The Firm: Small-firm wellness could pay off

By Jim Edholm The Daily Record Newswire Wellness is all the rage at American employers today, but it's largely ignored at smaller firms. The rationale is that small firms pay "pooled rates" for health insurance -- rates determined by age, industry, family size and zip code, not by relative health. Spending money on a wellness program in no way changes the smaller firm's health insurance rates, so why incur the expense? There are two problems with that attitude. First, when employers share risk, they can participate in the lower medical costs that result from improved wellness of their employees. Helping people avoid illnesses, particularly chronic illnesses, can dramatically lower medical costs. Doctor visits, lab tests and hospitalizations are all reduced with improved health, and if the employer is sharing in some of those costs so as to lower fixed premiums, that reduction accrues to the employer's benefit. Second, the medical costs of a lack of wellness may be the tip of the iceberg. Focusing solely on the medical costs ignores broader but harder-to-measure costs. Sick workers cost an employer in a number of ways. For example, sick workers are often absent. That reduces productivity (particularly in a knowledge industry such as the practice of law) and costs money in two ways. First, there is the work that doesn't get performed because the person is absent. That may be an indirect cost: lost billings from unperformed work. The indirect cost of lost productivity through absenteeism is estimated to be about 10 percent of the total costs, compared to 27 percent of the cost attributed to medical costs. Besides lost productivity from absenteeism, there also may be the direct costs of replacing the ill person by hiring a temporary replacement. Generally, of course, the replacement worker not only requires extra wages but is also less able to perform the sick employee's job. Such wage replacement costs represent 22 percent of the cost of ill health, according to the Integrated Benefits Institute. But absenteeism is only half of the problem. There is also the cost of "presenteeism," a new, hot buzzword in human resources that describes the lost productivity caused by sick employees being at work. Workers who are ill certainly don't perform as well as they do when they're healthy. The result is diminished productivity, not to mention the more obvious potential problem: If they have the flu or the like, they'll probably infect the rest of the office. Such a cost of presenteeism is estimated to equal 41 percent of the total cost of illness. So if we add up all the non-medical costs: productivity losses from absenteeism, 10 percent; wage replacement, 22 percent; and presenteeism, 41 percent, we find that the non-medical costs combine to represent 73 percent of the cost of ill health. The direct medical costs tally up to a mere 27 percent, just between one-third and two-fifths of the non-medical costs. What does a comprehensive wellness program consist of? It generally includes health awareness steps: risk assessments, prevention screenings and health education. Moreover, most such plans include incentives to encourage participation (generally lower premium costs to the employee). Additionally, via programs to change unhealthy behaviors (the Centers for Disease Control tell us that 50 percent of health costs are attributable to behaviors) -- counseling, seminars, online programs and self-help materials -- the plan engages employees. Supportive environments that encourage healthy eating, increased physical activity and improved mental health also play a part. Starting in 2011, the new health care laws will provide $200 million in grants for small companies to start first-ever wellness programs. If you have fewer than 100 employees and no wellness program prior to March 23, 2010, you may qualify for such a grant. Not only could you see improved productivity, but Uncle Sam could pay for it. ---------- Jim Edholm is president of Business Benefits Insurance, an employee benefits planning firm in Andover. He can be contacted at JimEd@bbibenefits.com. Published: Mon, Apr 18, 2011