The first basic split among PHM clients in terms of which dimensions of economic impact will be used in assessing problems and evaluating gains is that between commercial and government insurers on the one hand, and employers on the other.  Insurers focus mainly, though not exclusively, on reductions in sickness care costs as the economic gains they are after, with many true “health” care costs part of the PHM intervention.  They may also look at member/beneficiary health status and satisfaction with their PHM experience, as well as the duration of their “membership” in specific insurance plans.

Employers tend to look at a far greater number of dimensions, though these include the same ones that insurers look at, since they pay for such insurance, or if self-insured, pay the costs directly.  But in addition to sickness care costs, employers worry about workers compensation and short- plus long-term disability (STD and LTD) insurance or direct costs as well.  These may be as great as are insured sickness care costs, with some employees, though they are normally far less overall.

The really large economic benefits sought in PHM by employers tend to be that derived from reductions in absences and both productivity and performance impairment while at work (“presenteeism”).  Economic losses from lost productivity/performance has been measured at levels two to five times as great as the sickness care costs associated with the many health-related problems that cause impairment.  Moreover, employers may achieve economic gains through “positive presenteeism”, the potential that healthy and happy employees will contribute significantly more economic value than is “normal”, not merely “impaired” levels.

While productivity, per se, is the more frequently included dimension, compared to performance, there have been a few cases where specific benefits of improved performance have been addressed by employers.  These include employee impact on customer satisfaction and loyalty, word-of-mouth impact on new business, and similar revenue-related benefits, in addition to labor cost reductions.  And many employers have examined improvements in employee retention as adding value in the balanced scorecard dimension of “organizational knowledge” as well as reducing costs of replacing employees who leave.

The determination of which dimensions to include affects the complexity and costs of the PHM effort, whenever measuring these dimensions requires going beyond information already being collected as part of normal operations.  This is less often the case for insurers, since claims data is frequently all they look at, though if they also consider member health status, satisfaction, and retention, for example, special efforts and added expense may arise in collecting such information.

With employers, complexity and costs of measuring dimensions of the PHM problem and progress in its solution are likely to be significantly greater than for insurers (though insurers may have to address these when they provide PHM services for their employer clients).  Measuring workers compensation and disability expenditures is normally routine, already being tracked overall, though there may be added effort used in analyzing collected data so that it serves better to guide and evaluate the PHM effort, itself.

The biggest challenges will be in gauging productivity and especially performance impairment levels and their reduction, i.e. the economic benefits of improving either or both.  While productivity is susceptible to both objective measurement in some cases, and validated estimates via surveys that collect employees’ and sometimes team supervisors’ perceptions of output, performance includes multiple dimensions of its own.

Of course, some dimensions of performance, such as customer satisfaction, retention, market share, new business revenue, etc. are likely to be routinely measured.  But they are normally measured on an overall or market/segment-specific basis, rather than linked to individual or segments of employees, except for sales results linked to specific sales staff members.  Customer satisfaction may be linked to the specific employees known to have served them, where this is likely to be the same individual or team over time, but market share and new business increases may have to be credited more widely, perhaps to the PHM effort overall.

There are probably a half dozen commonly used methods for estimating productivity based on employee self-reported data.  These may directly ask employees to recall how many hours of lost productivity they have had in a recent period, perhaps a week, two weeks or a month, where their memory may be reliable.  Or it may ask for an estimate of the percentage of their full potential they have been able to deliver, considering their health and any problems identified, that may affect their output.

Similar surveys may be used to gauge the levels of performance employees have been able to deliver, since both absence and presenteeism will likely affect performance as much as they do productivity. And the impairment found in individuals may be “multiplied” by their estimated “team/peer impact”, which has been measured at between 1.25 and 1.35 times the impact of the individual’s absence on average. [“Multiplier Effect: The Financial Consequences of Worker Absences” Knowledge@Wharton Dec 14, 2005 (knowledge.wharton.upenn.edu)]

The economic impact of absent or impaired employees may also be based on the economic value of employees in terms of their overall contribution to the employers’ performance.  When employees are paid on a “pay-for-performance” basis, their performance will naturally be measured, though it may prove difficult to determine the extent to which any individual is impaired by their health problems, as opposed to other non-health-related limitations.  Fortunately, once performance improvements have been linked to PHM interventions, the measured performance may be more easily translated into economic benefit.

By far the most common approach currently used in evaluating the economic impact of employees’ health-related impairment is to multiply their degree of impairment times their annual compensation levels.  This means the different employees will have different costs of lost productivity, whenever they have different levels of compensation.  It also fails to take into account any team/peer impact or the likelihood that employees are worth more than they are paid.  One study, for example, found employees worth an average of 3.28 times their annual compensation, though the median was only 1.92 times. [P. Strassman “How Much Is an Employee Worth?”,  Jan 14, 2006]

While insurers have relatively few and commonly used dimensions when measuring their PHM problem/challenge and the results of their PHM investments, employers have far more complex and potentially costly choices.  Fortunately, employers can use the same relatively simple and inexpensive-to-measure dimensions as do insurers, and when they go beyond those, they should also be gaining many times the cost of doing so in the added value they discover across the full range of benefits in having a healthier/happier workforce.