What are the ‘Essential Ingredients’ of a Wellness Program ROI Calculation?

Would vendors of prevention programs show ROI results that makes their programs look bad?

Separating the Wheat from the Chaff

During the past 30 years we have seen ROI calculators come and go. Most are well intended but are simple calculators that lack the sophisticated calculations and data to meet the more stringent requirements of financial decision-makers. Also, there is a complete lack of consistency in program ROI calculations, whether they be focused on physical, behavioral, or occupational health issues.

So, what are the essential requirements of a valid ROI calculator?

What are the 9 “essential ingredients” of an ROI calculation?

1. Consistency with modern financial theory. They should be the same formulas used to calculate corporate investments in machinery and equipment, opening a new factory, or introducing a new product line. This means that they must include the opportunity cost of money and discounted cash flows.
2. Must Include a valuation of productivity contributions of employeesworking for any employer, in any industry, in any state/region, in any country (these data are needed to calculate improvements in presenteeism and absenteeism). Note that salary is not the same as productivity and should be the first sign that the ROI calculation is meaningless. The productivity contributions of all employees of the country must add up to the GNP of the country and these databases of productivity contributions must also be consistent among countries. Furthermore, there must be a way of adjusting the productivity contributions to differentiate between the more profitable employers versus a less profitable employer in the same industry. Finally, the productivity database must be updated, as economic conditions in countries change over time. In short, the ROI vendor must have access to a productivity data base developed by professional economists.
3. Must measure true outcomes. Simply saying that users of the program had an enjoyable experience, or walked 1,000 steps, or are watching their diet, or taking yoga courses are hardly outcomes. Outcomes must have a specific impact on measurable physiological risk factors like blood pressure or glucose, or number of hours slept, or less anxiety, or less back pain, or less absenteeism and presenteeism, or less Covid hospital stays etc.
4. Must convert improved outcomes into financial terms. Saying that a program reduced blood pressures is still not useful to a financial decision maker who must decide on whether to allocate funds to a program. The reduction in blood pressure must be converted to less heart attacks, which must be connected to less medical costs and absenteeism, which then must be added to the other savings from the program. Then one must determine in which year these savings will take place, and then discount to the present value of money, and then consider that the Financial Director could have invested funds in alternative safer investments (this is considering the “opportunity cost of money”).
5. Must connect the dots of prevention programs. Prevention programs seldom impact just one condition. An exercise program can impact CHD, Diabetes, Anxiety, Stress and Muscular Skeletal conditions. Furthermore, the impact on one condition can be almost immediate (like stress) but takes months (if not years) to have an impact on CHD. Thus, the ROI Calculator must be able to capture the savings as they occur and convert savings in different times periods into today´s money before converting to an ROI.
6. Must measure the impact of a negative ROI on dependents. Some programs are offered to dependents. Yes, in some countries where a reduction in health care premiums is considered important, a program applied to dependents can result in some health plan premium savings but, generally speaking, the ROI is negative. Should the extension of a program to dependents be eliminated? Of course not! But the negative ROI from the extension of a program to dependents should be subtracted from the positive ROI of the employees to generate a net ROI.
7. Must be independent and unbiased. Numbers are sometimes cruel. If a vendor has priced its products too high as compared to the outcomes and financial results delivered, then we should call a spade a spade. Simply adding things like “increased happiness” or other “value added” benefits like improved attitude to the results of a program does not meet the approval criteria for financial decision makers. Program providers should be held responsible for their outcomes and how they are measured. HR and Benefits managers have a choice of just checking a box and provide a program at the lowest cost without any outcomes measurements other than vague and meaningless statistics of program results or bite the bullet and learn how to ask key outcomes questions. This brings me to the last “ingredient”.
8. Must offer training and support on how the ROI calculations were made. We have to avoid “black boxes” when calculating the ROI. Most HR personnel and Benefits Managers did not take financial theory classes in school. So, the provider of ROI calculations has the obligation to train HR personnel on the methodology, and support HR personnel in obtaining budget approval of programs.
9. Must adhere to Personal Data Base Protection and Privacy Laws of each country.Over the past few years there has been an increased focus on protecting the personal health data of users. An ROI calculator must be able to generate ROIs of prevention programs without gathering personal health data and must rely on average improvements in health factors.

For more information, please visit our web site at www.wellcastroi.com