The “buzz” among employers today is increasingly focused on making employee benefit decisions based on value, ideally on the returns employers get on their benefits investments. This is by no means a universal approach, however, since it requires first that employers think of the benefits they offer and pay for as investments rather than costs. Employers that deem such benefits as costs tend to look only for ways to reduce them, and there are plenty of simple ways to do that, without worrying about value.

A growing number of employers have dropped or reduced healthcare benefits, for example, since these are usually the most expensive ones. Shifting more of the costs to employees through share of premiums, high-deductibles, increased co-payments, are all equally simple. But increasing employees’ healthcare burden has its drawbacks in terms of their health, and thereby on their productivity and performance on the job, to say nothing of recruitment and retention.

A recent study by the Integrated Benefits Institute examined the impact of increasing prescription drug co-pays for workers with rheumatoid arthritis (RA). These are particularly expensive for both employers and employees, costing as much as $18,000 per employee with this condition per year. Based on analysis of the compliance of the RA employees, together with their productivity, high co-pays were a common reason for not taking the drugs, and led to $17.2 million in lost productivity, 26% more than what would have been lost if workers had been taking their drugs. [M. Freudenheim “Scant Drug Benefits Called Costly to Employers” New York Times June 27, 2007 (www.nytimes.com)]

This non-compliance result occurred even though co-payments averaged only $26 per month, indicating just how low the out-of-pocket cost to employees can be and still have significant negative impact on compliance. And the negative impact on employers only included disability claims and days lost from work as added costs. Employers that intend to make value-based benefit decisions need to know the total value impact of such decisions, and they rarely do.

For example, the impact of employee “unhealth”, when carefully and fully analyzed, can include a wide range of negative impact on labor costs, as well as “opportunity costs” reflecting lost opportunities to increase revenue. Studies have demonstrated a wide range of value gained from improving or maintaining employee health:
• Reduced health care/insurance expenditures or at least reduced rate of increase in annual costs
• Reduced workers compensation and disability payment/insurance costs
• Reduced absences/lost workdays
• Reduced productivity impairment at work (“presenteeism”)
• Reduced turnover and replacement costs
• Reduced error rates and quality problems
• Improved customer satisfaction and loyalty
• Additions to new business revenue

But despite these wide-ranging positive economic effects, virtually all results reported by employers that have invested in employee health management (EHM) have addressed only one or a few such effects. A recent study involving 242 large employers, for example, found that only 38% had even attempted to measure their ROI from EHM investments, and that minority looked only at reduced healthcare costs. [K. Capps & J. Harkey “Employee Health & Productivity Management Programs: The Use of Incentives” IncentOne.com 2007]

The “wellness industry” is burgeoning, despite the lack of total economic impact evidence, as American businesses are willing to do almost anything to reduce their healthcare expenditures and improve worker productivity. This growth is “…fueled by well-meaning, cost-conscious executives…” who believe that wellness investments pay off, and evidence that shows how much employee unhealth is costing them. Employers reportedly expect to save as much as $30 million in five years in return for their investments. [A. Heher “Businesses Help Workers Get in Shape” WashingtonPost.com June 29, 2007]

But without rigorous and wide-ranging measurement of results, employers’ faith, hope, and confidence in gaining a large positive ROI may be misplaced, and not even be tested against reality. Reports of the high costs of unhealth often greatly exaggerate the total impact thereof by listing the costs linked to a host of individual risk behaviors, conditions, or chronic diseases. But if they estimate their total costs, in whatever cost categories they examine, by totaling the costs of individual conditions, they will almost always be counting the same costs many times, and vastly exaggerating reality.
One report I reviewed included productivity impairment from five risk conditions, five chronic diseases, and four risk behaviors, with total impairment amounting to over 16% on average for every employee in the workforce. Unfortunately, the total prevalence of the fourteen impairment factors amounted to over 250%, meaning that the total impairment was exaggerated by two-and-a-half times the actual level that could possibly be reduced.

This is an unfortunate consequence of measuring the impact of individual factors then totaling all of them to estimate total effects. Since individual employees tend to have multiple factors, roughly 2.5 on average in this example, the total effect of all will be 2.5 times the actual level of impairment. Moreover, the total level of impairment is not the same as the total potential gain – only if impairment factors are prevented in the first place will the impairment effect be avoided entirely. Many factors have residual effects even when controlled, so total gains will be less than total impairment.

On the other hand, total gains may be greater than impairment, thanks to what is called “positive presenteeism”. Instead of merely reducing impairment or lower than “normal” productivity and performance, EHM investments can stimulate workers’ morale and commitment, and result in productivity levels that are above normal. One EHM provider, for example, used a figure of over 6% impairment as the normal level, and counted only impairment above that level as potential gains. But if EHM produces positive impact on employee energy and motivation levels, it can eat into that normal level, and even promote performance that it more than “100%”.

There have been dramatic achievements in improved productivity from non-health-related employer investments, for example. One gained a 44% increase in output be simply switching to a pay-for-performance system instead of hourly wages. Another gained a 36% improvement by empowering employees to work whenever and wherever they wished. Such increases were probably far greater than any “impairment” level that would have been measured.

It is by no means easy, nor inexpensive to measure the effects of EHM investments on all the performance dimensions and determinants that are likely to be affected thereby. But without measurement, management efforts will be severely handicapped. Unless employers measure not only the extent of current costs, impairment, lost opportunities related to the wide range of factors that can have such effects, they cannot possibly make an informed selection of which ones to work on.

Chronic diseases, for example, tend to be the major culprits when employers examine healthcare/insurance costs. But they are rarely the major factors in productivity impairment, and the potential savings in managing chronic conditions are probably not nearly as great as would be possible if they were prevented in the first place. In one of the best and most thorough studies of productivity impact, for example, the unhealth conditions that produced the greatest productivity losses were allergies, emotional problems, chronic pain and arthritis, not the diseases that are usually addressed in disease management.

In another study, impairment factors included lack of sleep, poor nutrition, inadequate fitness, depressed feelings, hypertension and high cholesterol, rather than chronic diseases. Still others have found “hydration” of employees, i.e. drinking enough water or other liquids, was a major impairment factor, and one easily remedied with immediate results. Employers in the U.K. have found reduced turnover and absences, even increased new business and customer loyalty results from EHM investments, where U.S. employers rarely measure such impacts.

While it is heartening that American employers have jumped on the EHM bandwagon, enthusiasm is no substitute for careful evaluation of both the problems and the results that should be addressed and achieved. It may be that employers who have been successful in measuring results are hesitant to describe how they measured them, lest they share a competitive advantage. But given the fact that employees tend to switch jobs fairly frequently, there might be great common good if they shared their measurement techniques, as well as publishing their results, so that the art and science of EHM could be continuously improved for the good of all.