Research: healthcare costs and calculating return on investment

Most employers use an intermediary to buy healthcare benefits and spend less than 2% of payroll on the perks. Calculating return on investment is now a priority, and staff at smaller firms are better informed, says Debi O’Donovan

The research shows most employers opt to use a broker or intermediary to buy healthcare benefits. As in our previous research over the years, roughly 60% of employers do this.

Some organisations use brokers to demonstrate due diligence when procuring insurances, some do it for convenience, and others value the advice that comes with the service.

The research also shows that a few employers use advisers and brokers for two different reasons – sometimes to buy specific products, and sometimes to obtain advice. It is interesting to note that the private sector is more likely to use advisers than the public sector. More than three-quarters (68%) of private-sector employers use a broker to buy healthcare benefits, compared to just 28% of public-sector respondents.

Most (58%) organisations spend 2% or less of their payroll budget on healthcare benefits. Reviewing the research Employee Benefits has conducted in previous years, it is clear the proportion of payroll spent on healthcare benefits has barely changed – a surprising finding given the trend of above-inflation increases in the cost of private medical insurance and many other healthcare treatments.

Given that we specifically asked respondents who were responsible for their organisation’s healthcare benefits to estimate the cost of providing these benefits, it is a little concerning that nearly one-quarter have no idea how much they are paying. However, this lack of knowledge is not much better than our findings five years ago, when 28% of respondents didn’t know what their spend was.

Employers have traditionally been quite poor at measuring the return on investment (ROI) for their benefits.

But in this time of recession, there is clearly more emphasis on proving ROI at many organisations. Although current cost pressures will no doubt accelerate matters, examining ROI on healthcare benefits is not merely a recessionprompted initiative, but a trend that has been building over several years.

Compared with our 2005 healthcare survey, the number of employers now calculating ROI has more than doubled – admittedly from a small base, but the number has risen consistently in each of our annual surveys.

With healthcare benefits, it is extremely difficult to prove cause and effect, because so many factors influence both employee and organisational behaviour. The best that employers can hope to do is spot correlations and changes when health and wellbeing interventions are implemented or removed.

Measuring absence levels is the obvious ROI marker when assessing spend on healthcare benefits. But this can be misleading if it is not diagnosed correctly because absence is not always related to sickness. Absence levels are also greatly affected by organisational culture, relationship with managers, personal caring issues and myriad other non-healthcare issues. So measuring absence levels is just the first step when trying to pin down ROI.

More and more employers are therefore using other measures. Employee engagement surveys have become increasingly useful in recent years. These can delve into employees’ true attitudes and pick up trends that give a steer on whether the true cause of issues such as absence, retention or low productivity is down to poor line managers, genuine illness or stress, and so on. It is only when the root problem is identified that a proper solution can be implemented. Without this, proving ROI is nigh on impossible.

The overall proportion of employers that feel their staff understand the value of the healthcare benefits they provide has stayed fairly consistent over the past five years.

It seems the battle to get the message across is either not being fought effectively or is being lost.

It is intriguing to note that the size of an organisation has a significant impact on the level of understanding among staff. Smaller employers are the winners in the communications battle, with more than three-quarters (67%) believing their staff are clued up.

This figure almost halves (to 35%) among large employers with more than 5,000 employees. One can assume that simple (cheap) word-of-mouth messages on the value of benefits is both more effective and easier to use when employers know just about everyone in their organisation.

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Click on the links below for more sections:

Research: who are the respondents; key findings
Research: attitudes to health and wellbeing
Research: the package
Research: what impact health and wellbeing perks have on sickness absence
Research: strategies to deal with employee stress
Research: how employers deal with legislation change