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By Teresa McLoughlin Rice, Esq.
As companies grapple with ever-increasing healthcare costs, an intriguing notion that boosting employee health and safety can also boost company profitability, has been gaining traction. To test the soundness of this premise, HealthNEXT LLC recently undertook a study to evaluate the stock market performance of companies with award-winning wellness programs. The results were published in the September 2013 edition of the American College of Occupational and Environmental Medicine’s (“ACOEM”) Journal of Occupational and Environmental Medicine, The Link Between Workforce Health and Safety and the Health of the Bottom Line. The study concluded that companies focused on the health and safety of their employees outperformed the market. While this certainly sounds promising, the study cautions that “correlation is not the same as causation” and recognizes that further research is needed before definitive causative conclusions may be reached.
The study is timely. It discusses the significant detrimental impact on the economy currently resulting from employee illness and disability, and points out that this impact is projected to only get worse. The authors provide the following statistics:
> More than 22% of the surveyed workforce has health-related issues.
> Time lost is calculated at 2.5 billion impaired days each year.
> Health related issues resulting in lost work hours were estimated to take a $468 billion toll on the economy in 1996 alone.
> In 2006, $2 trillion was spent on healthcare with a large percentage of that spent treating chronic conditions.
The future doesn’t look any brighter. The study cites a variety of statistics which paint a grim picture of anticipated healthcare expenditures should current trends continue. For example, the RAND Corporation projects that in just seven years, fully 20% of all healthcare monies spent will be to treat the consequences of obesity. In addition to obesity, seven other chronic conditions (including cancer, heart disease and diabetes) currently cost the U.S. economy more than $1 trillion per year. Assuming current trends continue, this jumps to $4.2 trillion in just ten years. Small wonder then that decision makers are becoming focused on how this trajectory can be altered.
According to the study’s authors, a 2010 “meta-analysis” of 22 other research studies found that medical, pharmacy and absenteeism fell about $6 for every dollar invested in wellness programs. The authors also cite additional studies that show companies with robust wellness programs “generate 20% more revenue per employee, realize a 16.1% higher market value, and deliver 57% higher shareholder return.” As to future savings, “plausible estimates” suggest that within ten years, should prevention and treatment of certain identified chronic conditions improve, this could translate to a reduction in annual treatment costs of $217 billion and a reduction in productivity losses of $905 billion. Given these statistics, the authors conclude that “[h]ealth care costs should be viewed [by employers] as an investment in their employees rather than an expense.”
Against this backdrop, the study set out to measure something concrete and readily identifiable – the stock market performance of companies which had invested in wellness programs for their employees. Did they outperform the market – in other words, did those companies that promoted health and safety enjoy a marketplace advantage? The study suggests that they did.
The first step in the methodology used in the study was to identify those companies that had instituted verifiable wellness programs. To do this, it focused on recipients of ACOEM’s Corporate Health Achievement Award (“CHAA.”) This award was created by the Board of Directors of ACOEM to “recognize the healthiest, safest companies and organizations in North America and raise awareness of best practices in workplace health and safety programs.” First awarded in 1996, recipients must demonstrate excellence in (1) leadership and management; (2) healthy workers; (3) healthy environment; and (4) healthy organizations. They do this by showing they have a well-deployed program which tracks trends in discrete areas such as occupational injury and illness management, traveler’s health, emergency preparedness, health benefits management and health promotion and wellness, including nonoccupational illness and injury. Twenty-nine different companies have been awarded the CHAA since its inception. They represent a diverse cross-section of corporate America from the automobile industry (Daimler Chrysler) to private universities (Vanderbilt University) to government agencies (Smithsonian Institutions.) IBM and Johnson and Johnson have each been awarded it twice. From this list of 29 recipients, the authors excluded all companies that were not publicly traded companies on major stock exchanges. Using “simulation and past market performance”, the authors tracked a theoretical investment of $10,000 for each of the selected CHAA recipients under various scenarios during a 13-15 year time period. Under each scenario presented, the CHAA recipients outperformed the stock market S&P 500 average. Indeed, under one scenario tested (a theoretical portfolio which was “created” at the point in time wherein a fifth publicly traded company had been awarded the CHAA, and then tracked over 13 years’ performance) the portfolio had a total return of 78.72% during a period where there was no growth in the S&P 500.
So what does this mean? While the authors recognize the distinction between correlation and causation, they conclude that the “results consistently and significantly suggest that companies focusing on the health and safety of their workforce are yielding greater value for their investors as well.”
Given the enormity of the approaching healthcare expenditures, and the attractiveness of increasing investor returns in the marketplace, the notion that these two issues are intertwined and can be advantageously addressed simultaneously, is appealing. It also needs to be further tested. The authors note that their study focused only on a small number of companies over a discrete time period. They further note that it focused only on CHAA recipients, of which nearly half were excluded for various reasons. (In certain instances, inclusion of these companies could have enhanced the portfolio even further.)
Nevertheless, the study did conclude that “[a] portfolio of companies recognized as award-winning for their approach to the health and safety of their workforce outperformed the market.” It further concludes that whether this is just an association without a causal connection, whether this is a case of “companies that focus on the health and safety of their workforce manage other aspects of their business equally well” or whether this is yet another building block to add to the growing body of literature linking employee health to corporate profitability, remains to be seen. But for now, the evidence seems to suggest that promoting your employees’ actual health, will also promote your company’s financial health.
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