by Scott MacStravic, Ph.D.
There is a virtually universal quest among employers, insurers, governments, consumers, and healthcare reform gurus for major reductions in healthcare expenditures. At a minimum, almost everyone that is not a healthcare provider hopes to cut the annual rate of inflation in such expenditures to a few percentage points. The more ambitious look to reduce total expenditures, despite the aging of the population and increasing costs of caring for them.
On the other hand, there has always been the option for some payors to reduce their costs, without necessarily reducing overall costs. Governments have long been able to simply reduce their rates of payment for healthcare, simply by writing different amounts into their budgets and regulations. And employers have been actively shifting costs to employees, in order to directly cut their own expenditures, while also hoping that employees with “more skin in the game” will reduce their utilization of healthcare as well, thereby cutting costs still further.
Commercial insurance plans have a tougher time cutting their payments, since they must obtain contracts with enough providers to satisfy employer clients and attract employee and consumer choice. And the “war” between insurers and providers shifts toward one or the other depending on which has achieved, mainly through merger and acquisition, sufficient market power to dominate negotiations.
But it may be the pursuit of savings beyond those in healthcare expenditures alone that will have the greatest impact on such expenditures in the long run. Employers -- as major payors when health insurance clients, and as direct payors when self-insured -- are gradually realizing that they save far more than healthcare costs when they achieve a healthier employee and dependent population – and a growing number are acting on that realization.
Employee health has long been known to be a major factor in employers overall labor costs. In addition to direct healthcare expenditures, workers compensation, short- and long-term disability costs are greatly affected by workers’ overall fitness and well-being. Workers’ absences and “presenteeism”, or level of productivity while present on the job are places where healthy employees also make a major difference. Growing numbers of employers are investing in what may be termed “performance health management (PHM).
Performance Health Management
PHM is the use of proactive health promotion, risk reduction and disease management investments as ways to improve the health of employees and their dependents, and thereby to realize a return in terms of overall performance – of both employees as individuals and their employers as a whole. At a minimum, this includes all the labor cost impacts that employee health can have, and by extension, all the quality, customer satisfaction, sales performance, market share and revenue effects that a healthier labor force can have.
The challenge to PHM has always been that of predicting and measuring this impact well enough so that employers can plan, manage and evaluate their proactive health investments to optimize their returns. Measuring the healthcare expense reduction effects has always been relatively simple, where employers can simply monitor their premiums or self-insured costs. The same is true for workers compensation and disability costs.
Absence costs became far more complicated when ERISA caused the widespread combining of all absences into one category, rather than separating sickness-related from personal time off. HIPAA further hinders employers’ ability to identify the extent of employees’ health impact on absences. But even more complicated is the effect of employee health on presenteeism.
Except where worker productivity can be directly measured, as when employees are paid on a piecework basis, or closely monitored on their output, as with call center customer service and support agents, for example, presenteeism can only be estimated. There are, fortunately, a number of estimators that have been tested and validated through available productivity output measures, and confidence in these estimators is growing, though not yet widespread.
Beyond direct productivity effects traceable to employee health or sickness, there are at least hints and some science indicating that other effects are likely, though much more difficult to measure. Quality impacts attributable to worker absences, e.g. having a replacement who is unfamiliar with how things are done in the particular unit or organization, are often mentioned. Employee turnover may be caused by worker illness, or retention may be improved when employers’ investments in worker health demonstrate that they value their staff.
Healthier employees are, to some extent, by definition happier, and higher morale in general may positively affect customer service, satisfaction, loyalty, etc. Having more longer-term employees serving repeat customers, whether patients, visitors, or referring and attending physicians can promote greater satisfaction among such customers. Happier employees are more likely to spread positive word of mouth and result in additional patients choosing the hospital or medical practice.
It seems likely that PHM should at least look at the absence and presenteeism effects of employee “unhealth”, covering risky conditions and behaviors, as well as chronic conditions. Generally improved health and fitness can reduce injuries and illness, as well as speed up recovery and return to work from both. Some day we may learn better how to trace and put a dollar value on quality, customer satisfaction and similar positive effects of employee health, but there is at least strong indication that there are such effects.
When proactive health investments are made in the interests of reducing total labor costs, they are likely to focus on a different set of conditions than is the case when reducing healthcare costs is the sole aim. Conditions such as depression, allergies, arthritis, migraine headache, etc. often produce “indirect” labor costs that are five to ten times as great as their direct healthcare costs. When employers are involved, as direct contractors for employee health services, or even as clients of insurance plans that strive to justify their costs through productivity effects, rather than just reduced sickness costs, they are likely to look well beyond healthcare costs and select different problems for their focus.
Healthcare cost reductions will certainly be the main concern of Medicare and Medicaid programs, since fewer beneficiaries of these programs are employees. But self-insured employers for sure, and probably the insurance plans who want to attract and keep employer clients, are likely to look well beyond healthcare cost reductions for a much bigger picture of the costs of unhealth, and the potential to greatly improve their overall performance beyond reduces sickness care expenditures.