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The Actuary The magazine of the Institute & Faculty of Actuaries
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Healthcare: A firm belief in healthy employees

It is not surprising that a link between good employee health and superior enterprise performance has long been believed intuitively and in a limited number of quality studies demonstrated through research.

However, it is surprising that the involvement of actuaries in this area has been limited, especially since 
many of the core skills of the profession — such as use of sophisticated models to describe complex interactions (for example, multi-state modelling — see Figure 1) 
and use of mathematical techniques 
(for example, structural equation analysis) — are often used to quantify the impact of employee health risk (EHR) (see footnote 1) on an organisation’s bottom line. The complexity of these challenges and working in 
multi-disciplinary teams provide 
exciting development opportunities and align directly with the proposed strategy 
for the Profession.

This article provides an introduction to the evolving theories on EHR, its measurement and the impact on a 
corporate entity.

In business today, many organisations will claim that their employees are their most important asset but fail to manage their EHR. Indeed, few put any meaningful measures in place — often falling into the trap of measuring what can be measured rather than what is useful. And yet if an organisation cannot persuade its employees to attend work and give their all, they will certainly have a business that is likely to underperform its peers.

Figure 1

A report by Business Action in Health 2010 (2) identified that FTSE 100 organisations that provide comprehensive reports on the impact of employee health on their business have a total shareholder return (TSR) that is 31 percentage points higher than other companies in the FTSE All-Share Index 
who do not report, or report minimal information, on employee health issues. The difference in TSR, measured using the Student T-test, is significant at the 5% level of significance (p < 0.05).

No attempt was made to investigate the mechanism underlying the relationship between employee health and organisational profits in the above study. However, to date a small number of studies have been undertaken that have investigated how the mental and physical health of employees can impact on the potential earnings of an organisation. The challenge with many of the studies is that they do not have sufficient or consistent data over a reasonable time span to recognise the 
real drivers. Furthermore, the complexity 
of the interactions is not trivial. A selection of these studies and models are described 
as follows.

The Sears Roebuck Study (1998)
This study(3) identified an algorithm based on employee drivers that was found to have both a causal and a predictive relationship with customer and financial results. The study predicted (and realised) an incremental $200m in revenue and over $0.25bn in market capitalisation from a 4% improvement in employee satisfaction.

The Institute of Employment Studies (IES) study ‘People to Profits’ (1999)
This study(4) identified that employee commitment can act on sales through three routes — direct sales, customer service satisfaction, staff absence — to produce a theoretical change in sales of up to £290K a month per store(5); see Figure 2. The model created was designed for a typical service sector organisation.

Figure 2
1 Marum Healthcare's definition of EHR - The impact of absenteeism and presenteeism on the productivity of an organisation


2 (2010). BITC Business Action in Health. Ipsos MORI poll; FTSE 100 Research Public Reporting Trends.


3 (1998). Rucci AJ, et al. The Employee-Customer-Profit Chain at Sears. Harvard Business Review Jan/Feb 1998.


4 (1999). Barber L, Hayday S, Bevan S. From People to Profits: The HR Link in the Service-Profit Chain. Report 355, Institute of Employment Studies.


5 A one-point increase in employee commitment scores represents a nine per cent increase in monthly sales per store, equivalent to £200,000. In addition, a one-point move in customers' intention to spend 
is associated with a change of approximately 
four per cent, equivalent to a further increase of £90,000 per store.

Health and productivity management: the concept, impact and opportunity (2000)
In his paper(6), O’Donnell hypothesised that the most important factors driving productivity are the physical and emotional ability to work and the desire to work (motivation). According to this model (Figure 3), when motivation is high, performance is high and EHR is low. This leads to higher levels of productivity that, in turn, can lead to higher profits. Interestingly, the model also shows that higher profit levels positively impact health risks which in turn positively impact motivation — leading to something of a chicken and egg situation, for instance which comes first: high profits or high employee motivation?

Figure 3

vielife/IHPM (Institute of Health and Productivity Management)’s Health & Performance Research Study (2005)
This study(7) prospectively measured the impact of providing a multi-component health promotion programme in a number of organisations. The interventions led to significant improvement in health status 
(p < 0.0001) as well as an improvement in work performance of 3.2% in productive time (p=0.002). The latter, if expressed in terms of the number of extra days employees would be able to work in a year as a result of reducing the EHR, equates to 12 extra days’ work per person per year.

Advancing Productivity Loss Measurements (2008)
Allen’s published work(8) specified and tested a causal model of productivity loss that confirmed the presence of two distinct components describing productivity loss — presenteeism and absenteeism. This work 
used structural equation modelling — 
an advanced statistical technique where actuaries could add value.

In the study he also identified that productivity loss could be predicted using a combination of eight categories of information from data collected using a routine health risk appraisal questionnaire. Health data made the largest unique contribution but seven other categories of information made unique statistically significant contributions. The categories, ranked in terms of contribution to their predictive power are: health data, company characteristics, financial concerns (of employee), stress 
(of employee), job characteristics, employee characteristics, work/life balance and personal life impact. This study highlights the complexity of such analyses.

Work by the authors has also considered linking EHR back to the business enterprise through the application of the balanced scorecard — an approach originally described by Kaplan and Norton and developed by Danielle Pratt in her book 
The Healthy Scorecard (Figure 4). We believe that this approach is likely to be more readily accepted by management because it aligns to the same approach that many business enterprises are already using.

Figure 4

These models and research studies go some way to setting a better, more informed framework for business professionals to assess the value of investing in the health of their employees. It is certainly an improvement on the very speculative return on investment calculations that often attach to proposals for an employee health intervention where spurious reductions in days lost on ill health 
are used to support the investment. 


However, there is much more to do and 
with the input of results from well-defined studies it is likely that in future we will be better equipped to determine and predict 
the value of these health initiatives. 
Actuaries working in multi-disciplined teams alongside HR, OH and safety professionals are well qualified to help their colleagues produce the much sought-after, but hard to produce, cost-benefit arguments supporting the introduction of comprehensive wellness programmes as a means of managing EHR. Additionally, perhaps the profession 
should consider expanding the content of ST1/SA1 exam syllabuses to include the sort of studies detailed here.


 

6 (2000). O’Donnell P. Health and productivity management: the concept, impact and opportunity. American Journal of Health Promotion 2000; 14(4): 215–217


7 (2005). Mills PR. The development of a new corporate specific health risk measurement instrument, and its use in investigating the relationship between health and well-being and employee productivity. Environmental Health 2005; vol 4 (issue 1); pg 1.


8 (2008). Harris Allen. Using routinely collected data to augment the management of health and productivity loss. Journal of Occupational Environmental and Medicine 50 (6); 615 – 632.

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Mike TylerSharon AllawayMike Tyler is managing director, health and productivity, at Buck Consultants. Sharon Allaway is managing director at Marum Healthcare Ltd