I am no math genius, but I love simple addition, subtraction, multiplication, and division (+ − X / ). I call it envelope arithmetic. And it’s a powerful tool to help my C+ intellect grasp various concepts.
When I see a wellness ROI that says, for example, “$5 return for every $1 invested,” I wonder what that actually means? So I pull out my trusty envelope, pen, and calculator (now on my mobile device).
Let’s say there is a “comprehensive” workplace wellness program for 5,000 employees that costs $350 per employee per year. What does the envelope say?
- 5,000 employees x $350 program costs = $1,750,000 per year
- $1,750,000 annual wellness costs x 5 return = $8,750,000
Now let’s see how much of a net return we got per employee (participants and non-participants):
- $8,750,000 total return – $1,750,000 invested = $7,000,000 net return
- $7,000,000 net return / 5,000 employees = $1,400 return per employee
Let’s say the average health-care costs per employee runs about $10,000 per year, just to keep the numbers simple (that’s a $50,000,000 expense).
- So $1,750,000 invested / $50,000,000 total health-care costs = .04 X 100 (to get us back to a percentage) = 4% of total health care spend. Hold that thought!
Then what percentage of each employee’s health-care costs were saved?
- $1,400 return per employee / $10,000 total healthcare cost = .14 X 100 (to get us back to a percentage) = 14% health-care costs saved.
So from a simple statement that a wellness program got a $5 return for every $1 invested, my ballpark numbers from envelope arithmetic tell me:
- The wellness wizards needed a 500% return on the wellness program investment to get a 14% savings in health-care costs.
- They need to convince management to invest 4% of their health-care spend on the wellness program.
- And the total saving for this population of 5,000 people will be $7,000,000.
These numbers tax my four-cylinder, bio-fueled brain
Plug in any ballpark numbers you want, and you’ll come up with more or less similar ratios. My street smarts (powerful as a muscle car) are screaming that there is something wrong with this engine (business model). And for me, as some of you know, that means I’ve got a few stupid questions.
1. How common is a five times ROI on any investment? Have you sunk a hole in one? Won a lottery? Do you wear a Super Bowl ring? It’s possible, not probable. Does “too good to be true” come to mind? Any investment claim that exceeds the 100-year, long-term average of the U.S. stock market (which is about 10% or .10) makes little yellow lights go off in my head.
2. Why don’t companies triple or quadruple their cost per person and get a greater than 14% reduction in health-care costs? My guess is that the model is not scalable. It’s like getting a five-times mark-up selling a cup of coffee, but you can only sell 10 cups a day. Kind of adds new meaning to a 5-to-1 return.
3. Some people say, “Connors you can’t just average wellness program costs into a workplace population. It’s more complex than that.” OK, then why do wellness companies charge for their services like that, per employee per year (pepy)? Why can’t I evaluate their numbers in the same way?
4. If a five-times ROI number were true, and if you could scale it, why would we have a health-care cost problem in the U.S.A. today?
I only know what, not why!
An A+ student and a C+ student can often come to the same conclusions through different avenues. The difference being that the C+ student will discover what, but the A+ student will discover what and why. So we need to defer to an A+ student to explain my uneasiness with wellness ROI numbers. And that would be Al Lewis. Read his book, Why Nobody Believes The Numbers: distinguishing fact from fiction in population health management. Reading it is like a doctor diagnosing the cause of your headache. Ahh, now I know why that was bothering me.
Which leads to an obvious and intelligent question: If we don’t evaluate wellness programs on ROI, how shall we evaluate them? I think wellness programs can get smaller ROI returns (maybe a few percent) if put in place for multiple years.
The real long-term benefit of simple, effective, and inexpensive wellness programs will be in their ability to recruit and retain top talent. That discussion is beginning. Tools are becoming available to measure it. I’ll be writing more about that in a future article. For now, can we finally celebrate the end of ROI-based metrics? May ROI − RIP.
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Shawn is the President and Founder of Hope Health. For over 30 years, his work has focused on bringing clear, easy-to-read, and watch health messages to the public via workplaces. He bills himself as the “Best C+ Student in the Wellness Biz” because, as he says, “I like to challenge the notion that there is no such thing as a stupid question.” Shawn is on a mission to tie workplaces into their surrounding communities to share resources and ideas in an effort to improve the health of all Americans.
You may reach Shawn at sconnors@HopeHealth.com or 800-334-4094.