WellAI’s Health Cost Savings Calculator – How Do We Measure Costs Savings?

This is part 1 of the series on the WellAI’s health cost savings calculator for CEOs, CFOs and heads of HR.  When we talk to a CEO or a CFO and tell them we have the greatest technology ever and that every employee should have this cool new app, their response is either “Yeah, right” or they just hang up the phone.  Company executives are willing to listen, albeit with skepticism, a little longer if you talk about money savings.  They usually hang up in the end anyway, but at least they are willing to listen.

Thus, we believe it’s important to demonstrate that the 34% to 45% in health cost savings that affect the bottom line of a company are numbers based on research and are not just imaginary.  As quants, we prefer percent for this exercise.  However, sometimes it’s good to know a dollar number.  For most companies we are talking to, these 34% to 45% translate to millions or tens of millions of dollars per year.  We are always amazed: If you are a CEO or a CFO, why would ever leave this money on the table?  Don’t you have fiduciary duty to act in the best interests of your clients and your shareholders?

Let’s now talk about specifics of the WellAI health cost savings calculator.  The number one goal of building a health cost savings calculator is to have an intelligent base estimate.  Without knowing much about a particular company, the best estimate of the health cost savings of the company is the estimate of the cost savings of a ‘typical’ company, or an industry average.  We start with this base estimate.  A CEO, a CFO, or any senior manager in a company could either take this industry average as an approximation of the company’s own health cost savings, or, if desired, could enter a more specific information pertinent to the company, such as employee age distribution, percent of salaried vs hourly employees, percent of employees using various types of health insurance plans: HMO (Health Maintenance Organization) vs PPO (Preferred Provider Organization) vs HDHP (High Deductible Health Plan) vs other.

Another assumption of the model is regarding the goal (target variable) of the model.  Some studies use dollar cost savings per employee.  Others use various cost effectiveness ratios, such as (incremental) cost per (incremental) health quality.

We use overall employer health cost savings percent as a target variable (versus other alternative measures) for the following reasons:

1. Health costs change year after year. The biggest reason for this change is healthcare inflation.  Savings of $1,000 ten years ago have a very different impact than savings of $1,000 now.  Hence, using dollar number as a target variable doesn’t seem appropriate.
2. Cost effectiveness ratio is a very useful measure in general. However, in this study, our goal is not only to show savings for employers in a clearest possible way, but to have empirical support for these estimates.  Outside of telemedicine, in the literature of economic implications of health and medicine, we have not found many studies that use cost effectiveness ratios as a way to demonstrate cost savings for employers.
3. Another ratio some studies are using as a target variable to evaluate a wellness program, or a digital health platform is Return of Investment (ROI). It’s a very useful financial measure.  However, it’s not as useful in this study for the following reasons.  Some papers don’t specify what the denominator (and sometimes the numerator) are.  Clearly, if we don’t know those pieces, we can’t evaluate what the WellAI health digital assistant’s ROI would be.  In addition, ROI by itself (say, 1.5) wouldn’t generally indicate how much an employers would save.  ROI does demonstrate how effective a particular tool is.  However, this is not the question we are asking in this study.
4. Cost savings percent is useful because it is generally indifferent to definition of health costs. Some studies define health costs as those medical and Rx bills paid by an employee.  Others define health costs as those paid by an employer.  Yet others define health those as overall charges from medical providers.  Regardless of definition, generally if an employee has fewer visits to a doctor and the employee medical bills are lower by X%, the amount employer pays would also generally be lower by X%.

The WellAI app called Doc In Pock is now available on your smartphone.  If you are an employer and would like an app that makes your employees healthier and happier, and save 34% to 45% on your healthcare costs, please visit https://wellai.health to sign up for 1-on-1 demo.

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