I have a vivid memory of sitting across from the CEO of a company with 18,000+ employees after I had asked him how much he was spending per year on worker health. His reply initially startled me. He said, “I have no idea how much worker health is costing us.” Unfortunately, that shouldn’t be too much of a surprise to most of us. Employers just don’t know even what cost elements should go into that analysis nor what dollar magnitude of costs they are experiencing.
How much should your company spend on employee wellness? A related and important question for all of us! The answer to that question is directly related to the current cost of worker health to the organization. This Connections newsletter edition contains a downloadable Solution Set document that is a worksheet to help you determine how much your company is currently spending per year on each employee’s health and their family member’s health. Most of this information is available from your own financial management staff, but you have to ask for it and put it together for presentation to senior management.
The current typical national numbers are somewhere between $22,000 and $45,000 per full-time employee per year. That amount consists of health plan cost, sick leave absenteeism cost, workers’ compensation cost, disability insurance costs, and presenteeism costs or losses. If your senior managers know how much your organization is paying on average for these costs they are usually a lot more willing to spend money on wellness programming.
Remember, as a senior manager I can much more easily justify spending $500 per employee per year on an employee wellness program if I realize we are currently spending$32,000 per employee per year on their health and well-being. Especially if that $500 will be spent to help reduce the rate of future growth associated with the $32,000 per employee per year cost.
Why is this important?
This document is important because it lays out a detailed process for you to develop your own organizational data about your current cost of worker health. This is critical to management’s reaction to your budget request for wellness programming. If you don’t know how much employee health issues are currently costing your company then you don’t have an adequate economic context for senior management to weigh in on your wellness budget. No context – no perspective – no budget.
This kind of economic information is also important because it makes it much more likely that senior management will want to have greater ownership over the wellness initiative rather than transfer that responsibility to an outside vendor. If wellness has little economic value to the organization, it is more likely that management with seek to outsource the program leading usually to more mediocre results.
What can you do with this document?
Here’s what you could do with this document:
- First, read it over and clarify how to proceed with the data collection and analysis process.
- Ask you FM staff for total amounts and the size of the population that generated the data points.
- Then decide how you will get the totals into – per employee per year (PEPY) costs.
- Put the PEPY costs together into a pie chart for presentation to senior managers.
- Add all the costs together to come up with the total costs per employee per year (PEPY).
- Make some projections on how those costs will likely grow next year.
- Request your wellness budget on a PEPY basis and identify the amount as a percentage of the current worker health cost. (Usually less than 2%)
- Use these numbers and this data in reporting to management and in the evaluation of your wellness program.
- Use consistent methodology when measuring worker health cost in subsequent years.
In summary, this 2-page document can be used to guide your analysis of your own organization’s worker health costs. This information is critical to senior management’s willingness to fund employee wellness efforts. Without this kind of information, it is very difficult to get adequate funding of employee wellness efforts.