Employers providing health benefits often face the dilemma of balancing rising costs against maintaining benefits levels. To avoid this, or to lessen the impact of the decision, many employers have begun to embrace point solutions which focus on enhancing quality within their health plan. These solutions focus on identifying gaps in care, managing chronic conditions, and encouraging the use of high-performing providers. However, the success of point solutions relies on their ability to execute their strategies effectively, leveraging technology and an effective engagement approach. Assessing success usually involves measuring the return on investment (ROI) of the program. It can be difficult to accurately calculate ROI for a number of reasons, but using the following as a guide can help employers achieve their desired results.  

Step One: Identify Your Goals 

Before implementing any point solution in a health plan, it is important to first identify your goals. Most programs will aim to either reduce costs or improve health outcomes. The best solutions can achieve both. 

However, aiming for “cost reduction” can lack clarity if not properly defined. Without precise parameters, measuring ROI becomes incredibly difficult. At a minimum, employers should establish if the reduction in costs they are trying to achieve should be solely focused on their health plan or if they also attempt to improve absenteeism and presenteeism. The latter, which isn’t directly tied to health expenses, can significantly impact ROI, but is difficult to measure. 

Similarly, identifying improvements to population health poses a challenge if there is not a clear grasp of the specific areas targeted for improvement. Broadly speaking, the primary objectives of population health improvement revolve around either targeting a particular population cohort or disease state, or enhancing the health of the entire population. Different solutions are more effective for each of these objectives. 

For both cost reduction and health outcome improvements, the final piece in goal setting is determining whether the primary objective is a short-term ROI or a long-term ROI. While achieving short-term objectives yields faster results, the range of available solutions may be limited, and not every plan can implement them. However, employers need to evaluate how effective long-term results may be. Although long-term solutions may ultimately achieve lower costs and/or improved health outcomes for plan participants, factors such as high employee turnover or delayed savings realization (to the point that some participants may become Medicare-eligible, which means their costs are no longer a plan liability), can diminish the ROI for the employer, causing potential for lower than expected or negative returns. 

Step Two: Choose Your Metrics 

Once you have identified your goals for implementing solutions into your health plan, the next step is to choose the metrics by which you will measure results (which will be used to evaluate ROI and define success). When an employer is deciding which metrics to use, there is not necessarily a “right” answer, and you are not limited to choosing only one by which to define success. The following list of metrics is not an all-encompassing list, but includes the most common metrics generally used among employers.

• Net cost – A measurement of how total cost differs from one period to the next, whether for a specific cohort or line of coverage or for the total health plan. Net cost is typically adjusted for trend, enrollment, demographics, risk, severity, etc.
• Utilization – Instead of the cost of healthcare services, this metric simply measures the total number of services utilized by the plan. Unlike net cost, which would typically need to decrease on an adjusted basis for a program to yield a positive ROI, shifts in utilization can either positively or negatively impact ROI. In particular, an increase in the utilization of certain services may align with the objectives of the program. For example, if an employer wants to encourage wellness screenings, a rise in primary care visits and physician exams would be viewed favorably.
• Disease prevalence – An evaluation of the change in the amount of people or the percent of the total population with claims associated with a specific disease (like diabetes or hypertension).
• Risk score – A metric that relies on predictive analytics to measure the expected health and cost of a population, adjusted for age, gender, area, industry, etc.
• Employee surveys – Rather than trying to measure cost savings or the impact of improved health on the plan, this attempts to quantify changes in how plan participants feel. Measurements can include morale, pain level, or satisfaction with a certain program, as examples.

Step Three: Define the Methodology 

After the goals have been identified and the metrics for assessment are selected, the final step before implementation is to outline the methodology for measuring the plan’s impact.  While calculating ROI may appear straightforward—comparing pre- and post-implementation outcomes and dividing them by the solution's cost, there are many ways to measure the difference in those outcomes. It is particularly important to understand the methodology being used prior to implementation if the vendor administering the solution includes an ROI guarantee in the contract. 

The three most common methodologies used to evaluate ROI in a health plan are:

• Control group vs. treatment group
• Prior year vs. current year
• Benchmark cost vs. actual cost

The control group vs. treatment group methodology is typically the most precise and therefore serves as the optimal measure of the true impact of implementing a solution. However, it requires a statistically credible amount of people in both the control group and treatment group, which means it may not be appropriate for employers below a certain size (for example, fewer than 10,000 enrolled employees). This methodology creates a cohort of members who participate in the treatment program being evaluated (i.e., the treatment group). The difference in the control group’s cost before and after treatment is then compared to the difference in cost over the same period for a cohort of members who have similar characteristics but do not receive any treatment (i.e., the control group). If necessary, the cohorts can be adjusted for age, gender, area, etc. For example, if an employer wants to evaluate a diabetes program using this method, it would compare the per-member cost of actively engaged participants in the diabetes program with that of individuals diagnosed with diabetes who are not enrolled in the program. If the treatment group had a normalized cost of $20,000 per member per year (PMPY) in year zero and $18,000 PMPY in year one, while the control group had a normalized cost of $25,000 PMPY in year zero and $27,500 PMPY in year one, the savings associated with the diabetes program would be $4,000 PMPY for enrolled members ($20,000 * $27,500 / $25,000 - $18,000).

The prior year vs. current year methodology is like the previous methodology, except that rather than creating cohorts of the population, the entirety of the population is evaluated instead. This can be useful when the entire group is statistically credible even if individual cohorts are not. On the other hand, since there is no control group to compare to, this method relies on general expectations of what the group would have cost without the implementation of a program (i.e., the prior year cost, adjusted for changes in enrollment and demographics, trended forward to the current year). For example, if a group wanted to evaluate a cancer program and the total plan had a normalized cost of $10,000 PMPY in year zero, an expectation that that cost would increase by an annual trend of 7%, and a normalized cost of $9,700 PMPY in year one, the savings associated with the cancer program would be $1,000 PMPY ($10,000 * [1 + 7%] - $9,700).

The benchmark cost vs. actual cost is the simplest of all methodologies discussed and is most often used when the entire group is not statistically credible. However, due to its reliance on benchmarks, it can be the least precise of the three, as benchmarks may not always accurately reflect real-world scenarios. But this methodology simply compares the actual cost of a service or procedure to a normalized benchmark of that same service or procedure (or a normalized benchmark of something that would have happened in the absence of what actually happened). For example, if a group wanted to evaluate a surgical center of excellence, the cost of each surgery that occurred at that surgical center would be compared to a normalized benchmark cost for each surgery, and the difference between the two would be considered savings. A total knee replacement that cost $15,000 at the surgical center of excellence and had a normalized benchmark of $25,000 would result in $10,000 of savings. 

By following these steps prior to implementing any solution in your health plan, you can ensure you are optimizing the ROI within your health plan while simultaneously gaining valuable insights into the program’s effectiveness. Evaluating the ROI of programs implemented within a health plan can be based on financial savings, improvements in population health, or both. It's crucial to grasp all components beforehand to maximize effectiveness. The more effective and efficient you can design your health benefits, the better off both the plan and your employees will be. 

This update is not intended to be exhaustive, nor should any discussion or opinion be construed as legal advice. Readers should contact legal counsel for legal advice. All rights reserved.