The Cost of Living

As healthcare expenditure spiral out of control, America is looking for new ideas. Wellness provides a possible solution, but can it prove its worth and what will it take to bring business on board?

“Just like you invest in making sure the tools run well and the buildings are kept up-to-date, there has to be investment in the people”
-Lillian Petty

Lillian Petty tells a story that serves as a stark illustration of America’s gathering health crisis. “I was making a presentation at a conference and this guy came up to me and interrupted the group,” she recounts. “He worked for a casket making company and he told us that his costs were increasing because they were having to make larger caskets for everyone from babies to adults.” It’s a morbid illustration of the intersection between life, death and money in the US. But one anecdote can’t really sum up the true enormity of the situation.

In 1980, healthcare expenditure in the US sat at $253 billion. By 1990, that figure had hit $714 billion and in 2008 it had risen to a staggering $2.4 trillion, or 17 percent of the nation’s GDP. If this trend continues, America will be spending $4.3 trillion a year on healthcare by 2017. In light of these figures, wellness seems to be a concept whose time has come. Traditionally dismissed by cynics as a woolly and ill-defined approach to health issues, these mounting costs are forcing a rethink. The statistics become even more compelling when you consider that as much as 75 percent of these costs are attributable to illnesses caused by lifestyle such as smoking, poor diet or a lack of exercise. Suddenly the simple act of stopping people becoming ill in the first place looks like a banker.

The big ‘but’ comes in the challenge of effectively measuring the financial benefits of wellness programmes. Business is motivated by the bottom line, never more so than in difficult times like these. If you can’t confirm that an investment is paying off, then don’t expect it to get much play in the boardroom. It’s an issue that Petty, former manager of corporate benefits at Schlumberger and current President of the Alliance for Wellness ROI, is only too familiar with.

The formation of the Alliance for Wellness ROI came about directly to counter the uncertainty that has prevented business from really buying into wellness. “There's no standard definition for wellness, so we're pushing that in companies,” says Petty. “Are you doing family support programs, or a comprehensive physical program?  Just comparatively deciding what a wellness program is has been a huge challenge.”

Steve Villella, Vice President and Health & Welfare Practice Leader at employee benefits firm Touchstone Consulting, consulting echoes this concern. “The problem with wellness ROI is you're trying to measure something that never happens,” he says. “You essentially say by virtue of participating in this wellness plan these claims never happen. It's somewhat of a dubious task because you're trying to calculate something that it's really hard to get your hands around.”

Petty’s interest in preventative health goes back quite a while. While working at Schlumberger, an engineering and services firm heavily focused on the energy market, she became aware of the amount that was being spent on life insurance. “In Schlumberger, people come to work pretty much at the beginning of their career, some of them right out of college and high school working on oil rigs,” she says. “They’d work very, very hard, and I kept seeing that these people would drop dead five to seven years after retirement. It led me to ask the question; if we’re spending this much on life insurance, what are we doing on preventative? The more I dug down into what they were doing, the more difficult it became to find out what was actually happening in the area of preventative healthcare.”
 
Creating standards about what exactly constitutes a wellness program is key to ensuring their wider acceptance. At Schlumberger, Petty’s answer to this issue was build the program around one key spoke. “We carved out a comprehensive physical exam done by one company throughout the US,” she says. “If I sent all our people to different doctors, who's to know what we're getting is really the preventative exam?” Schlumberger partnered with a company called EHE International as the sole provider of physical exams. Having all the information from these exams in one place and one format allowed Petty to see a far more complete picture of the company’s overall health. Problems like high blood pressure and high cholesterol were prevalent, in short, conditions largely associated with lifestyle that had the potential to cause serious illnesses as employees aged.

Petty is clear that health and wellness needs to be tackled aggressively, and she sees parallels in the way that business has approached another major issue. “It’s like substance abuse management in companies,” she says. “They have begun to say if you are on substances, you can't work for us. So you begin to build a culture substance-free. The exact thing has to happen in health. My prediction is that we will get to a point where if people don't begin to participate in some of these voluntary programs we will begin to say that they have pay more to be in health plan. We've not done that at this point.”

For Petty at least, these more heavy handed tactics weren’t required. At Schlumberger, the carrot was employed more frequently than the stick and the response from employees was generally favorable. However, any idea that a wellness plan can be set up and immediately start showing results is misguided. “The biggest challenge is that most employers think they will put in a program, and next year their costs are going to go down,” Petty says. “This has to be a three to five-year continued program, and it has to be strategic population impact plan approach, not just one program.” This means offering employees plenty of choice, and even offering rewards for those that sign up. “It’s amazing what people would do to get a cap or a T-shirt,” continues Petty.

But while it is possible to draw certain conclusions on the value and effectiveness of wellness programs by looking at a single company, to get a full picture you need bigger numbers. It was this understanding that led to the formation of the Alliance. “I had been participating as a board member for the Council on Employee Benefits here in the US, going to meetings every year with the top 200 companies,” Petty explains. “All I kept hearing was, ‘cost shifting.’ My background being more behavioral and socially grounded, I thought that this wasn’t going to go away with a silver bullet of a strategy.  To me, it has to go with managing population health over time.” Petty then went to the members of the CEB to find out they wanted to join together to tackle the issue. Five came on board. The next challenge was taking data from a disparate range of companies and beginning to build a financial model for valuation. Even with only five companies on board, the amount of information that needed to be collated was huge. “It's taken us almost four years to just gather every healthcare claim, every pharmacy claim, every wellness program, information on who's participating and who's not,” she continues. This work involved not only actuaries but also epidemiologists from Columbia Presbyterian Hospital out of New York. Getting these different perspectives was essential, claims Petty: “That was the big difference, because we wanted to have the science of the epidemiologists, the actuaries, as well as the benefits strategic HR people, involved in coming up with this whole approach.”

To crunch the data the nascent Alliance turned to Touchstone Consulting. Steve Villella was involved from the start. “We were able to take the data from the Alliance’s five founding member companies, which is about 250,000 lives,” he says. “It's a pretty good data set. We took three years of data for them, did our analysis, and we came up with ROI. Now, although that's a great number, what we want to do going forward is start really producing ROI for multiple combinations of programs and the effect of one program on the other. With 250,000 lives you can start doing that, but we would prefer to have 2.5 million lives. The more lives we get, the more we can do with it, the more credible the results.”

Standards are at the very core of changing the perception of wellness from touchy-feely adornment to a valuable business tool. Currently there is no clear definition of what constitutes a wellness program. Two companies could offer a program that bear very little resemblance to each other. Correctly putting a hard dollar benefit on something with such widely differing parameters is a virtual impossibility. To address this issue the Alliance employs a standards group to annually consult on the factors used to run its ROI modeller. This group once again takes in a wide range of expertise to get a full spectrum picture. “It's not just the science of the consultant or the science of an actuary, it's looking collaboratively at those and coming up with the factors that measure,” Petty says. “We think those standards is what's going get the C-Suite to recognize the value of these programs and understand the fact that they're managing population health and not just something cutesy like a wellness program.”

The statement that ‘people are our greatest asset’ crops up so often when speaking to HR and business leaders that it is in danger of becoming nothing more than a platitude. If companies are really serious about the value of their people, then helping them stay healthy should be a no-brainer. “It's an investment in your population,” Petty confirms.  “Just like you invest in making sure the tools run well and the buildings are kept up-to-date, there has to be investment in the people. In these challenging economic times and even before, we push people all the time to give their best. And they spend more and more time in the world of work.”

But all that’s gone before means nothing if the figures don’t stack up. The commitment to a company’s people will only exist as long as the profit and loss figures are arranged in the right way. The good news for the Alliance, and those employees that stand to benefit from its work, is that early indications demonstrate some very positive results. “For the first five founding member companies in three years of analysis we have looked at individual programs, and we found some really interesting things,” says Villella. “Certain programs take longer to yield a positive ROI.  A program may be a good program, but you're not going to see any return on your investment in the first three years, whereas other programs – such as disease management programs, you see a much quicker return on your investment. The other thing we found is certain wellness programs by themselves don’t really achieve much of a return on their investment, but when coupled with other programs, they boost the return for them, and a good example of that is a health assessment.”

According to Villella, this failure to take the impact of multiple components into account has been one of the key reasons that efforts to study wellness ROI in the past have had unsatisfactory results. “They looked at typically individual wellness program components, and what the Alliance wants to do is see what kind of synergies may or may not lie in participating in different combinations of these programs. They call that an integrated ROI,” he explains.

Even though the Alliance’s study is at a reasonably early stage, Villella is still able to supply some fairly striking results. “Spend one dollar on a wellness program and you're going to get two to three dollars back in claims savings,” he says. “That's pretty good. Even if you were just getting your money back, it's probably not a bad idea to offer these programs. You talk about a 15,000-employee company and they're incurring medical claims of $100 million a year. You could be talking about $5 million in savings just by offering these wellness programs above and beyond what you're spending on them. Five percent of your claims is a good chunk of money.”

But even in the face of results like these, much needs to be done for wellness to take center stage in business’s battle against healthcare costs. Perhaps a new administration will provide the required impetus? Petty seems cautiously optimistic: “There's a leadership group that's been working in the area,” she says. “Obama uses the words ‘prevention’ and ‘wellness’, and I'm seeing that as definitely a good thing.” Nonetheless many of the hard yards will still have to be made by business. “It’s a huge elephant to turn around, that that's why we started the alliance,” she continues. “We can't wait on Washington. Companies pay the money, so if they’re going to wait on government to bail us out it could be quite a long wait.”

This sentiment is echoed by Villella. “The government, although they seem to push wellness, you don’t see them really giving individuals an incentive to be well,” he says. “But the biggest reason why I don't think we'll see anything in the short run is they have bigger fish to fry right now with the economy. So, I think healthcare is going to take a backseat to that. But even if it were not to take a backseat to that, it seems like the government is more interested in whether we should have socialized medicine and less interested in what's really producing the claims costs. The old axiom in our actuarial world is 20 percent of the individuals make up 80 percent of the claims. If you really want to affect your claim cost, you got to go after those 20 percent of the people. A way of doing that is through wellness programs.”

Ultimately though, a change will have to come. Current healthcare spending is unsustainable and, even if it weren’t, surely it’s better to use funds to prolong and improve their people’s lives rather than just paying off their dependents when they die early? But money is only half the picture. People themselves have to want to make this change happen, to alter the lifestyles that are contributing to health problems. Petty remains optimistic but agrees that the road ahead will be a long one. “It will require a big change in our culture,” she says. “Look at smoking. We’ve had success there, but it took years to turn it around. Now if you see somebody smoking, you kind of wonder what’s wrong with them.”

Raising the standard
The Alliance for Wellness ROI was founded in 2005 as non-profit corporation by BMW North America, Henry Ford Health System, Kraft Foods, MasterCard Worldwide and Sclumberger. The Alliance has identified several key components that should be present in any wellness program. Adoption of the these standards is seen as key to building a comprehensive understanding of the true value of wellness.