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Calculating the ‘Return-on-investment’ of workplace mental health policies

Actual practice of calculating and measuring ROI for workplace mental health programs is in the early stages of development. Many organizations don’t measure ROI because they believe “it is the right thing to do” to have workplace mental health programs which others have not collected data or don’t know which data to collect and use. Some data can be measured in actual cost savings or expenditures while there is other data that can only be measured through extrapolation or using significant assumptions that are not standardized.

What follows is a framework for measurement that includes hard data as well as background information and examples. Also listed are some benefits described as intangible which could be factored into calculation if a more holistic view was taken. Hopefully this framework will be widely used by organizations as a basis for further development and refinement. 

ROI Calculation

  • (C + D in $) divided by (A + B in $) = R in $ (Return on each dollar invested)*
  • (R– 1) X 100 = % ROI*

1. Mental health investments

  • A = Incremental costs of new or expanded mental health programs (awareness campaigns, mental health training costs) (actual costs – baseline costs)
  • B = Costs related to increase in benefits costs (ie incremental costs due to increase in EFAP utilization and/or increase in medical benefits for psychologists / social workers

2. Core savings

  • Short term disability (STD) cost reduction:
    - C1 = A simple way is to measure the total % of decrease in STD mental health claims X by average STD claim costs (% decrease in STD mental health claims x average STD claims costs)
    - C2 = A more precise way to measure can be done by: (Decrease in # STD mental health claims x average duration in days  X average salary replacement per day
              Measuring  the decrease in the number STD mental health claims (incidence)
              X by the average duration of mental health claims (duration)
              X by the average salary replacement costs per absence days
  • D = Long term disability (LTD) cost reduction related to decrease in LTD mental health claims (Decrease in # LTD mental health claims x average LTD claims costs/liability) D

*Does not include the following value added intangible benefits

1. Presenteeism - Productivity (can be extrapolated as Disability savings x 20%)

  • Employees at work but underperforming due to stress and mental health issues
  • Presenteeism costs often extrapolated by using a % of disability costs
     - Studies show that if you reduce mental health disabilities, you can assume you are also reducing presenteeism
     - Presenteeism savings could represent 20-50% of disability savings

2. Employee engagement (can be measured & monitored in a few ways):

  • Overall engagement survey scores
  • Engagement scores specifically related to workplace mental health factors:
       i. Mental health factors can be derived from normative standard (may vary in time and country)
       ii. Some survey providers have created a mental health index based on key workplace factors : respect, recognition, supportive workplace, safe workplace, empowerment, etc.
       iii. These can be monitored for YOY improvements
  • Reduction in voluntary turnover rates (from exit interviews)

3. Customer satisfaction / increase in sales (harder  to derive portion directly linked to mental health initiatives)

  • Estimated correlation with employees being more productive, more engaged, increase in quality output and enhanced customer service 

Background information and examples

1. New or expanded mental health programs (New costs or increased vs baseline) A

  • Awareness campaigns:
       i. Costs related to speakers and subject matter experts
       ii. Logistics (room reservations, dedicated personnel, etc.)
       iii. Supporting material
  • Mental health training:
       i. Development costs
       ii. Deployment and facilitation costs
       iii. Productivity loss (ex Nb hours in training classroom X by average hourly salary)

2. Costs related to increase in benefits offered to employees: B

  • EFAP increase in utilisation:
       i. Let’s say baseline utilization of EFAP services is 10% and cost $100K
       ii. After increasing promotion, awareness and training EFAP utilization increased to 20% and costs increased to $200K
       iii. Incremental costs:   $200K (most recent numbers) - $100K (baseline)  = $100K
  • Increase in benefits costs:
       i. Let’s say baseline benefits costs (expenses reimbursed through company collective insurance)  for psychologists and social workers is capped to a maximum of $500 per employee per year with total costs of $300K
       ii. A company can decide to increase the capped amount to $1000 per employee per year in order to support a mental health strategy for early intervention and increased support
       iii. Say total costs increased to $600k for the entire company
       iv. Incremental costs: $600K (most recent spend) - $300K (baseline spend) = $300K

3. Core savings:

  • Short term disability (STD) cost reduction related to decrease in STD mental health claims

    Higher level cost example C1

a. Baseline scenario example
      i. Total STD costs amount to $3,0M for 1000 claims per year = $3K cost per claim
      ii. 30% of STD claims are related to mental health = 300 claims
      iii. 300 claims X $3K = $ 900K baseline costs for 300 mental health claims

b. Calculation after mental health programs put in place:
      i. Total STD costs amount to $2,5M for 900 claims = $3,1K per claim
      ii. 30% of STD claims are related to mental health: 30% of 900 claims = 270 claims
      iii. Reduction in mental health STD claims: 300 (baseline) – 270 (current) = 30
      iv. 30 less mental health claims X average cost per claim $3,1K per claim = $93K savings

Detailed costs example C2

a. Baseline scenario example:
   1. A company has 1000 STD claims per year
       i. 35% STD claims have a mental health issue as the primary diagnosis (anxiety, depression, etc..)
       ii. This means the company’s baseline is 350 STD claims related to mental health

   2. With the following hypothesis:
       i. Average duration for mental health absences =  80 days
       ii. Average hourly salary of 30$ X  7,5 hours per day
       iii. 350 claims X 80 days absent from work X 7,5 hours per day X $30 per hour average salary = 6,3M$

   3. If STD absences are paid at 80% of base salary as per benefits contract design:
       i. $6.3M X 80% = $5M in STD costs related to mental health

c. Calculation after mental health programs put in place (ex return to work facilitation, accommodations, mental health prevention campaigns, etc.)
   1. STD mental health claims received per year went down from 350 to 300
   2. The duration of the claims (nb days absent from work) also went down from 80 days to 75 days
   3. Similar wage salary rate for comparison ($30/hour X 7,5 hours per day)
   4. Similar benefits contract design – STD paid at 80% of base salary
   5. New costs: 300 claims X 75 days absent from work  X $30 /hour X 7,5 hours per day paid at 80% of base salary = $4,0M

d. Cost savings:   $5,0M - $4,0M = $1,0M

4. LTD cost reduction related to decrease in LTD mental health claims D

  • Baseline scenario example:
       i. 30 new LTD claims per year are related to primary mental health diagnosis
       ii. Average cost including future liability per LTD claim estimated at $500K per claim (typically provided by actuarial liability calculations given the longer term duration for these claims)
       iii. LTD liability for company = 30 X $500K = $15M
     
  • Calculation after mental health programs put in place:
       i. 25 new LTD claims per year related to mental health
       ii. Reduction in LTD claims versus baseline = 30-25 = 5
       iii. Average cost / liability per claim = $500K
       iv. Cost savings: 5 less LTD claims X $500K liability per claim = $2,5M savings

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