Is Wellness a Business Strategy?
July 19, 2016
There has been quite a bit of discussion around wellness as a business strategy. Some suggest an effective wellness program correlates with higher enterprise performance – insinuating some level of causality between award-winning wellness initiatives and common stock performance. Related, but separately, some look to better define and estimate human capital – adjusting for population health – to be itemized on financial statements.
Such analysis/disclosures have little value if they are not predictive; and they are not predictive unless they reflect causality. And, importantly, causality is almost impossible to prove. Is the wellness program the differentiator? Or, could it be that these organizations have a superior product, business strategy or technology advantage?
- First, wellness is not a business strategy. Healthy people may help avoid lost productivity and health-related costs. But, business performance, and the valuation of a business in terms of stock prices and capitalization, is primarily driven by innovation, good products/services, productivity, etc. Further, health and well-being is often co-dependent on the workplace itself (See Figure 8 of The State of Health in the American Workforce: Does Having an Effective Workplace Matter?). In addition, not all wellness programs result in improved health or financial benefit. Many organizations implement wellness programs that don’t garner participation or change behavior, and even worse, may deteriorate the employee value proposition and break down employee trust in the employer. A program can also be designed to give away more in incentives than any possible financial benefit. Further, if an employee spends all their time participating in wellness activities, they may not be dedicating their time to advancing the mission of the company. As such, it really takes a healthy culture, rather than a culture of health, to achieve optimal workforce and business results.
- Second, we need to be cautious about using stock price as a proxy for the success or failure of a wellness program. So much more goes into stock price determinations. Even if wellness programs impact stock prices, the value of wellness programs may have been baked into the stock price at the start of the measurement period selected for study. The length of study period makes a big difference - a study period of less than five years doesn't demonstrate sustainable advantage while a study period of five or more years likely doesn't account for typical turnover (50+%) over that period of time. More importantly, this study compared individual stocks in different industries with a general S&P stock index. There does not appear to be any adjustment for industry differences and it did not purport to measure stock prices before and after wellness program implementation. For example, how do we explain the fact that General Motors was a 2004 C. Everett Koop National Health Award and Innovations in Prevention Award winner - only five years before declaring bankruptcy. How much would you suppose wellness programs drove that result?
- Finally, we need to be careful about any additional reporting and disclosure requirements and the behaviors such reporting might trigger. Not only would these requirements add expense with no corresponding value, such disclosures may be more misleading than informative. For example, in the 401(k) marketplace, increased fee disclosures resulted in an increased focus on fees over the last five years - instead of a focus on the value received for those fees, or a focus on investment returns, net of fees. And, remember, what gets measured gets managed. So, once health population data are reported on financials, health population goals might influence hiring patterns and other employment actions.
An organization cannot force an employee to perform or be healthy. Employees need to be inspired through a clear vision, with a sense of purpose, one that draws them into the mission. Then you need an intentional design. The manner in which you design, administer and communicate all your reward and benefit programs needs to align with that vision, create the desired experience and lead to the desired behaviors. The result will ultimately be high performance with healthy people that want to, and are able to show up for work to advance the mission of the organization.
Steve Cyboran, ASA, MAAA, FCA, CEBS, CEO, Consulting Actuary
Jack Towarnicky, JD, LLM, Employee Benefits Attorney