The Economics of Wellness: Is Your Wellness Program Making an Impact? Lee Dukes, President

1. The Economics of Wellness: Is Your Wellness Program Making an Impact? Lee Dukes, President Principal Wellness Company

2. Costs Follow Risks While there are many reasons why health care costs have risen rapidly over recent years, researchers agree: poor health caused by unhealthy behaviors is the largest controllable factor. Costs follow risks! Health Care Costs Chronic Disease Diabetes, heart disease, hypertension, stroke Health Risks Obesity, high blood pressure, elevated cholesterol and blood sugar Unhealthy Behavior Physical inactivity, poor eating habits, tobacco use, unmanaged stress

3. While there are many reasons why health care costs have risen rapidly over recent years, researchers agree: poor health caused by unhealthy behaviors is the largest controllable factor. Costs follow risks! Costs Follow Risks STD, WC, Productivity Costs Chronic Disease Diabetes, heart disease, hypertension, stroke Health Risks Obesity, high blood pressure, elevated cholesterol and blood sugar Unhealthy Behavior Physical inactivity, poor eating habits, tobacco use, unmanaged stress

4. Translating Health Status to Dollars N = 27,799 Wellness Score 81.1 Mean Cost $5,150 9,452 (34%) 71.8 $7,728 18,347 (66%) 85.9 $3,822 Year 1 6,285 (22.6%) 71.4 $8,801 3,167 (11.4%) 82.8 $5,675 2,810 (10.1%) 75.6 $7,051 15,537 (55.9%) 87.0 $3,691 Year 2 Year 3 4,819 (17.3%) 70.9 $9,555 1.466 (5.3%) 82.6 $6,564 1,131 (4.1%) 74.8 $6,812 2,036 (7.3%) 83.9 $4,899 1,306 (4.7%) 74.3 $9,078 1,504 (5.4%) 84.1 $6,728 1,742 (6.3%) 76.0 $6,893 13,795 (49.6%) 87.6 $3,704 University of Michigan Health Management Research Center

5. Medical Costs Associated with Risks $7,123 Annual Medical Costs High Moderate Unknown Low Medical Paid Amount x Age x Risk Musich, Lu, McDonald, Champagne, Edington. AJHP. 18(3): 264-268, 2004

14. Health Affairs: February 2010 • 36 Studies • 22 medical costs, 22 absenteeism, 8 both • Healthcare average ROI 3.3:1 • Absenteeism average ROI 2.7:1 • Other Meta Analyses • 2001 by Steve Aldana 3:5 - 5.8:1 • 2005 by Larry Chapman 5.8:1

15. What Is ROI? • Return on Investment • Can be prospective or retrospective • Estimate of how much you saved compared to how much you spent • Expressed as a ratio (2:1) • Not the same as savings • Savings = difference in dollars with vs. without the investment • ROI = Savings / program costs in today’s dollars • ROI can be low but savings can be high Source: Ron Z. Goetzel, Forecasting ROI for Improving Employee Health and Productivity, NBGH Oct. 2007

16. Challenges of Measuring ROI for Wellness • If health care costs trended upward or downward, was it the result of changes related to… • Plan design • Employee population • Available services • Employer policies • Government policies • Healthcare providers Probably a combination, with various degrees of impact

17. Zero Trend 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% Year-Over-Year Increase Time negative trend do-nothing trend zero trend

18. Evaluating Program Impact • Why only measure economic impact? • Other important metrics • Health of the population • National health standards • Economic impact studies • Engagement rates • Employee satisfaction and perceptions • Changes in company policies • Environmental changes • Leadership support • External exposure • Preventive care

19. Evaluating Program Impact • Considerations • Expectations • Baseline status • Claims data • Privacy • Outliers • Time period

20. Evaluating Program Impact • Option 1 • Claims experience: compare claims of wellness participants to non-participants • Pros – connects engagement to dollars • Cons – the smaller the number of participants, the likely to include biases • – if little or no incentive, will attract healthiest • – if high participation for participating in DM or coaching, will attract the least healthy • – must account for changes in plan design and/or plan choice

21. Evaluating Program Impact

22. Evaluating Program Impact • Option 2 • Changes in risk status; model the estimated economic impact by risk changes compared to a do-nothing strategy; medical, productivity, STD, Workers’ comp • Pros – aligns health improvement with wellness effort • – does not require claims data • Cons – modeled approach • – requires high engagement rates • – requires some sophistication to both explain and understand • – does not account for non-participants in cohort group

23. Translating Health Status to DollarsN = 672

24. Estimated Economic Impact - Modeled

25. Evaluating Program Impact • Option 3 • Changes in risk status compared to claims experience; Markov Chain analysis • Pros – aligns risk group with average claims experience • – easy to communicate to C-suite • Cons – requires high engagement rates • – baseline diminishes over time • – does not account for costs that would likely have been incurred if no program in place • – does not account for non-participants

26. 2010 Risk Transition 2011 Low Risk (n=6,231) Low Risk 6,947 (76%) Low Risk 7,298 (79%) Moderate Risk (n=675) High Risk (n=41) Low Risk (n=981) Moderate Risk 1,877 (20%) Moderate Risk 1,621 (18%) Moderate Risk (n=758) High Risk (n=138) Low Risk (n=86) High Risk 393 (4%) High Risk 298 (3%) Moderate Risk (n=188) High Risk (n=119) Net Change in Risk Status is 4.4% Improvement 90% Low Risk stayed Low Risk Translating Health Status to DollarsN = 9,217 $5,565 $5,615 $6,724 $6,685 $11,755 $12,915 26

27. XYZ Claims Cost Per Employee 27

28. Contact Information Lee Dukes President, Principal Wellness Company dukes.lee@principal.com