Spend to save on employee health and productivity

Pressure is building on employers to evaluate the impact of employees' health on performance, and to examine what they can do to foster good health in their workforces.

Does your organisation measure the impact of ill health on critical drivers of business performance, and is it using resources to promote workplace health effectively?

These are two of the questions being asked by a new umbrella group, Business Action on Health, which has been formed to encourage businesses to improve the impact of health and wellbeing initiatives at work.

Business Action on Health believes that corporate social responsibility pressures are likely to mean that more workforce data, including information on employees' health and safety, will be included in public company reporting in future. The group, set up under the aegis of Business in the Community, is lobbying to establish reporting on health as a commonplace activity in UK boardrooms. Its chair, Sir Nigel Rudd of the Boots Group, says: "Health at work affects our people, the communities we serve and our bottom line."

Business acts on health

All 454 senior managers surveyed¹ by Business in the Community predict that health at work will become a more important issue for their businesses over the next three years. According to the survey, they believe that almost full employment, combined with an ageing workforce, will increase attention on the productivity of older workers, at the same time as new business methods place this group under greater health stress.

Long-term sickness absence is already a major public health, economic and benefits issue, and the government is beginning to put pressure on employers to assume a greater share of employment-related health costs.

Fostering a healthy workforce is a top-five people issue for many boardrooms in the Business in the Community survey. Chief executives and finance directors in particular recognise that a healthy workplace can help foster business growth. Senior executives believe that improving employees' energy and alertness can do more to improve productivity than increases in performance-related pay.

Managers see the benefits of improved health and wellbeing at work as, in rank order:

Box 1 provides further examples.

However, although employers generally support making investments in health, the survey finds little clarity about their understanding of what health at work means, or how it should be measured. For example, employees' mental health, which has a huge and growing impact on overall health, is ranked the least important people issue for the businesses taking part.

The authors conclude that UK organisations generally have a good reputation for dealing with top-level safety issues. However, they believe that employers are less confident about tackling ill health and absence issues, and have made the least progress in taking preventative workplace action on health. Almost three-quarters are not effectively promoting health and wellbeing at work - only 35% have health promotion programmes.

There is often no measuring of, and reporting on, workers' health, which is not encouraging given the maxim "what gets measured gets done", the survey suggests. Only 43% of the senior managers in the survey measure employee health using risk assessments or health checkups, and only half of those that collect sickness absence data provide reports on the figures to their boards.

Integrating reaction and prevention

Two other recent surveys look at how predominantly larger employers provide private medical healthcare to employees as part of wider workforce health initiatives.

Containing the costs of these insured benefits, while also recognising their potential to improve employee health, productivity and attendance, form the backdrop to these two research projects.

According to the author of the first of these surveys², Towers Perrin HR Services, employers are gradually moving away from the traditional model of private medical insurance. This type of provision tackles health problems as they arise, and is often used as a perk for those at senior executive level.

Increasingly, larger employers in particular are moving away from this approach, and are more interested in proactive, preventative healthcare, Towers Perrin says. This interest is being encouraged by these organisations' discovery of the relationship between wellbeing and the balance sheet.

However, when asked to state their healthcare aims for the future, most of the 120 employers in its survey cite cutting absence and improving wellness, and very few mention giving priority to using improvements in employee health to boost profitability.

Big firms buy private health insurance

The Towers Perrin survey mainly obtained information from employers with large numbers of employees, and its findings are likely to reflect practices in such large firms. The survey found that almost all employers (94%) provide private medical insurance to all or some employees.

The proportion extending the benefit to all staff, not just executives, has risen from just 10% in 2000 to 53% in 2004. Part of the reason for this extension of cover undoubtedly lies in a need to keep their reward packages competitive, but employers also see strong financial imperatives, the survey finds. Medical insurance is seen not as a perk but as an effective way of helping employees obtain medical treatment and return to work more quickly following accidents and ill health.

The annual cost of private medical insurance was an average of £427 per employee in 2004, and represented between 1% and 2% of payroll in the companies taking part in Towers Perrin's study. Costs increased by 5.4% on average in 2004. Two companies, AXA PPP Healthcare and BUPA, together provide 80% of all private medical plans in the larger companies represented in the Towers Perrin survey.

Containing the cost of private medical insurance is an ever-present issue, and most employers do this by imposing exclusions and excesses on treatments. However, three-quarters of employers do not require employees to contribute to the cost of their own cover.

More than half of employers restrict the availability of free cover in respect of employees' dependants. One in three (35%) expects employees to pay the full cost of extending the cover to dependants, and a further one in four (23%) expects a partial contribution. Only 7% of employers offering plan membership to retirees extend this entitlement to new starters, down from 25% in 2002. Almost two-thirds of plans operate an excess, typically between £50 and £100 per person per year.

Preventative health

Given that most employers represented in the Towers Perrin survey are large firms, it is not surprising to find that 62% use health-screening services. However, the cost of these has risen sharply in recent years - a wellman screen has increased from £251 to £334 since 2002, according to the survey - and the percentage of employers offering screening to senior staff as an executive perk has fallen.

Screening is increasingly used for a defined purpose - for example, 81% of firms require a pre-employment medical for new recruits and half of this group state they have refused employment as a result of a medical. The authors of the research suggest that "a review of policy in regard to the Disability Discrimination Act provisions would be a wise precaution" for those denying employment in this way.

Almost three-quarters provide employee counselling, increasingly as part of a wider employee assistance programme, the cost of which averages £17.58 a year per employee. Employers are offering employee assistance as part of general employee wellbeing initiatives, for stress management and as part of employee risk management (see table 1).

Absence "out of control"

Almost 90% of employers in the Towers Perrin research believe there is scope for cutting absence levels in their organisations, and 31% believe that the costs of sickness represent a significant or very significant impact on the bottom line.

Just over 40% are not confident that they effectively capture absence data, and 56% have not reviewed their absence policies in the light of legislative changes, including disability law. Less than half (only 43%) of those responding to the survey knew the figure for the average number of days taken on sick leave at their organisation, citing a "lack of clear accountability for monitoring and controlling absence" as the main reason for their ignorance.

Most firms in the survey only require employees to provide a sickness certificate after five or seven days' absence. The survey asked for views on alternatives to the current system of GP certification. The two options preferred by the largest number of respondents involve certification by internal occupational health professionals or by OH expertise obtained from an external supplier.

Stress is the primary cause of long-term sickness absence and the number-one cause of long-term disability insured benefit claims - 34% of all employers in the survey report that stress is a serious concern for their organisation. However, only 27% of the large employers in the survey have undertaken a stress audit.

The cost of absence remains a hazy concept for many - only 41% of employers were able to estimate the direct cost of it as a proportion of payroll, which averaged 3.4% among those that did, and only nine organisations were able to put a number on the indirect costs of absence. Half of employers have recently reviewed the cost of their "visible" healthcare benefits, such as private medical insurance, but these costs represent the tip of the iceberg and ignore the sizeable "ancillary costs of absence", Towers Perrin suggests. The consultancy adds that there are potential savings to be made in bottom-line profitability by "better managing employee health and attendance", and it believes that employers should place control with one senior person in order to begin to address "this out-of-control issue".

Integrating healthcare and absence

The second of these two recent private healthcare surveys comes from Mercer Human Resource Consulting³. It looks at how larger organisations attempt to maintain a healthy workforce using insurance-based benefits, including private medical insurance, and the challenges they face in linking wellness and preventative services with traditional, more reactive health benefits to manage absence in a more integrated way.

More than 90% of the 842 organisations taking part in the Mercer survey do not expect that improvements in NHS services will relieve pressure on them to fund private healthcare for employees in the medium term. Employers are extending the access to private medical insurance and other benefits, often to avoid potential discrimination claims, but are controlling the cost of this by restricting benefits, making employees pay an excess on their treatment under the schemes, or limiting coverage for dependants.

Half (51%) of larger companies now cover all staff in the organisation for company-subsidised medical benefits, up from 41% in 2001, says Mercer, mirroring the Towers Perrin findings.

The proportion excluding same-sex partners from coverage for dependants has fallen from 56% to 39%, reflecting discrimination concerns. However, only 19% now provide private medical insurance for retirees, down from 23% in 2001, and 11% do not provide any company-subsidised private medical insurance cover for dependants.

Employers are generally optimistic that the rise in premiums witnessed in recent years has peaked and that the cost of private medical cover will stay the same at the next renewal. Organisations seek to manage the costs of cover by negotiating improved deals with insurers when they renew, and by controlling the risks of claims by integrating private medical care with other absence management tools, such as more proactive occupational health services or improved procedures for tracking absence.

Where's the evidence?

Sickness absence, and its management, attracts attention from employers in the Mercer survey, but a lack of good data makes it hard for managers to build a robust business case for investing in solutions, the consultancy suggests. One in 10 firms fails to capture any data on sickness absence, and 37% of those that do still use paper systems. Almost 40% expect spending on absence management to increase, partly because of long-term absence trends, where 22% of firms in the survey expect to see a rise in cases.

The Mercer research, in common with that conducted by Business in the Community for Business Action on Health, also reports a greater emphasis among employers on reactive, curative benefits than on preventative employee health services, such as pre-employment screening and health promotion. For example, wellness provision is limited, and only 33% of employers are involved in any health promotion initiatives, which tend to be restricted to fitness facilities or stress-management courses for individuals. Disease-management programmes are used by less than 5% of employers.

Employers are unclear about the role that occupational health (OH) services should play in managing absence and, in some organisations, OH does not get involved at all. Less than half of those with an OH service see absence management as its focus. Other OH services viewed as important by employers are, in rank order: statutory health screening, proactive health, policy advice and support, and risk management. The shift towards outsourcing OH continues, the consultancy concludes - only 9% of all employers in the survey provide services in-house, while 22% make use of outsourced OH that is operated on-site and 27% offer outsourced OH from the provider's premises.

This article was written by Sarah Silcox, a freelance writer and trainer on employee health issues, sarahsilcox@waitrose.com.

¹Spend now, save now: employers' perspectives on promoting health at work, Business in the Community,www.bitc.org.uk/health.

²UK corporate healthcare: 2005 survey results,Towers Perrin HR Services, www.towersperrin.com.

³Health and benefits survey report, Mercer Human Resource Consulting, June 2005, tel: 01372 389643, www.mercerhr.com.