By Dr. Thomas Parry
Several years ago, I had a prophetic conversation with an executive responsible for managing all the absence programs for a 60,000-life financial services company. She told me that during the previous week, the CEO of her company had asked her: “What are we getting as a business for all this money we’re spending on health and related benefits?” She said to me that she knew exactly how much the programs cost but had no idea what value they added to the business. But then she added something interesting: “If I can’t answer his question, I look like a non-essential administrative function in my organization.” I am not sure if it was related, but she retired the next year.
As employers evaluate the future of health benefits for their organizations, two fundamental truths stand out for every benefits professional. First, health care is changing. Whether employers decide to provide employee health benefits through private or public exchanges, exit the health care system and pay requisite fines, invest in workforce health, or completely turn health decisions over to employees, the approach to health care benefits will never again be the same. Second, senior business leaders need highly-performing, productive workforces so that their companies can remain competitive. The challenge to benefits professionals is how to make the transition from health-as-cost to health-as-business value given these changes.
We find that benefits professionals in employer organizations understand these new realities conceptually, but when it comes to engaging in a conversation with senior business leaders in their organizations, they often get stuck for two reasons: 1) They typically lack the data to create a business case for workforce health improvement. 2) Their company is organized in benefit silos with more incentives to shift cost and risk to another internal program area than to work together for the benefit of the company as a whole.
So what is the economic impact of workforce health for employers? IBI researchers developed a statistical model that provides such estimates for the employed population.
Let’s use as an example a 10,000 life hospital system. Typically, this employer would equate the costs of health with health treatments and pharmacy expense. In this case, we would expect those costs to be about $33.7 million annually. However, when we include all the costs of health — lost work time, reduced performance and the associated productivity consequences — the total economic impact of health jumps to $70 million. We arrive at this figure by estimating wage replacements for absent workers at a total of nearly $13 million, and lost productivity associated with absence and reduced performance at an additional $23.6 million.
As benefits professionals proceed they must understand that regardless of their company’s decisions about financing health care, the lost-time and lost productivity consequences of health can never be fully shifted outside of their organizations. They also need to make the business case for health improvement in economic terms to their senior business leaders.
With all the focus on the cost of providing employee benefits, it is easy to overlook the potential value of those benefits if they can protect and improve employee health. Better coordination, relevant data and timely information can go a long way toward objectively evaluating the true cost – and value – of employee health to employers.
Four steps to get started:
- Step 1: Meet with your benefit-program counterparts and identify what data are available across programs to start to make build your business case.
- Step 2: Align interests across programs and move beyond compartmentalizing them to demonstrate the collective value of your programs to the business.
- Step 3: Put future data collection approaches in place that include leading indicators of health (such as biometric and health risk information); indicators of health care treatment (such as how and where care is delivered); and lagging indicators (such as cost, lost time, performance and productivity) so you can track changes associated with your interventions over time.
- Step 4: Let your vendor partners know exactly what data you need and why, and have them work in partnership to support your company’s health and productivity objectives.
About the Author: Dr. Thomas Parry is President of the Integrated Benefits Institute. He directs IBI’s activities and stewards its research agenda. Before co-founding IBI, he served 11 years as Research Director at the California Workers’ Compensation Institute. His research at CWCI encompassed a wide variety of topics in workers’ compensation, including medical treatment patterns, vocational rehabilitation costs and effectiveness, legal costs and trends, medical utilization, mental stress claims, and physical therapy patterns of care. While at CWCI, Parry was engaged in some of the earliest research and analysis on 24-hour coverage and integrated benefits.
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