By Mike Blake, Director, PMI Health Group

Board room executives will often consider an employee healthcare programme as a nice to have rather than a strategic necessity. In this article I will be considering how returns on investment can be clearly measured and demonstrated.

There is frequently a lack of clear demonstrable evidence of the returns on investment (ROI) for employee healthcare programmes. Substantial returns can be measured however by HR departments or finance directors, corroborating the claim that a healthy workforce really can mean a healthy bottom line.

Reducing the cost of sickness absence

The business cost of sickness absence can be considerable - from salary and replacement staffing costs to lower workforce morale and customer service. In fact with sickness absence costing an average of £595 per employee, according to a 2013 CIPD study, managing it should be a key driver behind any healthcare programme.

If robust processes for measuring absence are in place, this business cost can be calculated.

Employers should measure sickness absence before a healthcare programme is introduced and then again when it has had a chance to impact business performance. This can be done using an automated recording system, which offers consistency in data capture.

Cost can then be calculated, in simple terms, by multiplying the average daily salary bill by the total number of days a workforce as a whole is absent for each year. By measuring the percentage of total time lost to absence, companies can also calculate ‘lost time rate’, or by measuring the average percentage number of absences per employee they can calculate ‘frequency rate’.

By drilling down into the statistics companies can identify patterns such as the prevalence of absence caused by mental or musculoskeletal illnesses, for example, and also demonstrate improvements in these key areas.

Reduce recruitment and resourcing costs

By promoting a strong sense of employee wellbeing, minimising stress and improving their personal health, companies will position themselves as employers of choice – delivering the feel good factor, improving staff morale, motivation and commitment.

By doing so, they can boost recruitment and retention and demonstrate this with compelling metrics. These may require cost analysis of comparative overtime payments and an assessment of costs for recruiting replacement staff. Longer term analysis will also be able to illustrate variances in staff retention rates.

Realising insurance cost savings

Medical insurance costs, particularly in the large corporate sector, are driven by claims history and an assessment of future risk.

An analysis of claim trends should help to highlight the areas where healthcare resources would be best channelled, and over the medium to long-term an effective healthcare programme should have a direct impact on claim costs.

If there’s been a propensity of claims, for example, for the treatment of bad backs, further examination may reveal a need for occupational health advice and manual handling training. With around a quarter of all medical insurance claims relating to musculoskeletal problems, support such as access to on-site physiotherapists, for instance, might reduce the number of claims on medical schemes.

Similarly, reductions in income protection (IP) premiums can be realised by IP insurers looking favourably on evidence of a fall in sickness absence rates. Where cost savings on benefits provision can be proven, the business case for corporate healthcare programmes can be significantly bolstered.

Business productivity quantified

Although it can be difficult to measure cause-and-effect relationships between healthcare initiatives and productivity, basic research tools can be used to profile the health of the work environment, monitor and evaluate workplace wellness interventions, and document effects on a range of operational activities.

Employees can even be asked to retrospectively assess either their own productivity or their performance on specific tasks.

In isolation, performance improvements analysed before and after the implementation of health strategies may not tell the full story, but they can help to add weight to the business case. It is, after all, a common sense assumption that the physical and psychological wellbeing of employees will impact their workplace commitment.