Health Care Reform "Lookback"
Workforce Health—
The Transition From Cost
to Outcomes to Business
Performance
Although employers can shift the cost/risk of health care to external claims payers through insurance, they can
never shift the broader impacts of health-related well-being, lost time and performance outside of their organi­
zational boundaries. This article traces the evolution of employer strategies to manage health, addressing what
research tells us about the broader impacts of health and well-being on outcomes and establishing a broader
framework for connecting health to business performance. The challenge that employers now face is to inte­
grate a much broader set of factors to meet the goals of improved workforce health, well-being and business
performance. Regardless of how employers decide to provide health benefits, these broader issues are a busi­
ness imperative for every employer in the 21st century.
by Thomas Parry, Ph.D. | Integrated Benefits Institute and Bruce Sherman, M.D. | Employers Health Coalition, Inc.
The New Employer Setting
The Affordable Care Act (ACA) is a line of demarcation
for employers. Decisions about their role in health benefits—
walk away from providing health coverage and pay requisite
fines, cap expenditures and liability through public or private
exchanges, invest in workforce health—will speak volumes
about whether employers see workforce health only as a cost
or as an investment in their businesses.
In 2013, employers were firmly focused on complying
with the requirements of the new legislation. We expect
that in the coming months, employers will begin to broaden
their focus to more strategic and related tactical decisions of
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benefits quarterly first quarter 2015
how (or if) to more effectively manage workforce health. It
is critical that employers understand a single fundamental
truth: Decisions about financing health and health coverage are different from decisions about managing health and
related dimensions and understanding outcomes. Although
employers can shift the cost/risk of health care to external
claims payers through insurance, they can never shift the
broader impacts of health-related well-being, lost time and
performance outside of their organizational boundaries.
As benefits professionals ponder these issues, chief financial officers (CFOs) also are in transition. They are expanding
how they think about health, its business impact and the type
of information they need to make sound health investment
health care reform “lookback”
decisions. To a growing number of CFOs, health is more
than health care costs.1
Concurrently, over the past decade, another employer reality has changed. Benefits professionals who manage health
and related programs (such as absence, disability, Family and
Medical Leave Act (FMLA) leaves and workers’ compensation) have come to understand the limits of managing claims
in separate program silos. Costs of population health cannot
be controlled by focusing only on claims management.
The purpose of this article is to take the strands of these
changes into a single narrative by briefly tracing the evolution
of employer strategies to manage health, addressing what research tells us about the broader impacts of health and wellbeing on outcomes and establishing a broader framework for
connecting health to business performance.
How—and Why—Employer Health Management
Strategy Has Changed
In charting a new course, it is imperative to know where
we have been, why and what it means for the future. Over the
past 15 years, employers have gone through a transformation
in their strategy and approach to managing workforce health
(Figure 1).
• Health benefits as a cost of doing business. It wasn’t
that long ago that employers simply treated health
benefits as a cost of doing business. As health care
costs grew—especially relative to growth in corporate
income—the value, and perhaps rationale, for providing health coverage rested primarily on the goal of attracting and retaining employees. As long as health
care costs were not seen as a “significant” and unacceptable part of operating expense, employers could
maintain this single perspective.
• Plan design changes shift costs and risk. When medical cost growth became untenable, employers turned
to plan design changes to dampen the impact of their
share of the financial burden. Here, the primary objective was to manage claims costs or insurance premiums; health care was seen as a commodity where
lower costs were available to discerning purchasers.
Strategies included negotiating greater discounts,
changing health benefits from indemnity to preferred
F igure 1
The Employer Path to Health Value
Health care as cost of doing business
p Change plan design
p Manage high-cost claims
p Ameliorate health risks
p Include health outcomes
p Go beyond traditional health concepts
to business performance
provider organizations (PPOs) to health maintenance
organizations (HMOs) and, more recently, to highdeductible plans or tiered and narrow provider networks. Strategies also included cost-shifting to benefit
enrollees, often with accompanying hikes in deductibles and copays. As long as those changes did not
lead to significant erosion in their goal to attract and
retain key talent, employers had little reason to
change.
• The gestalt from analyzing claims data. As employers
and their benefits partners began to closely examine
claims data, they realized that a relatively small number of claimants were driving an inordinate share of
health care costs; thus, the Pareto group of employees
(the 20% of employees who are the source of 80% of
health care costs) began to get increased attention
from employers. In response, employers turned to disease management as a way to improve management of
chronic conditions. Disease management has provided
some benefits toward this goal.2 The challenge to employers, however, was the very nature of disease management—It tended to focus on a relatively small number of people with serious chronic health conditions
and ignored the health of the rest of the workforce. So
the disease management strategy essentially targeted
costs of a specific group of health care users but did
little to prevent employees from developing chronic
conditions.
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health care reform "lookback"
• An expansion to health risks. With the growing recognition that managing claims was no strategy for
managing underlying health costs, employers turned
to a new question: “How can we be more active in anticipating and managing health care costs?” Shepherded by Dee Edington, Wayne Burton and other researchers, a new body of research emerged that
characterized the link between health risks and health
care costs.3,4,5 The population health management perspective emerged as a systematic strategy for work-
If employers are going to stay in
the business of health care (and make no
mistake, in one way or another,
every employer is in the business of health
care), the conversation must change from
one of cost to one of value.
force health management. Many employers have been
slow to adopt this approach, particularly those with
part-time or short-tenured workforces. Other complicating factors have gotten in the way: the changing nature of work in many organizations, along with an increasing proportion of employees without benefits,
particularly in the retail and service sectors.
• More bang for the buck. The growing recognition by
employers that it is difficult to save medical dollars by
spending medical dollars, particularly in the short
term, led to a new question: What are all the outcomes
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benefits quarterly first quarter 2015
of improved health beyond health care costs and how
can those outcomes be brought into the equation of
the broader value of health investments?
Addressing this broader question, employers realized that
there were two additional health outcomes beyond health
care expenditures, each of which had consequences for bottom-line organizational impact. Absence from work often
is health-related and drives two types of additional costs:
(1) wage replacement payments (e.g., sick leave, short-term
disability, workers’ compensation disability, long-term disability and, to a growing extent, FMLA) and (2) additional
costs related to the financial impact of how the employer responds to absent employees (such responses include having
a larger workforce in place to fill in, using temporary help or
overtime and/or losing revenue opportunities because key,
irreplaceable employees are missing from work). These “opportunity costs” are well-known to employers (at least conceptually) and have been well-documented.6
Reduced employee performance while at work due to
health (termed presenteeism in the research literature) is
the other health outcome that often accompanies health
problems. Presenteeism has cost implications for employers
because they are faced with making up for the loss of this
human capital in meeting business or operational goals. Although, conceptually, presenteeism also represents an opportunity cost to employers, it is harder for them to observe,
measure and respond. Nonetheless, it still represents a real
and significant cost.7
The opportunity costs from absence and presenteeism
have been conceptualized as “lost productivity” because the
financial assets used by the employer in responding to these
health-related outcomes are no longer available to invest in
the productive business enterprise.
This simplified representation of the “full model” of health
encompasses leading indicators of health on the left side of
the equation, indicators of medical care and delivery in the
middle and outcomes (or lagging) indicators of health on the
right side of the model (Figure 2).
What Does Research Tell Us?
A word search on “health and productivity” or related
terms in research search engines such as PubMed or Web of
health care reform "lookback"
Science results in literally thousands of
scholarly articles on the topic. In fact,
we cataloged 156 relevant studies published since 1990 that each have been
cited at least 100 times in the peer-reviewed literature—and together have
been cited more than 38,000 times.8 It
is beyond the scope of this commentary
to summarize the entire literature in
this field; however, it is useful to identify the key themes that emerge in this
work that now drive both the scientific
and the business conversations about
health and productivity. Those themes
include:
• Health risks impact medical costs,
absence, presenteeism, performance and associated employer
costs.
• Particular chronic health conditions (such as depression, diabetes, rheumatoid arthritis and back
pain) increase total health-related
costs and often are untreated or
undertreated in the medical care
system.
• The employer bears liability for
both wage-replacement payments and for the “opportunity
costs” (business impact of lost
productivity) for lost work time
associated with employee health.
• When prop erly str uc tured,
health and related interventions
(including worksite-based programs) can reduce medical expenses, absence and presenteeism and their related costs.
Expanding the Framework
to Address Business Value
Highlighting what the research
F igure 2
The Health and Productivity Model
Health Risks
Work
Performance
Chronic Health
Conditions
Lost
Productivity
Treatment
Plan Design
Health Costs
evidence tells us about the impact of
health on productivity misses an important question when thinking about
what’s on the horizon: “What doesn’t
the evidence tell us thus far about the
impact of health on individual and
business performance?”
If employers are going to stay in the
business of health care (and make no
mistake, in one way or another, every
employer is in the business of health
care), the conversation must change
from one of cost to one of value. Research to date tells us a great deal
about all the costs associated with poor
workforce health and about their antecedents. Even the way the literature addresses health-related lost productivity
is cost-based: the opportunity costs of
lost work time, whether from absence
or loss of performance. But research
to date tells us little about top-line
business performance impacts—how
healthier employees may influence
Work Absence/
Disability
business results and how other healthrelated factors the employer has influence over can contribute to business
outcomes. There is little doubt that
CFOs care about costs and the bottom line. There also is little doubt they
are intensely interested in strategies to
grow top-line revenue. Health-related
factors under the employer’s influence
that are related to health and can accomplish this goal will undoubtedly
get the CFO’s attention.
Over the past decade, Integrated
Benefits Institute (IBI) has published
three studies of CFOs and their views on
health, health care and business-related
issues.9,10,11 Over that time, CFOs have
steadily broadened their view of health,
its impacts and its importance to their
organizations. They also have greatly expanded their perspective on the kinds of
health-related information that would
be helpful as they make investment decisions about workforce health. At the
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35
health care reform "lookback"
F igure 3
Encompassing the Broader View
EE Health Behaviors
& Engagement
Corporate Culture
& Structure
Health Risks
Well-Being
Chronic Health
Conditions
same time, a growing body of literature
focuses on a much broader set of social
factors that are determinants of health.12
How are we to bring these elements together in the employer setting? This requires the integration of the traditional
“health and productivity” model with
the broader set of factors that employers can influence. Those factors include
(1) corporate culture and structure, (2)
employee well-being and (3) employee
health engagement.
Corporate Culture and Structure
As the saying goes, “Corporate culture eats policy and strategy for lunch.”
Jeffrey Pfeffer, professor of organizational behavior at Stanford University
Graduate School of Business, said in a
keynote address to the Great Place to
Work Conference attendees in New Orleans recently: “Many of the individual
behaviors you are focusing on in your
health and wellness programs, such as
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benefits quarterly first quarter 2015
Work
Performance
Lost
Productivity
Treatment
Plan Design
Business
Performance
Health Costs
stop smoking, eat better, exercise more,
are, in fact, the consequences of the environments in which employees are working.”13 How employers organize work,
the demands they put on employees and
the work-life balance they create not only
directly affect business performance but
also influence employee health and cut
against the very things the employer is
trying to achieve as a business.
In addition, the extent to which
employee health-related benefits programs—such as group health, disability
and workers’ compensation—are integrated and managed will also play a key
role in these broader issues. The degree
to which one program ignores activities
or health status of employees in the others or, worse yet, simply shifts cost and
risk across programs will interfere with
what the business is trying to achieve.
The underlying health of the workforce
directly affects the costs of programs,
such as disability and workers’ com-
Work
Absence/Disability
pensation, as well as employees’ ability
to perform their jobs effectively. Recent
research at Duke University on the impact of obesity on workers’ compensation experience is a prime example.14
Employee Well-Being
Surveys of workforce engagement
have clearly demonstrated the connection between employer attentiveness
to workforce well-being and employee
work engagement.15 In fact, the survey
shows that the most significant factor
driving workforce engagement is the
employee’s perception of the employer
“sincerely caring about my well-being.”
It is perhaps not surprising, then,
that workforce well-being is increasingly being recognized as a significant contributor to individual performance. This
broader construct incorporates psychological health as one of several different
dimensions not typically addressed in
traditional wellness programs, which
health care reform "lookback"
deal largely with physical health issues. The domains of behavioral health, financial status, social status and purpose or
career are increasingly being appreciated as having material
impact on individual and business-unit performance.16,17,18
More recent efforts have refined this approach to include
workplace well-being—the employee state of mind when at
work—as another important consideration impacting workforce performance.19 This domain is a reflection of employers
creating a work environment where employees can feel most
productive. In contrast to the intrinsic attributes of well-being as described above, workplace well-being is a more immediate and situational contributor to employee well-being.
Employee Health Engagement
Experience has told employers that if employees are not
engaged in managing their own health, health benefits programs will have little chance of success. Health care consumerism, incentives and value-based benefit designs have been
widely adopted as means to foster health engagement, with
varying degrees of success. Proponents have encouraged
more widespread use of incentive strategies with the goal
of ensuring that employees have “skin in the game,” while
detractors claim that these approaches do little more than
foster employee resentment.
What does appear clear, however, is that individuals respond to employer efforts to enhance their well-being while
considering a variety of organizational factors that influence
both health and well-being. Further, employees who are engaged at work are also more likely to participate in employerprovided programs that enhance their well-being, including
those that influence workforce health. Additionally, it may be
that compensation strategies that substantially reward employees for their performance may also serve to promote employee
engagement in health-related programs, thereby improving
the likelihood of greater earnings and future job opportunities.
The New Integration
Over the last decade, employers have been searching for
ways to better manage health and improve outcomes. The development of the “health and productivity” model has been
a result of leading employers pushing the envelope in these
key areas. More recently, benefits professionals have started
from the fundamental point of employee health: moving
“upstream” to better manage health risks and moving “downstream” to better understand and quantify outcomes that
flow from improved health beyond health care cost.
Senior executives in their organizations, however, take a
different approach—They start with business performance
and ask themselves, “What levers do I have at my disposal
to help improve workforce and, consequently, business performance?” Improved health is one of those levers, and so
are corporate culture and structure, employee well-being and
employee engagement (Figure 3).
A caution: Employers must be aware of the danger in
overstating the business impact of health. Several recent
surveys of employers have shown that employers with
healthy workforces and strong cultures of health also tend
to have better business results. The implication is that there
is a direct and causal relationship between health and business success. The alternative explanation, of course, is that
successful companies always are looking for ways to continually invest profits back into their organizations and see
health improvement as one way to do so. Thus, the causal
relationship more likely is business to health, rather than
health to business. Even with the healthiest workforce, a
bad product, poor marketing or ineffective service delivery
may doom a company.
Many factors, of course, influence company profitability, stock price, revenue per employee and related business
metrics. The challenge in the health arena is to better understand the link between the “proximal metrics” that link
health to business performance. For example, American Express has established statistically that employee health risks
are linked to customer service scores—Healthier employees
tend to have better scores.20 Better customer service leads to
improved business performance and better profitability. Employers are better served by establishing in their own organizations these key proximal metrics and better understanding
how health influences them as they make the case for the
business value of health improvement.
The challenge that employers now face is to integrate a
much broader set of factors to meet the goals of improved
workforce health, well-being and business performance. Regardless of how employers decide to provide health benefits,
first quarter 2015 benefits quarterly
37
health care reform "lookback"
AUTHORS
Endnotes
Thomas Parry, Ph.D., is president of the
Integrated Benefits Institute (IBI). He directs
IBI’s activities and stewards its research
agenda. Before co-founding IBI, he served 11
years as research director at the California
Workers’ Compensation Institute. Parry
speaks on integrated benefits and health and productivity
issues at conferences and symposia in the United States
and internationally. He served for five years as research
advisor to the Roadway Express Inc. Medical Board. Parry
received his bachelor’s, master’s and Ph.D. degrees from
the University of California, Berkeley.
Bruce Sherman, M.D., serves as medi­
cal director with the Ohio-based Employ­
ers Health Coalition and represents the
organization on the leadership board of the
Integrated Benefits Institute. Sherman also
is the medical director for RightOpt, the Buck Consultants
at Xerox private exchange offering, where he focuses on
analytics and innovative health management strategy de­
velopment for the organization’s employer clients. He also
supports Wal-Mart Stores, Inc., as the consulting corporate
medical director for the U.S. benefits team. Sherman is
co-chair of the Employer Advisory Council at the National
Committee for Quality Assurance. He is a fellow of the
American College of Chest Physicians and the American
College of Occupational and Environmental Medicine. He
received his M.D. degree from New York University School
of Medicine, his M.A. degree from Harvard University and
his bachelor’s degree from Brown University.
these broader issues are a business imperative for every employer in the 21st century.
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CFO’s Business,” Integrated Benefits Institute. 2012.
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International Society of Certified Employee Benefit Specialists
Reprinted from the First Quarter 2015 issue of BENEFITS QUARTERLY, published by the International Society of Certified
Employee Benefit Specialists. With the exception of official Society announcements, the opinions given in articles are those of
the authors. The International Society of Certified Employee Benefit Specialists disclaims responsibility for views expressed
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benefits quarterly first quarter 2015