In tEWn

I nitpicked with ShapeUp for the way they used the term “per employee per year.” It’s only fair that I give them props for introducing a lot of people to one of the best ways to express total employee wellness budget: as a percentage of total health care expense.

In their survey results, ShapeUp reported, “Wellness budgets are typically 1-3% of total health care spend.” Elsewhere, employee wellness expense commonly is expressed as cost per employee per year (PEPY). For example, experts often state that a benchmark for employers’ success with wellness is an expenditure of $100 to $125 PEPY (more recently, some have advocated up to $500 per employee per year). PEPY is a valid metric, expressing the expense in the context of the size of the population. Less helpful is a simple expression of the absolute annual expense — say, $50,000 or one million dollars… whatever it may be.

I don’t know exactly why ShapeUp chose to express wellness expense as a percent of overall health care spend — perhaps it’s more common or more standard than I’ve observed — but the wellness industry would be well-advised to latch on to this metric.

Expressing employee wellness budget as a percentage of total health care spend accurately represents wellness as a component of the health continuum, rather than something extra. Further, this context spotlights the relatively restricted resources employers with self-funded medical coverage allocate to keeping employees and their families healthy, compared to the mind-boggling spend on their medical care.

ShapeUp quoted one of their survey respondents as stating:

“The 2012 program, including incentives and every other cost is roughly $1 million and we spend $110 million on health care costs. We don‘t spend a huge amount …”

This employer’s spend on wellness is approximately one percent of their total health care spend. If this employer was simply to say they spend one million dollars on wellness, many people — shareholders, the public, the media — would be aghast. A million bucks on wellness?! Might seem like a lot. An expense of $125 PEPY also would seem like a lot to anyone who knew the size of the employee population and chose to do the math.

But most people can’t begin to imagine how much an employer spends on health care. When this employer reveals that they spend $110 million on health care, their one million dollars for wellness doesn’t seem like so much.

In fact, if it’s true that 50% to 70% of health care costs are due to lifestyle, as many health economists claim, then is it so unreasonable to spend one percent of health care costs on helping people lead healthier lifestyles?

In the context of overall health care expense, committing one percent (in the case of the employer cited, one million dollars) to wellness doesn’t seem like nearly enough.

What’s more, this comparative metric — percent of health care spend — reveals employers’ single-minded focus on wellness return-on-investment (ROI) to be misguided. The the other 99% — which includes money spent on things like back surgery, “lifestyle” drugs like Viagra and Rogaine, and unnecessary tests — stand no chance of a positive ROI. An organization that truly fancies itself data-driven would be wiser to direct channel its resources toward understanding the ROI of the 97%-99% of their health care budget, rather than the 1%-3% spent on wellness.

Those of us charged with stewardship for the 1%-3% still must take seriously the responsibility of managing what, in absolute terms, is no small sum. We should focus on investing in what works, what employees need, and what employees want, in a manner consistent with the business objectives of our organizations. Identifying the most meaningful metrics — like percent of health care spend — is a step in the right direction.

(This post is seventh in a series. For the full series, click here).