply held, but erroneous views on wellness. Thank God the Chief Human Resources Officer (CHRO) was well-read on wellness and easily shot down the CFO’s spurious arguments and irreverent bluster.

One way to cultivate a champion is to deliver a cadence of communications to them via email, and in-person meetings, arming them with powerful pro-wellness sound bites. By communicating high-quality independent research and the results from your own program, you can turn a casual supporter into an ardent champion. There will always be competing priorities and resource needs that will have the potential to derail support for wellness efforts. Cultivating a credible and effective wellness C-level champion is absolutely critical to the long term success of your wellness initiative, ensuring that support for your program stays strong regardless of occasional headwinds.

And now for #1…drum roll please…

#1: Three little letters: R…O…I!

The most effective wellness program leaders use a strong economic rationale and positioning for their program. The thousands of senior managers I have worked with over the years all resonated with the economic argument for justifying investment in an employee wellness program. The prospect of avoiding future health plan costs, sick leave absenteeism costs, workers’ compensation costs, disability insurance costs and presenteeism costs helped senior managers support the funding and initiation of a worksite wellness program. Most of the time a PowerPoint deck with economic highlights of peer review studies did the trick. With that said…. we all still need to be very careful not to over-promise and risk under-delivering, so make sure you make conservative estimates of economic return for your program that you can easily surpass.

Of course if you pursue this strategy you have to measure economic return and make sure your wellness program uses a broad array of programming strategies to affect economic variables. This is about more than just reducing selected health risks! In my experience, making the case that spend on wellness programs creates significant ROI has been critical to unlocking the investment and support for the kind of program structure that actually impacts employee health.

There are more than a dozen other strategies for building strong senior management support for wellness. The first session of our Wellness Certification WellCert Level 1 covers this topic in more depth. To dig into wellness ROI, check out our series of online courses on Wellness Economics.

For more Results-Driven Wellness, follow @WellnessCzar on Twitter. This blog covers topics from our five-level WellCert certification program for worksite wellness practitioners. We love your feedback. Use the comment tool below to let us know how you liked the post and any ways we could improve.

ObamaCare Revealed: The “Good”, the “Bad” and the “Ugly”

Friday, May 9th, 2014

ACA Title II, Sec. 2202. Permitting hospitals to make presumptive eligibility determinations for all Medicaid eligible populations. “Ugly” – “Of course you are covered by Medicaid!” This provision gives authority for hospitals to determine the preliminary eligibility of each patient for Medicaid. This opens up the opportunity for hospital admissions staff to presumptively determine that the patient is Medicaid eligible. The more the merrier, after all our children and grandchildren will pick up the tab. This legislative initiative provides an enormous incentive for hospital admissions staff to creatively game the Medicaid eligibility rules of a state agency that historically suffers from chronic under-staffing. Who is going to care if you fudge the rules? Anybody ever heard of the concept of “checks and balances”? Apparently not. No discernible improvement in population health status and no discernible improvement in long term health cost control.

Please let others know about this blog and have them “follow” @Wellness Czar on Twitter for the section topics. This information is also available in summary PDF form by making a request to [email protected].

ObamaCare Revealed: The “Good”, the “Bad” and the “Ugly”

Wednesday, May 7th, 2014

ACA Title II, Sec. 2201. Enrollment simplification and coordination with state health insurance exchanges: “Bad” – Streamlining is not always good. This provision requires a streamlining and simplification of eligibility for Medicaid, both the categorically eligible and the CHIP eligible. This makes it easier to qualify for Medicaid while Medicaid itself has almost bankrupted the states. It is a program that has a historical compound growth rate of almost 10% per year since 1965. It’s out-of-control and we are adding millions more people to its roles. Is that very wise? I don’t think so. Get Medicaid under fiscal and programmatic control then add more people to it. Not the other way around. “Streamlining” means reducing the potential obstacles to coverage, for example whether the individual is really eligible for the program. No discernible improvement in population health status and no discernible improvement in long term health cost control.

ObamaCare Revealed: The “Good”, the “Bad” and the “Ugly”

Monday, May 5th, 2014

ACA Title II, Sec. Technical corrections: “Bad” – Further unwisely expands eligibility. This legislative initiative further opens up eligibility for the CHIP program. It relaxes the legal language for residence and expands the eligibility caps. Because those controlling federal expenditure patterns (aka Democrats) did not have to compromise with those who oppose more federal spending (aka Republicans) , initiatives like this were included in the Law. Unfortunately the financial burden created by the other legislative initiatives in the Law makes every one of these overly generous and unwise provisions just one more insult to long term economic solvency for the U.S. economy. No discernible improvement in population health status and no discernible improvement in long term health cost control.

ObamaCare Revealed: The “Good”, the “Bad” and the “Ugly”

Tuesday, March 4th, 2014

ACA Title 1, Sec. 1563. Sense of the senate promoting fiscal responsibility: “Ugly” – No way is this Law going to reduce the federal deficit. This section is the explicit statement by Congressional sponsors of the expectation that the ACA will reduce the $17+ trillion federal deficit between 2010 and 2019 and improve the solvency of the Medicare Part A Trust Fund. I am sorry, but somebody is definitely smoking something. This is a huge case of wishful thinking with somebody else’s money. The net economic effect of the ACA as it currently stands will be to significantly increase the deficit and the insolvency of the Medicare program. It does not take a PHD economist to recognize that significant expansion of health insurance coverage without adequate cost controls will not lead to lower total health costs, no matter how creative your accounting practices are. Shame on you CBO!

Please let others know about this blog and have them “follow” @WellnessCzar on Twitter for the section topics. This information is also available in summary PDF form by making a request to [email protected].

ObamaCare Revealed: The “Good”, the “Bad” and the “Ugly”

Friday, February 28th, 2014

ACA Title 1, Sec. 1562. Conforming amendments: “Good” – Required to consolidate the federal role over both group and individual health plans. This provision standardizes the federal Public Health Service (PHS) Act language regarding the regulation of group and individual health plan. This “clean –up” provision simply amends the language in the Act which allows the same legal treatment to group and individual health plans. Primarily housekeeping changes.

ObamaCare Revealed: The “Good”, the “Bad” and the “Ugly”

Thursday, February 27th, 2014

ACA Title 1, Sec. 1561. Health information technology enrollment standards and protocols: “Good” – Requires enrollment technology. This provision requires the development of standards and guidelines on how streamlined enrollment technology will be developed. The emphasis here appears to be on streamlining the process with minimal attention to standards of accuracy and fraud avoidance.