The Economist Intelligence Unit investigates the complex issues behind corporate health plans
The case for companies to invest in the health of their workforce is, on the face of it, a no-brainer. After all, healthy employees are more productive, right?
Nowhere has the argument in favour been more clearly demonstrated than in South Africa's mining sector. When the realisation began to dawn at the turn of the millennium that HIV infection rates could mean the death of 30% of their workers by the end of the decade, South Africa's mining corporations initiated what would develop into, arguably, the most comprehensive HIV/AIDS programme anywhere in the world. 'Non-negotiable' is how former De Beers managing director Joseph Oppenheimer once described his implementation of an all-encompassing disease management programme for his workforce.
While the first employee HIV/AIDS schemes may have been regarded internally as little more than corporate governance initiatives, the scale of the epidemic, and the lack of effective public healthcare, quickly made it obvious to companies such as De Beers that the cost of providing free anti-retroviral (ARV) treatment was minimal compared with the cost of replacing trained workers on such a large scale.
Besides, whole-hearted engagement on the part of the mining groups has helped to forge links with UN agencies, generic and patented drug companies, which has allowed access to increasingly cheap drugs. Whereas De Beers was spending up to R20,000 (US$3,200) to treat a single HIV+ employee in 2000, by 2007 it was sourcing one-year's supply of ARV treatment for just R8,000 (US$780).
By spending the equivalent of just 3% of the annual wage bill in 2007 (R20m; US$2.95m), De Beers has been able to keep almost its entire HIV infected workforce healthy, contributing to the company's top line. In fact, treatment under the De Beers scheme has proved more effective than that delivered in most developed countries, as measured by the level of active HIV in the workers' blood. In one particular aspect - namely proximity to the patient and therefore ability to monitor compliance with treatment regimens - employers hold a significant advantage over public healthcare.
Bearing the cost
Of course, few companies in the developed world are faced with such a stark choice. Employee health benefits in Europe and the US are commonly regarded merely as one element within a wider remuneration package. An important incentive for potential employees in boom times when jobs are in abundance, they tend to be scaled back during recessions. This is not simply because companies are more concerned about their bottom lines during economically lean times, but also because higher unemployment rates mean that companies are operating in a buyer's market, enabling them to be less generous with their packages.
This trend in itself suggests that companies tend to use health benefits more as a means of attracting staff than of maintaining their productivity once they have joined. Few industries are less effusive about the return on investment generated through the provision of employee health coverage than the embattled US automotive sector.
General Motors (GM), in particular, has for years decried the effect that providing health insurance to its employees and retirees has on its international competitiveness. It estimates that US$1,500 is added to the manufacturing price of each of its vehicles by the cost of its healthcare benefits—a burden that GM's foreign competitors do not have to bear.
Anyone persuaded that the auto sector's healthcare costs are peripheral to the problems that forced them to ask the Obama administration for a multi-billion dollar bail-out would do well to ruminate on the following figures. When GM went to Washington and asked for US$16.6bn in federal hand-outs to stave off bankruptcy, it was sitting on US$13.5bn which it could not touch because the money had already been committed to funding employee and retiree healthcare under labour contracts signed with trade unions.
Quite simply, the US$103bn that CEO Richard Wagoner has stated was spent by GM on healthcare over the past 15 years was a leading factor in that company's collapse to the brink of bankruptcy.
However, it would be wrong to regard GM's spending on health insurance simply as a cost. The alternative, if it had existed, would have been to leave its workers relying on a public health system in which the only access to subsidised care for the uninsured is through hospital emergency rooms. GM would inevitably have experienced a dip in productivity due to sickness-related absenteeism. This 'cost' is, of course, far harder to calculate. But would it have been greater than US$103bn? The answer is almost certainly no.
'I won't be making it in today'
So what of the truism that healthier workers are more productive? On the face of it there seem few grounds for questioning this assumption. But a closer look at absenteeism paints a somewhat different picture. In the UK, for example, the Chartered Institute for Personnel and Development's Annual Management Surveys have routinely found that absenteeism is on average 25% higher in the public sector than in the private sector. Clearly, absenteeism is driven by more than just ill-health.
This is supported by an international comparison of absenteeism rates. Countries with some of the best health indicators in the developed world paradoxically also have the worst rates of absenteeism. In the Netherlands and Norway, workers take an average of 20 days off sick each year, according to the latest survey data, while in Sweden the average employee calls in sick a staggering 32 times every year. American workers, in contrast, miss an average of just six days.
There is a lesson here for employers keen to maximise their return on investment in employee health benefits and wider packages. If work-related stress, domestic problems and poor job satisfaction are just as likely to lead to employees opting for a 'duvet day', then employers need to consider a much more holistic approach to their workers' well-being than simply providing health insurance.
An alternative view
Dr Michael Parkinson, an executive officer and past president of the American College for Preventive Medicine, believes companies need to revisit their approach to prevention and wellness.
Studies consistently demonstrate that “health behaviours are the best predictor of healthcare costs and productivity,” says Dr Parkinson. By mitigating health risks such as obesity and smoking, or by encouraging physical activity and bolstering self-image, “companies create a motivated, efficient and productive workforce.”
Throw in a bit more up-front investment for proactive, evidence-based examinations leading to early detection/intervention and the result is a significant decrease in long-term healthcare costs. “It’s been shown over and over that prevention is a great investment.”
Cash may now be tight, but the good news, says Dr Parkinson, is that there are all manner of “quick wins” that either require little up-front investment or that deliver rapid returns. The obvious place to start is smoking. "Smoking is the number one cause of death, plus it generates huge work costs such as absenteeism and lower productivity.” Companies should make it a priority to pay for smoking-cessation programmes—"100% funding with no co-pays—to insure maximal participation.” Such investment, he explains, “will be recouped in 12 months or less.”
A slightly longer-term return on investment—around 18-36 months—comes from programmes that help employees manage weight. “All you need is a 5-10% reduction in body weight” to improve key health indicators, generate lower health costs and stimulate productivity, he says. “That can be achieved with relatively minor adjustments to nutrition and activity levels.”
Other minor adjustments might be as simple as reconfiguring an office snack machine. “We put the apples up front—at eye level and charge only 25 cents”. Candy bars are still on offer, explains Dr Parkinson, “but that’s $1.50—and we put those way down at the bottom of the machine.”
An article written by the Economist Intelligence Unit, specially commissioned by Philips