As employers emerge from the most challenging set of economic circumstances experienced in the last 80 years, and skills shortages return in many industries, focus is beginning to return to the quality of benefits offered to employees, of which health-related benefits form an integral part.
At the same time, employers are also paying attention to the underlying causes that drive costs in their organisation. There is little doubt that having staff operate whilst ill has a direct, negative impact on an organisation's profitability, while absence causes business pain at levels that are rarely quantified.
Regardless of what benefits they offer, many employers understand that investing in the health of their employees makes good business sense: it enhances productivity, helps them compete in the labour market and often forms part of a company's corporate social responsibility program. At the same time, HR and finance professionals want to maximise the return on their healthcare investment by ensuring that employees appreciate the value of their benefits and that money is spent on interventions to improve health outcomes and lower costs to the business.
By proactively developing a Health Risk Management strategy, employers will have a much easier time making the decisions necessary to ensure the financial sustainability of their holistic benefits plan while promoting the health of their employees and their business.
A carefully crafted Health Risk Management strategy can be a formidable competitive advantage, not only because it helps contain the cost drivers of benefit programmes, but also due to the associated gains in productivity and positive impact on talent management.
What are the cost drivers of benefit programmes?
Many employers around the world have been trying to halt the rising cost of insured and non-insured benefits, including the cost of disability insurance schemes. However, for the most part, their efforts have amounted to no more than reactive band-aids, which have little long term effect on the growth of benefit costs. The reason is that the drivers of benefit costs are highly complex, and therefore difficult to control in a sustainable manner. To overcome this, organisations need to adopt a multi-pronged approach that takes the following cost-drivers into account:
An ageing population
The recently released Intergenerational Report, Australia to 2050, underscores the costs and challenges of Australia's ageing population. The report notes that the "number of traditional working age people to support each retiree is expected to fall from 5 people today, to 2.7 people in 2049-50. In 1970, there were 7.5 working age people for each person aged over 65 years."
As our population ages and remains in the workforce longer in both a full-time and part-time capacity, more employee health issues may arise, creating additional business risks for employers.
Absenteeism
As employers are asked to do more with less, assessing the cost of absence and related employee productivity becomes increasingly important, as does dealing with absence through disability and attendance management. Many employers do not actively manage the cost of absence, despite the fact it could cost as much as five per cent of payroll. These costs can be exacerbated if employees view sick days as an entitlement.
Presenteeism
When an employee is ill there are direct costs to the employer with the utilisation of sick leave. However, there is also the cost of 'presenteeism', or the lost productivity of employees who are not working at their maximum capacity due to health issues. Research conducted on 375,000 employees in the US, as documented in a 2004 article in the Journal of Occupational and Environmental Medicine, suggests presenteeism can account for up to 60 per cent of all total employee illness costs.
Rising stress levels
While a certain level of stress can be healthy and engaging for most individuals, excessive stress is unhealthy and causes headaches for employers and employees throughout the world. Many are finding it difficult to adjust to the pressures of economic turmoil, work-life balance challenges, workplace demands and changes in family structure. Too much stress can create exhaustion, ill health and breakdowns that impact both benefit cost and productivity.
Rising cost of insurance programmes
Long term absence from the workplace due to injury or illness can result in claims being made against a number of the insured employee benefits programmes that employers may have in place, such as group personal accident, group salary continuance or group life plans.
Both the incidence of claims and the length of claims under each of these programmes have a direct impact on the premiums ultimately charged to the employer.
Each of these cost drivers presents challenges and can increase costs to the business if they are not addressed. Employers need to play a more active role in improving employee health status and reducing employee absence. Many employers face difficulties in controlling the costs as they lack the required professionals, systems and processes to manage the situation.
A Health Risk Management strategy is a holistic approach towards health management of employees, one that ensures that all health and wellness measures provided by the employer work together effectively to aid any employee at any health status, with any health issue.
Employees will fall somewhere on the health spectrum as shown below:
A Health Risk Management strategy allows companies to:
- understand the health risk profile of their employee population;
- identify what risk factors exist within their employees, and;
- develop a plan to address these factors and to promote wellness and healthy behaviours.
When developing a Health Risk Management strategy, companies should ensure there is an articulated benefits philosophy in place. This helps to develop a holistic vision with measurable objectives. It also helps to ensure the health and benefit plan initiatives are aligned with HR and organisational strategies.
Some best practice guiding principles to keep in mind when developing a Health Risk Management strategy are:
Manage claims
In general, in mature insurance markets, insurers set premiums for coverage according to expected claims plus administrative expenses. For medium- and large-sized groups, past claims experience is the best indicator of future claims experience and hence, all other things being equal, the higher your claims, the higher your premium.
In Australia, insurance premiums are set based on claims experience. Products such as group life and salary insurance are expected to stand on their own financially, which means that the insurer expects a loss ratio of well below 100 per cent. As an HR leader, do you understand the loss ratio for each of your insurance policies?
Manage the full health care spectrum
Employees will each fall somewhere along a spectrum within your organisation's population: you will have employees who are well, at risk (due, for example, to lifestyle practices or family history), ill or disabled/unable to work. Providing each of them with support to keep them as well as possible will reduce future costs. For example, an employee who smokes could be at risk of developing heart disease or lung cancer as a result. As a proactive measure, their employer may want to consider helping them improve their health through education and personalised coaching.
Focus on changing employee behaviour
All good risk management plans contain strategies to eliminate and manage risks. Managing the risks within your employee benefits plans is no different. Understanding the health risks of your employees, and managing these risks through data-driven initiatives and personalised support that focuses on changing behaviour, can have a long-term impact on insurance premium costs.
Health Risk Management solutions typically fall into the three categories:
- Benefit plan design
- Financing
- Implementing Wellness initiatives.
A Health Risk Management strategy combines measures from each category, implemented over time, that best suit the benefit philosophy of your organisation, the benefit needs of your employees, your assessment of your plan and cost drivers.
By understanding the cost-drivers - an ageing population, absenteeism, presenteeism, rising stress levels and the cost of insurance programs - and implementing a comprehensive Health Risk Management strategy that combines short, medium and long term solutions, organisations can maximise the return on their healthcare investment. As skills shortages loom in many industries and the focus returns to employee benefits, this is arguably more important than ever.
About the author
Stephanie Ings is Mercer's business leader Australia & New Zealand, Health & Benefits