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Newsletters About Employee Wellness
JULY 2008 Employers are soon going to see the cost of health care exceed the cost of payroll. Very soon, if it hasn’t happened to your company already.
The High Demand of Health Care
One reason for projected cost increases is the increase in demand. American workers are getting older and older people use more health services. In addition, two-thirds of Americans are overweight or obese; conditions that are difficult to manage after every passing birthday. With increased weight comes increased risk of diabetes, heart disease, various cancers, and stroke. It is easy to see how the demand for health care is projected to rise exponentially in the near future, thus increasing the cost.
Solution
Think back to your first day of Economics 101: price follows demand. It’s not rocket science: reduce the demand and prices will go down. Easier said than done, perhaps, but there is a way. Today’s employer must consider the health of its employees because each one is an asset and a means to profitability. Healthy employees increase profitability because when they feel good, they’re more efficient. Wellness programs help to reduce the demand for health care by improving the health status of employees. These programs cost money up front, sure, but it is an investment well made. Here’s why: the average return on investment (ROI) is between $3 and $6 for every $1 spent on wellness.
The 18-Month Guideline
Generally, in as early as 18 months, you can begin to see a positive ROI. Until then, employers can rather quickly see “soft“ ROI such as improved “presenteeism,“ better morale, and employees who feel valued by the company. Presenteeism, or the reduced efficacy of an employee who is present at work but is distracted by health issues, costs U.S. companies an average of $2,000 per employee per year. Other studies conservatively estimate this cost at $0.15 for every $1 in payroll. How much is presenteeism costing your company? When translated into real dollars, “soft“ ROI isn’t so soft after all. But we also know that CEOs and CFOs generally aren’t impressed by soft returns.
After 36 months however, these executives’ frowns begin turning up. ROI turns positive after approximately three years and steadily increases until it plateaus and maintains at about year five. At an average ROI of $3-$6:$1, wellness programs can shield companies from health-related productivity losses.
The Cost of Doing Nothing
Wellness programs are clearly a front-loaded investment but are well worth it. Like any other, such as your home or 401(k), investments are made on faith of appreciation as well as historical data. Real estate, the stock market, hybrid cars, and now wellness programs, are considered sound investments in the long run. Especially in the present economy, doing nothing about employee wellness is a risk that needs to be considered seriously by any employer that still wants to be in business ten years from now.
You Get What You Pay For
The financial return companies will realize from wellness programs will be driven by how much time and money they’re willing to spend. The same is true for most business investments. Take, for example, a major purchase for a new inventory tracking system; resources are budgeted for systems that promise to increase productivity. The upfront cost in time and money is weighed against the projected benefits and the new system eventually pays for itself and more. The same is true for carefully-designed wellness programs. There are costs in establishing and managing a program and they pay for itself in a matter of months. Remember, the investment is in the health and productivity of employees. The reward is decreased expenses and increased profitability; not just once, but every year the program is in place.
If increased profitability isn’t compelling enough, a current U.S. Senate bill called the Healthy Workforce Act of 2007 would give employers a tax credit of up to $200 per employee for qualified wellness programs. This bill is still in committee but enjoys bipartisan support. When the bill is ratified, employers may claim the federal tax credit the following year.
Remember, just like your 401(k), the amount of time you spend with your kids, or how much you invest in your physical health by eating your veggies each day, return on investment is directly proportional to how much effort goes into the equation. As is anything worth doing.