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December 3, 2015

How to Calculate Return on Wellness

Summary:

Wellness vendors ignore lots of costs when they calculate the return on investment of their programs. Here is what they leave out.

Photo Courtesy of John O'Nolan

In the era in which wellness vendors were still claiming a return on investment (ROI_ on wellness (and more and more are not), I asked a number of them how they calculated the ROI. Not one calculated the ROI in a way that a steely-eyed CFO would endorse.

Below is a partial list of costs that wellness vendors should be considering, but rarely if ever do consider. If you have a wellness program and want to look for an ROI, make sure these costs are included:

1. Wellness vendor fees
2. Communication costs
3. Investments in materials (e.g., Fitbit) and facilities (e.g., onsite fitness centers)
4. The cost of biometric tests and health assessments
5. The cost of program incentives (awards, premium reductions, etc.)
6. The wages and benefits of the company’s wellness team members
7. The wages and lost productivity for employees to sit through biometric tests and wellness meetings, to read wellness memos and other communications and to fill out health risk assessments. (If 10,000 employees spend eight hours per year in wellness meetings, reading wellness emails, filling out forms, etc, at an average wage of $20/hour, the cost is $1.6 million.)
8. The cost of following-up on false positives from asymptomatic employees going to doctors for ill-advised tests. This one is not uncommon. (I’ve personally witnessed people who’ve had false positives on wellness exams and spent thousands of plan dollars just to explore false positives. The largest one cost a shade less than $70,000 to get an all clear. If you want to know the true cost of a wellness program, this impact can’t be ignored.)

Further, wellness vendors claim improvements in productivity, but most say the gains cannot be measured. That is a fallacy. Vendors need only look at a client’s wages as a percentage of sales (with a few minor adjustments). If that ratio is not declining, employee productivity is not improving.

For an excellent discussion on failures of wellness productivity claims click here.

The same principles apply to value on investment (VOI) claims, as well. Click here for an excellent review of what some call the VOI scam.

This post may be flogging a dead horse. So be it.

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About the Author

Tom Emerick is president of Emerick Consulting and cofounder of EdisonHealth and Thera Advisors.  Emerick’s years with Wal-Mart Stores, Burger King, British Petroleum and American Fidelity Assurance have provided him with an excellent blend of experience and contacts.

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