This is the third in a multi-part series about wellness programs in small businesses. This article looks at the direct and indirect costs of the healthcare crisis and how addressing those costs with an employee wellness program can generate savings for a small business.
The healthcare crisis has made workforce health a top concern for all employers. Many businesses have attempted to handle this problem by shifting a portion of medical and pharmaceutical costs to employees through increased copays and deductibles. While focusing on medical expenses may alleviate some financial burdens for employers, it doesn’t deal with an important part of the healthcare equation: the substantial cost of reduced productivity when employees aren’t healthy.
In the past, wellness programs may have been seen as something that was nice to offer employees. Now many companies understand that health and wellness is a strategic imperative for their business that helps them take a dent out of rising health care costs. These programs assist employers in resolving health-related productivity and performance issues, and ultimately save the organization money.
Indirect and direct costs of unhealthy employees
Large and small businesses alike are feeling the pressure of rising healthcare costs in the workplace. To determine whether or not a wellness program will deliver results, and potentially help reduce healthcare costs, it’s important to recognize there are two categories of costs associated with unhealthy employees:
- Direct costs: outpatient care, pharmacy charges, inpatient care, emergency room visits, etc.
- Indirect costs: short-term disability, workers’ compensation, turnover, absenteeism, etc.
Direct healthcare costs are relatively easy for employers to identify; however, many organizations don’t realize the impact that indirect costs have on their workplace. Things such as sick days and the effect of presenteeism—the cost of employees who are on the job, but not fully working due to illness and medical conditions—can be sizeable and harder for small businesses to absorb. In fact, one study of 50,000 workers from 10 different employers showed that lost productivity costs related to absenteeism and presenteeism were 2.3 times higher than medical and pharmacy costs.
Illnesses and health conditions such as asthma, arthritis, migraines, depression, back pain, and diabetes can negatively affect an employee’s performance and productivity. While these conditions may produce fewer direct costs than diseases such as cancer or heart disease, they create higher indirect costs, in part because they’re so prevalent:
- Depression costs U.S. employers more than $35 billion a year in reduced performance at work.
- On-the-job pain (including back pain, headaches, and arthritis) costs employers nearly $47 billion a year in productivity loss.
- One research team calculated the total cost of presenteeism in the United States to be greater than $150 billion per year.
Source: Mayo Clinic Health Solutions
For employers, the hidden costs of presenteeism are alarming; however, these expenses also serve as motivation for implementing wellness programs that help employees address and manage lifestyle risks and common chronic conditions.
Cost benefits of a healthier workforce
Research consistently suggests a positive correlation and return on investment (ROI) when employers implement a wellness program. A report from the Health Affairs journal, found that medical costs fall by about $3.27 for every dollar spent on wellness programs and absenteeism costs fall by about $2.73 for every dollar. In addition to reduced medical fees, companies with wellness programs can negotiate better premiums with health care companies. In some cases, discounts might be an option if the employer can demonstrate less risk among those employees who are part of the program.
The reduction in health-related costs makes sense. Wellness programs serve to educate, empower and encourage employees. Rather than a workplace that has a detrimental effect on workers’ health, a wellness program creates a positive environment and group mentality around healthy habits that pays in dividends.
“While we’re not privy to a company’s actual health insurance costs, we do track the metrics that they ask us to track. It’s typical for our employee wellness programs to show 20% decrease in sick days, 10% decrease in company-wide BMI average, and a two-thirds reduction in workplace injuries and workers comp claims,” said Dan DeFigio, director at Basics and Beyond Fitness and Nutrition.
Just as it takes time to create new habits, so it takes time to realize a return on the investment in a wellness program. Industry leaders estimate that it takes about two to five years after the initial program investment to realize savings related to a wellness program.
For organizations considering the costs and benefits of a wellness program, KrowdFit, a crowdfunded employee wellness rewards program, developed a Wellness Calculator to help estimate the annual costs of absenteeism, presenteeism and short term disability for businesses.
Small business advantage
When it comes to implementing wellness programs, small businesses may not have an endless budget, but they do have some advantages over bigger organizations. In large enterprises, new programs require approval from multiple departments, gaining leader buy-in requires a significant amount of time, and it can be difficult to create momentum across a larger or dispersed employee population. Small businesses don’t face the same bureaucratic and geographic challenges; therefore, it’s easier to identify needs, implement a program, and start realizing the benefits more quickly.
If you have fewer employees, it’s also easier to assess what will work for them and create a program based on their distinct needs.
“I think that a small business has an easier time adapting a particular feel to their wellness program that will fit their company’s culture,” said DeFigio. “If you have 15 employees, it’s obvious what kind of approach to take. When you have 1,500 employees, you have to take a more generic approach.”
Furthermore, in a smaller company, individual results and incentives are easier to communicate, celebrate, and leverage with all employees. Jim Miller, CEO of KrowdFit, shared the story of an employee who won a $2,500 KrowdFit incentive based on her accumulated step count.
“This employee signed up for KrowdFit; unfortunately, two weeks later she had to significantly reduce her activity level due to the onset of a health issue. When the drawing took place, one of the entries she’d earned while she was more active was the winning entry. Her peers responded enthusiastically. They realized if she could win, anything was possible,” Miller said.
Incentives and rewards deliver results
It’s difficult to generate a return on your investment if you don’t have a way to fund a wellness program, and even more difficult if your employees choose not to participate. That’s where incentives and rewards can help your organization gain traction and see financial results.
According to Harvard Business Review, organizations favor positive incentives because they positively support the creation new habits. On the contrary, when employees feel they’re being “forced to act against their wishes” to improve wellness, they lose trust.
“Morale increases with cash prizes and when colleagues witness how healthy choices impact their peers in positives ways. When small business employees win an incentive based on healthy habits, a sense of camaraderie develops. And, a culture of health evolves because people know each other and witness the results,” Miller said.
KrowdFit is one example of an employee wellness rewards provider that helps organizations incent employee efforts to live a healthy, active lifestyle. KrowdFit pays out cash rewards to members for tracking their meals, sleep, steps and physical activity. Their “No Budget-No Problem” enrollment rebate program helps employers offset the cost of implementing an employee wellness program by paying rebates based on the number of employees who use the online platform. They also provide full reporting and analytics, and handle 1099 tax reporting for anyone who wins an incentive.
“The return on this type of crowd and incentive-based wellness program is quite significant because of the low impact on HR and company operations,” Miller said.
Of course as business owners, it’s important to identify financial returns on any investment, including workplace wellness programs. Is the money you save worth the money you’ve invested? In addition to the solid monetary returns of a healthy workforce, it’s equally important—and valuable— to establish an organizational culture that supports and encourages positive, healthy habits. That culture of health is reinforced when businesses commit to—and invest in—employee wellness programs.
Healthcare is an enormous issue facing all employers, and while wellness programs may not deliver immediate returns, they offer business owners a way to proactively address the crisis. The reality is if you waste time waiting for a prescription to fix the problem, the health crisis will never go away. Instead take time to examine the data—chances are it will reveal how an employee wellness program will increase engagement and generate savings for your business.