How Much Do Sick Employees Cost?

T HE AVERAGE EMPLOYER SPENDS more than $8,000 per year for each employee's health benefits, including insurance, disability and workers' compensation (Occupational Health Management). And the costs are now rapidly escalating. Health insurance reached an average $5,646 per employee in 2002, up 56% from five years ago. It is expected to rise annually at the rate of 13% to 15% over the next five years; for small businesses, the cost will climb much higher. Drug prescription costs are increasing at a rate of 17% to 20% annually, according to benefit consulting firm William M. Mercer, Inc. (2002).

About 95% of health benefit expense is needed to treat sick or injured employees: medical care workers' compensation and disability insurance (Mercer, 1999). Other direct costs to the employer associated with unhealthy employees include salaries to the absent employees - as well as added stress to coworkers and the cost of temporary replacement and administrative costs during their absence.

The nation experienced a 25% increase in worker absenteeism in the 1990s, a trend that is expected to continue, according to Total Health Advocacy Partners (2002), providers of employee health management programs for large employers.

Scott Publishing, Inc. • 2003 2 Cost/Benefit Analysis

Another disturbing trend for employers is disability lost-time, which exceeded medical care costs in 2000. Based on data accumulated by the Centers for Disease Control and Prevention (CDC)

National Health Interview Survey, the Work Loss Data Institute completed a benchmarking evaluation of disability costs to U.S. employers. The study revealed that, for all conditions combined, total disability lost-time costs ( $458,150 per 100 workers) exceeded medical costs ($ 268,539 per 100 workers) by 58%.

More difficult to measure are the indirect costs resulting from reduced productivity as well as diminished work quality, accuracy and safety, or presenteeism. Workers are at work but not fully engaged in their jobs due to a host of reasons such as being sick, fatigued, in pain, stressed or distracted by personal issues. Presenteeism is viewed as the opposite of absenteeism: employees being at work when they should be at home. Needless to say, the lack of worker presence can be significantly costly to business. Lost time adds 50% or more to an employer's health care expenditures (THAP, 2002). But with health education and care management procedures in place, employers can accelerate return to health and productivity, and in a positive way for all concerned.

One example:

A county in California with 18,000 employees reported an ROI of 4.65:1 over a four-year period, with net savings well over $ 4 million following its implementation of a comprehensive absence management program (THAP, 2002).  By some estimates, more than half of the costs created by unhealthy, unsafe employees can be attributed directly to their negative lifestyle habits - such as smoking, inactivity and obesity (Risk Assessment Tennessee). Smoking costs $ 60 billion annually in reduced productivity, early retirement and death; $60 billion in treatment of smoking-related diseases; and $ 4 billion in increased life insurance premiums, according to estimates by the U.S. Department of the Treasury in 1998.

Obesity, according to a study published in Business and Health (1998) results in 39.2 million lost work days, costing U.S. businesses nearly $ 3.9 billion annually. It directly contributes to heart disease, diabetes and high blood pressure. The combination of smoking and obesity dramatically increases a person's risk of heart attack, while regular physical activity reduces the risk.

Using a Worker Productivity Index to measure the indirect costs to employers, one research group was able to demonstrate statistically that the more health risks employees have, the lower their productivity (Burton, et al., 1999).

In a comparison of low-risk coworkers at ten companies, high-risk employees cost more in medical claims, disability and workers' compensation. They have a higher ratio of absenteeism and lower rate of productivity (UM/HMRC, 2000).