How population health management increases the ROI of company wellness programs Featured

8:01pm EDT May 31, 2011
How population health management increases the ROI of company wellness programs

The employer-sponsored wellness programs of today are designed to offer companies the ability to impact the overall health of their employees and, in turn, improve moral, decrease absenteeism and presenteeism, lower medical costs, and lower disability and workers’ compensation claims.

“Unfortunately, most of these programs are not set up to measure effectiveness, or return on investment,” says JP Pressley, vice president at USI. “Innovative companies are beginning to incorporate their wellness programs into a robust population health management program to better manage health care cost increases.”

Smart Business spoke to Pressley about what population health management (PHM) means to employers and what they can do to get a better return on investment for their wellness efforts.

What is population health management?

A typical PHM program may identify several areas of focus, and work to implement two or three strategies annually. The goal of these programs is to:

? Keep healthy employees healthy

? Effectively manage the expenses of employees with chronic conditions, while providing exceptional care

? Motivate at-risk employees into the health population, as compared to letting them slip into the chronic category

Typically, these programs are broken into different strategies — retrospective, prospective and motivational.

Retrospective strategies are focused on treating conditions that currently exist. These include large claims interventions, disease management and prescription assessment. When health care providers, prescription vendors and insurance payers are connected effectively with these strategies, it can generate claims savings in excess of 10 percent.

Prospective strategies focus on keeping current healthy employees healthy and preventing any at-risk conditions from becoming chronic. Tools such as predictive modeling, health risk assessments, biometric data collection and metabolic syndrome identification allow a company to set a baseline. Since it is impossible to save money on conditions that did not occur, the year-over-year comparison validates the resources dedicated.

Motivational strategies allow a company to choose a carrot-or-stick methodology to encourage employees into a healthier lifestyle. Mandatory participation in wellness programs and evidence-based plan designs set an incentive for good behavior. Non-participating employees can actually be charged a higher premium rate on their employee benefits, and can fund a significant portion of a company’s wellness programs.

With an integrated PHM component, companies can pick from a menu of programs that are run similar to any other business endeavor that include implementation timelines, desired outcomes and an expected ROI.

What kind of cost increases do companies face if nothing is done?

Let’s assume there is a mythical 200-employee company named High Flyer, Inc. High Flyer has a production revenue of $50 million with a 10 percent profit margin in 2011. High Flyer also has an annual benefit spend of $1.6 million and an annual payroll of $15 million in 2011. Wall Street wants High Flyer to obtain a growth rate of 8 percent. Benefits will continue to increase at a rate of 15 percent annually, and the company will provide an annual pay increase of 4.5 percent. Left unchecked, this company will pay $1.6 million in 2016 and $3.2 million in 2021 for its employee benefits program. As a percentage of payroll, benefits will have grown from just over 10 percent in 2011 to just under 28 percent in 2021, and profits will have been eroded an additional 20 percent. This is an aggregate loss in revenue in excess of $21 million over 10 years from this company’s 2011 cost of providing benefits.

The unfortunate fact is that most companies will not be nearly as consistent as High Flyer over the next 10 years. At some point in time, High Flyer will decide it is not in business just to pay for employee benefits and will either cease providing benefits, or the cost of providing benefits may become too burdensome for the company to exist.

How can a PHM program help?

Benefit increases for a 200-employee company are driven primarily by that company’s experience or loss ratio. Unfortunately, many companies of this size do not participate in their experience, or are pooled with other companies by the insurance companies, and do not receive any material information about the loss ratio of their plan. As companies begin to break out of these pools and engage in participating funding insurance policies, managing their health care spend will become an ever-increasing priority.

It is estimated that at least one-third of the $1 trillion annual spend on chronic conditions is spent just to treat seven of the most common diseases (cancer, diabetes, hypertension, stroke, heart disease, pulmonary conditions and mental illness). A well-designed PHM program will allow a company to control the amount that is spent to treat employees with chronic diseases.

How much control do businesses really have over rising health care costs?

As insurance premiums continue to rise, the pool of insured companies falls into two unique entities heading in opposite directions: 1) Companies that take an active roll in their employees’ well-being and positioning themselves with insurance companies who reward their better-than-average claims utilizations, and 2) companies who assume that there is nothing to be done about the increasing cost of medical care and take their pooled increases on blind faith. The proactive companies will drive average annual increases in the low single digits, while the others will be taking on higher than ever increases.

Bottom line: Talk with your benefit consultant about how implementing a PHM program could ensure that your company is heading toward fiscal responsibility in your employee benefits offering.

JP Pressley is vice president at USI in Walnut Creek. Reach him at (925) 472-6770 or