Since the 1970s, an increasing number of businesses have looked to workplace health and wellness programs as a method to reduce the ever-growing costs of employee healthcare benefits and improve the workplace wellness culture. In 2017, the World Bank reported that workplace wellness programs are a multi-billion dollar industry in the United States.

In an article titled “The case for physical and mental wellness programs in the workplace” published in the organization’s Investing in Health blog, author Patricio V. Marquez noted that among U.S. employers with 50 employees or more, over half offer some form of wellness program. In its 2016 Employer Health Benefits Survey, the Kaiser Family Foundation reported that 80% of large firms offer some form of wellness program to their employees.

Despite the fact that workplace health and wellness programs are offered by an increasing number of employers each year, many organizations are still asking: Are workplace wellness programs a good investment?

There are hidden and not so hidden costs of healthcare and health-related issues affecting employers and their workforces. Experts and business owners have also weighed in on how workplace health and wellness programs can help tame those costs and add value to your organization.

What is a Workplace Wellness Program?

According to a 2016 statement by the U.S. Equal Employment Opportunity Commission (EEOC), a wellness program is any “health promotion and disease prevention programs and activities offered to employees as part of an employer-sponsored group health plan or separately as a benefit of employment.” Wellness programs can include many different features, and except as limited by law, employers are free to design wellness initiatives tailored to suit their workforce.

Among the most commonly offered wellness activities reported in the Kaiser Family Foundation’s 2016 survey were smoking cessation and lifestyle or behavioral coaching programs. Other common wellness activities reported by survey respondents included health risk assessments, biometric screenings, and weight management programs. Providing free flu shots to employees, offering healthy food options in the cafeteria, and setting aside spaces for meditation or quiet breaks can also be part of an employer’s wellness program.

Employer-sponsored health and wellness programs provide a flexible means for employers to promote and encourage employee well-being. As such, health innovations and technology play an ongoing role in shaping corporate wellness offerings. In “Wearable tech in wellness programs increasing“, BenefitsPro contributor Marlene Y. Satter writes that fitness trackers and wearables are increasingly being offered to employees as part of employer’s wellness programs.

Another one of the fastest growing, employee-approved, wellness trends of 2017 (according to the International Foundation of Employee Benefit Plans) is providing workers with standing or walking desks. As sitting becomes the new smoking, expect to see more initiatives designed to get desk-bound employees up and moving.

Does Investing in a Workplace Wellness Program Make Cents?

In “This is the Future of Corporate Wellness Programs“, Gwen Morgan of Fast Company writes that investment in corporate wellness programs has reached nearly $8 billion in the U.S. and continues to grow. Morgan also cites a 2017 report by the Global Wellness Institute that puts worldwide spending on workplace wellness programs at over $40 billion.

Is this money well spent?

When a wellness program is carefully designed and monitored to meet the needs of the population it serves, the answer is yes.

Despite ongoing debate regarding the effectiveness of workplace wellness programs, organizations including the U.S. Chamber of Commerce, World Bank, and PWC say that these programs not only improve worker well-being but are also good for their employer’s bottom line.

In its 2016 Winning with Wellness report, the U.S. Chamber of Commerce states that “compelling evidence exists that wellness programs work and prevention pays off when done well and in the right ways” and that such programs are a “win-win for employers and employees.”

Businesses responding to PWC’s 2017 Health and Well-being Touchstone Survey indicated their continued faith in the effectiveness of workplace wellness programs, particularly those that focused on disease management (DM).

These programs win approval on a global scale as well. The World Bank’s Patricio V. Marquez writes that:

“The business case for supporting these programs is sound: Employers expect that wellness programs will improve employee health and well-being and lower medical costs, especially with the growing burden of chronic conditions such as cardiovascular disease, cancer, diabetes, and mental ill-health. Also, these programs can help to attract and retain talented workers, increase productivity, and reduce absenteeism.” (Learn more in “Supporting Employee Mental Health in the Workplace“.)

Offering another perspective, many experts have more than hinted that employers have no choice but to invest in population health control initiatives such as workplace wellness programs as their only alternative to slow the rapid rise in healthcare costs. In its 2017 Employee Benefits Market Outlook, Wells Fargo writes, “With the ACA capping deductibles and out-of-pocket levels, and the consolidation of insurers and provider network discounts becoming obsolete, population health is the main lever to pull for employers to influence [medical claims increases].” However, extremely high deductibles under ACA mean that population health is also invaluable to the employees themselves in helping to control their costs and improve quality of life.

Robert K. McLellan emphasizes impact employers have on population health control his article “Work, Health, and Worker Well-Being: Roles and Opportunities for Employers“, writing that “the costs of poor workforce health are collectively borne by workers, employers, and society.” Therefore, cost-effectively achieving the “safest, healthiest, and most productive workforce possible” serves both business and altruistic purposes.

Current research, commentary, and results demonstrate that for most businesses, investing in a wellness program is no longer an option, but a necessity. The real question then is no longer whether wellness programs are a good investment, but how can that investment be maximized?

If So Many Studies Say it Pays to Invest in Wellness, Why is There Still Debate?

While the trend in favor of workplace wellness programs shows no signs of slowing, not everyone agrees that the programs are beneficial or cost-effective. Studies demonstrating low, or even negative returns, exist and many point to this while calling the more positive evidence into question. After decades of study, why is it so difficult for experts to reach a consensus on the value of workplace wellness programs? (Learn more in “Three Key Ways Wellness Testing Benefits Companies“.)

A lack of uniformity in offerings and metrics complicates quantification and comparisons.

The broad definition of workplace wellness, as referenced in the EEOC’s statement, hints at one of the reasons government agencies and private organizations struggle to assess the investment value of workplace wellness programs. Offerings between employers vary, making comparisons difficult. Because any wellness offering can be considered a wellness program, the return realized by a specific wellness program may be great or small. (Learn more in “7 Steps for Implementing a Workplace Wellness Program“.)

Also, some benefits offered as part of a workplace wellness program have a better return on investment (ROI) than others. Rand Corporation, commenting on the findings of its comprehensive survey of workplace wellness programs in “Do Workplace Wellness Programs Save Employers Money?“, writes that “employers who are seeking a healthy ROI on their programs should target employees who already have chronic diseases.” When offering lifestyle-related benefits, the brief continues, employers should pay attention to costs, choosing inexpensive benefits over more costly ones to maximize their ROI.

Still other benefits offer intangible rewards that are difficult to track and quantify. For example, lifestyle and behaviors changes such as weight loss and smoking cessation may result only in the absence of a negative health consequence rather than the presence of a positive. Additionally, as Tinypulse contributor Stephanie Benson Garr explains in “The ROI of Employee Wellness Programs”, the gains achieved by preventative health measures are unlikely to be realized in the short-term.

Finally, employers may not have access to the data and analytics tools necessary to make a determination of their returns. “Only 46% of employers measure the ROI of their wellness programs” writes Business Insurance’s Shelby Livingston in “Going after value in employee health“, citing a survey by Willis Towers Watson P.L.C. This lack of analysis may be in part because, as Springbuk’s CEO Rod Reasen remarked in an interview with CIO writer James Martin, “most people in HR don’t have a data science degree.” In particular, while valued by employers, the positives effects of health and wellness initiatives on talent acquisition and retention, corporate culture, and employee engagement are difficult to appraise due to the limited availability of hard data and analytics.

Employers fail to invest enough and in the right ways to generate returns.

Not all criticisms of workplace wellness programs result from a lack of information. In some instances, the hard numbers demonstrate that a program is failing to deliver. This can occur when an employer doesn’t invest wisely. When there is poor implementation or follow through, an investment in workplace wellness may not result in measurable health improvements or employer cost savings. An investment that is too small to carry the program forward or doesn’t generate sufficient employee engagement will result in a failed effort and lost resources.

What does it cost to achieve success? The answer will vary from employer to employer. But in general, to positively affect workplace health, employers should plan to spend between $200 and $500 per employee each year, according to Ron Goetzel of Truven Health Analytics.

One paradox of current workplace wellness programs that negatively impacts returns is that often it is the least offered initiatives that have the potential to deliver the most benefits. To be effective, a wellness program should be designed to meet the specific needs of the target population, or specific employer’s workforce. Investing heavily in a smoking cessation program for a workforce comprised of non-smokers will not generate a high ROI, regardless of the employer’s commitment. Additionally, as John Mickner explains in his article, “Employer-sponsored wellness programs don’t work, unless…“, providing a program without investing in employee engagement is a non-starter when it comes to realizing ROI.

Societal and regulatory concerns influence perspectives.

Finally, some of the most outspoken critics of workplace wellness programs object to the societal costs of the programs. In declaring wellness programs a failure, these individuals point to the punitive and potentially discriminatory nature of incentive programs that can cost non-participants up to 30% of total health insurance premiums and the sacrifice of privacy employees sometimes make in order to participate. (Learn more in “Top Workplace Wellness Feeds to Follow on Twitter“).

In “Workplace Wellness Programs Could Be Putting Your Health Data at Risk“, published by Harvard Business Review, Ifeoma Ajunwa states that “without proper oversight, the health data collection that’s part of workplace wellness programs may put employees’ privacy, and potentially even employment, at risk.” Two recent court cases highlighted by The National Law Review in “Wellness Program Developments“, AARP v. United States Equal Employment Opportunity Commission and Acosta v. Macy’s, Inc., underline the difficulties in balancing the interests of both employers and employees.

Taking a Closer Look at the Numbers

To fully understand the value of an employer’s workplace wellness program requires an understanding of the employee health-related costs borne by employers. The most simplistic return on investment calculation considers only the cost of employee health claims and the savings related to those claims following implementation of a wellness program. But most employers agree that there is more to health and wellness than reducing claims.

The U.S. Chamber of Commerce’s 2016 Winning with Wellness report advises employers to use both return on investment (ROI) and value of investment (VOI) to determine the effectiveness of employer-sponsored wellness programs.

What is VOI? In “Wellness ROI vs VOI: The Best Employee Wellbeing Programs Use Both“, Dr. Steve Aldana explains, “Value on investment is a simpler way of saying you want to find how your wellness program is affecting the more quantitative measures within your organization.” According to Dr. Aldana, such qualitative measures may include worker morale, energy levels, productivity, and presenteeism. And, while employers and researchers are aware of these benefits of workplace wellness programs, collecting quantifiable data about them is difficult and seldom done.

What Are Some of the Costs Associated With Worker Health and Wellness?

In addition to the direct costs of medical and prescription claims, the expenses associated with presenteeism, absenteeism, workers’ compensation, health-related accommodations, lost productivity, and workforce turnover are all affected by population health. Including these costs in an employer’s calculation of ROI provides a much clearer picture of the value of investing in employee health. Although each employer’s costs are different, below are some of the major expenses that can be affected by poor worker health.

Direct costs of medical and prescription claims.

Easily identified and tracked, employee claims for payment of medical treatments and prescriptions are the most common element considered when weighing the effectiveness of an employer-sponsored wellness program. In 2014, insurers reported expenses for medical claims, including medical services and prescription drugs, totaled $104,670,510,123, or approximately 80% of total premium dollars paid. A graphic prepared by AHIP’s Center for Policy and Research illustrates the distribution of each premium dollar, including insurers’ average net margin on providing health care, was 3%. One-fifth of claims costs were attributable to prescription drug costs. Because most of the premiums paid for employer-sponsored health coverage goes directly to the payment of claims, keeping claims costs in check also helps to keep health care premiums from rising.

How much can poor health cause claims costs to rise? The University of Louisville’s experience with its successful Get Healthy Now program highlights the height to which these costs can reach absent wellness intervention. The university was able to achieve a 74% participation rate. This allowed UofL to hold the rate of growth for healthcare claims by participants to 2.5%. The rate of increase for non-participants? A staggering 19.5% over that same period. Ann Wyatt describes the program and its performance in “4 wellness lessons from the University of Louisville’s Get Healthy Now program“.

Direct and hidden costs of presenteeism and absenteeism.

The authors of “The Estimation and Inclusion of Presenteeism Costs in Applied Economic Evaluation: A Systematic Review” (Presenteeism Costs Study) define absenteeism as the “productivity loss to society as a result of absence from work” and presenteeism as the “working with limitations due to illness.” Both absenteeism and presenteeism carry hidden costs for employers including the loss of productivity caused by the missing employee and the ripple effect those losses have on other employees.

In a 2017 article titled “The case for physical and mental wellness programs in the workplace” and published on the World Bank’s Investing in Health blog, author Patricio V. Marquez noted “that poor health and well-being costs the UK economy up to US $75 billion a year in lost productivity due to a combination of absenteeism, employees not being at work, and presenteeism.”

Regarding the costs of absenteeism, the author of the 2014 article “Employee Absences Have Consequences for Productivity and Revenue” from SHRM Research writes “that the direct cost of paid time off for full-time employees in 2013 — accounting for wages, overtime and replacement workers — was equivalent to 15.4 percent of payroll. When indirect costs such as lost productivity were added, the total cost of paid time off was between 20.9 percent and 22.1 percent of payroll.” Survey respondents reported that unplanned absences were particularly disruptive, resulting in an average loss in productivity of 36.6%.

Meanwhile, the authors of a presenteeism cost study note that, for several reasons, the costs of presenteeism are often overlooked in economic evaluations, warning that “ignoring these costs could significantly underestimate the value of interventions that reduce limitations at work due to illness.”

Expenses of workers’ compensation and return-to-work accommodations.

For most employers, the direct costs of a worker’s claim for an on-the-job injury are covered by workers’ compensation insurance. In a 2017 press release, The National Academy of Social Insurance, reporting on 2015 workers’ compensation expenditures, indicated that employers’ costs were $1.32 per $100 of payroll.

In addition to these direct costs, employers also face a series of indirect costs that in some cases can equal or exceed the direct costs associated with a workplace injury. The U.S. Occupational Safety and Health Commission (OSHA) details these additional costs on its Safety Pays Program website. Included among indirect expenses associated with a workers’ compensation claim are wages not covered by workers’ compensation and overtime, and wages and productivity losses caused by work stoppages resulting from the injury triggering the claim. Training, rescheduling, and accommodating the needs of the injured employee also weigh in the balance when calculating an employer’s total costs associated with workplace injuries.

The costs of workforce turnover and low productivity.

Whether an employee leaves the job due to dissatisfaction or poor health, the employer bears the costs of replacing that worker. Work Institute’s 2017 Retention Report makes clear that this cost is substantial. Based on analysis of census data and industry figures, the report estimates that the cost of replacing a U.S. worker who voluntarily leaves his or her employment equal to one-third of that worker’s annual salary. Included in this calculation are so-called productivity costs or indirect costs associated with “lost institutional knowledge, the time lag it takes to find a replacement and the time it takes for the worker to become fully productive.”

Even temporary absences and the loss in productivity can be significant. The Center for Disease Control and Prevention (CDC) estimates that “productivity losses related to personal and family health problems cost U.S. employers $1,685 per employee per year.”

It is these combined costs that employers, regulators, insurers, communities and other stakeholders hope to reduce through the use of well-designed and maintained workplace wellness programs.

The Big Question: How Do Workplace Wellness Programs Deliver ROI and VOI?

The effectiveness of an individual wellness program depends on several factors. Among the biggest drivers of success are how well it addresses the needs of the targeted workforce and the support the program receives from all levels of the organization.

The former CEO of Blue Cross & Blue Shield of Rhode Island, writing for Harvard Business Review tells readers in his article, “Meet the Wellness Programs that Save Companies Money“, that

“When workplace wellness is viewed holistically without ignoring or undervaluing the total return on wellness beyond reduced claim expenses, companies can expect reduced absenteeism and presenteeism, greater employee engagement and productivity, less unscheduled paid time off, fewer workers’ comp claims, greater employer retention, increased employee satisfaction and morale, and demonstrable competitive advantage.” (Learn more in “Encouraging Employees to Achieve Healthy Eating and Fitness Goals in the Workplace“.)

When a program if well-planned and well managed, employers can realize substantial ROI and VOI.

But what are the real outcomes?

Recent statistics about returns of workforce wellness initiatives.

The 2017 Society for Human Resource Management (SHRM) Employee Benefits Report, “Remaining Competitive in a Challenging Talent Market“, indicated that 88% of employers who sponsored a wellness program believed that the plan had a positive impact on employee health, with 77% indicating that the program reduced organizational health care costs.

Similarly, the International Foundation of Employee Benefit Plans’ Workplace Wellness Trends 2017 report, surveying global attitudes about workplace wellness initiatives, revealed that employers who offered wellness programs realized positive returns including decreases in absenteeism, increased organizational growth and financial strength, and greater employee satisfaction.

But, perhaps the most compelling statistics are those found in the U.S. Chamber of Commerce’s 2016 report, “Winning With Wellness“. Workers’ compensation firm SMF summarized some of the key findings of that report in ROI and VOI: A strong wellness program measures both revealing that 60% of the survey’s respondents reported reductions in overall organizational healthcare costs. Other gains included measurable improvements in employees’ “weight, smoking status, and physical activity” and ROIs “ranging from $1.5 to $3 per dollar invested.”

It’s not just employers who report positive results, of the employees surveyed for AFLAC’s 2016 Workforce Report, 61% indicated that they were making healthier choices and had higher job satisfaction as a result of their employer’s workplace wellness program.

Finally, for employers looking for inspiration, the University of Louisville’s wellness program, started in 2005 leads the way. Providing services to 7,000 employees spread over three campuses, the university’s wellness program has lowered the average employee’s number of health risks from 5 to 0-3. The university also enjoys an average of $7 in healthcare savings for every dollar invested. The program’s ups and downs are detailed in Ann Wyatt’s article for BenefitsPro and include several actionable takeaways.

The Bottom Line

What’s the bottom line for employers? When done right, wellness pays.

For more information, WorkplaceTesting.com’s own Suzanne Ball details some of the financial benefits individual companies have realized from their workplace wellness programs and how they did it in “Do Workplace Wellness Programs Save Employers Money?” Additionally, the U.S. Chamber of Commerce’s “Winning With Wellness” report includes summaries of several case studies along with tips and best practices for planning and operating a successful workplace wellness program. Or visit the Wellness section at WorkplaceTesting.com for the latest news and information on maintaining your company’s workplace wellness program.