Illness-related lost productivity costs employers $530B

Employers put a lot of time and energy into managing their health care spending. But does anyone believe they put even a fraction of that effort into reducing the impact of illness on their bottom line?

IBI's Full Cost Estimator (FCE) model reminds us why they should.

Using millions of disability claims in IBI’s Benchmarking data, survey responses from the Health and Productivity Questionnaire (HPQ), and nationally-representative data from the CDC and BLS, the FCE model estimates that illness-related absences, disability leaves, impaired job performance, and occupational injuries and illnesses cost U.S. employers $530B last year. This amounts to 60 cents for every dollar spent on healthcare benefits for employees and their dependents (which were about $880B based on wages and salaries for 143 million employees).

The strength of the FCE model is that it incorporates high quality information on both outcomes and eligibility for paid time off benefits. For example, according to the BLS, in 2017 around one-third of employees had access to employer-based short- or long-term disability benefits. Other data indicates that two-thirds of employees were eligible for paid sick days, and slightly fewer were covered by the Family and Medical Leave Act (FMLA).

These assumptions ensure that the results are targeted to the expenses employers incur when covered employees miss work. But they also mean that estimates of the full economic impact of illness are conservative—no one believes employees without access to paid leave benefits never take extended time off for episodes of serious illness. With the exception of unpaid sick days (which FCE estimates using the National Health Interview Survey), data on how often this occurs is unavailable to the model.

Even if employees without leave benefits take time off as vacation or unpaid leave, the employer still must absorb the costs of replacing their labor temporarily. FCE results assume that depending on whether the employee works as part of a team, the availability of replacement workers, and the time-sensitivity of their work, these costs may be substantially greater than an absent employee's daily compensation (based on research from professors at Cornell University and the Wharton School of business).

It is also likely that many ill employees without paid time-off benefits remain on the job for as long as they can. When that happens, performance impairments can take a toll on their productivity. The FCE model estimates that impaired performance for employees with chronic illness amount to the equivalent of 527 million lost work days—or nearly 2% of the total labor inputs for 143 million U.S. workers.

Regardless of the conservatism of the model's results for the entire U.S. workforce—the online FCE tool in fact allows users to vary assumptions about coverage for benefits, in order to simulate results for different populations of workers—the findings clearly indicate that focusing on managing benefits as a way of "controlling" costs can at best produce incomplete results.

A more thorough approach would evaluate how access to preventive care and high quality treatments impact an employee's ability to attend work consistently and perform at a high level—and in turn, would link health and productivity to the metrics business leaders use to assess the performance of their enterprise. This would give a more complete sense of how investments in workforce health contribute to the overall business strategy, rather than simply viewing benefits as a cost to be managed in a silo.