Cost cutting? Why reducing employee healthcare isn’t saving you money

If the spiraling cost of employee health insurance is forcing you to consider cutting back on the quality of the healthcare package you offer, think again. Providing your workforce with a cut-price healthcare plan might help to reduce expenditure in the short term but it’s likely to cost you dearly in the long run. Any initial savings are going to be far outweighed by such adverse effects as absenteeism and staff morale, which will hit your bottom line hard and sabotage the business as a whole.

Research shows that healthy employees are more cost-effective. According to the World Health Organization (WHO), for every dollar they invest in health, employers get up to six dollars back. Therefore, reducing your healthcare provision will not only hit the wellbeing of your employees but also the wellbeing of your business.

Healthcare and cost – the relationship

So how exactly does cutting your healthcare spend affect the cost-effectiveness of your workforce?

1. A reduction in productivity: It’s no great surprise that healthy workers have been shown to be more productive and more engaged at work than unhealthy workers. According to a recent study in the UK, highlighting the connection between ill health and low productivity, unhealthy employees who take time off sick and underperform in the office as a result of ill health (known as presenteeism) are costing small businesses an average 27.5 working days every year. This is equivalent to each worker losing more than an entire working month of productive time annually.

It’s no great surprise that healthy workers have been shown to be more productive and more engaged at work than unhealthy workers.

When translated into monetary terms, the combination of this absenteeism and presenteeism is costing approximately GBP 73bn a year in lost productivity. Smoking and poor nutrition were found to be the greatest factors affecting productivity levels.

2. A drop in talent: In the GCC, the demand for private healthcare services has never been higher, so it’s hardly surprising that healthcare is one of the most valued benefits among employees. When it comes to both attracting new talent and retaining the talent you already have, offering a comprehensive healthcare package is one of the most powerful tools a business can employ. In fact, benefits (along with salary) are cited as the most important dealmaker for prospective employees when looking for their next job.

Workers don’t just want good wages, they want the peace of mind that you have their health and wellbeing at heart. Therefore, cutting back on your healthcare benefits package could backfire expensively, leaving you floundering in the recruitment market, unable to attract the best new talent, and struggling to retain and motivate your current staff. The impact on productivity of a demotivated and underskilled workforce will be exacerbated by the cost of trying to find and train replacements.

3. The knock-on effect of absenteeism: The negative effects of absenteeism and presenteeism aren’t limited to the loss of hours set against the employees in question. Anyone not pulling their weight in a business has an impact on the people around them. They will be required to work longer hours, learn unfamiliar skills and tasks and develop new relationships in order to cover the vacuum left by absentees. This can affect the physical and mental health of those picking up the pieces, as well as costing the business more in overtime payments, training etc.

4. The virtuous circle: The fewer sick and injured employees you have making insurance claims, the lower your healthcare insurance costs will be. By focusing on prevention rather than cure, you can improve the productivity of your staff and cut your health insurance bill at the same time. One American company decreased its employee healthcare costs by 17% during the first five years of its employee wellness programme, saving an estimated USD 1.26m during its first year.

Though it may not seem obvious at first, the more you look at the effects of cutting back on your healthcare cover, the more it becomes clear that there are financial benefits to be gained by actively improving employee health and wellbeing at work. Think of your workforce as a machine that’s vital to the production output of your business. If a machine faltered or broke, you would fix it immediately. Indeed, you would make sure the machine was regularly maintained so that it never did falter. Your workforce is every bit as vital. So what can you do now to set this virtuous circle in motion.

How to cut your healthcare costs without failing your workforce

Over the past decade, the global spend on healthcare has seen rises of between 6.8% and 11.9% year-on-year, driven by factors such as a rising life expectancy, an aging population, a high incidence of lifestyle-related chronic disease, general population growth and rising consumer expectations consistently. According to the 2015 Deloitte Healthcare Outlook Middle East report, the UAE healthcare bill is expected to increase from an estimated USD 14bn in 2013 to USD 19.6bn in 2018. The healthcare spend per capita is estimated to be around DH 4,408, putting the region in the top 20 in the world.

Over the past decade, the global spend on healthcare has seen rises of between 6.8% and 11.9% year-on-year.

These figures are several points above general inflation, so it’s understandable that employers should be concerned about their ability to continue to meet the rising costs. A recent survey by the National Association of Professional Employer Organizations reported that 41.7% of employers consider healthcare costs to be the most serious challenge to their bottom line. But there are ways to keep the amount you spend on employee healthcare under control without compromising the quality and appeal of the benefit you offer to existing and prospective employees. 

Introduce a co-pay on your health plan: Employers can introduce a co-pay system on their health plans, such as a 20% co-pay on all outpatient treatments, including x-rays, consultations, scans, blood tests etc. This means the member pays 20% of the cost and the insurance company pays the remaining 80%. By making employees take a share of the financial liability, co-pay systems help to reduce the misuse of healthcare systems, e.g. by deterring unnecessary doctor visits, thus reducing the amount of medical costs incurred.

Provide home working flexibility: Recent studies have supported the idea that companies that offer the flexibility of working from home when needed can increase productivity, improve mental wellbeing and decrease stress. A 2012 US study, which focused on a billion-dollar company based in China, showed that encouraging and supporting a ‘work from home’ protocol actually saved money in the long run by bringing about a large boost in productivity, as well as happier, less stressed workers. The report concluded that, on average, the company saved around USD 2,000 for every employee who worked from home.

Stick to contractual hours: Scientific research shows that our brains are not designed to concentrate intensely for eight hours at a time. They need regular breaks in order to function at their best. Our minds work in cycles of activity and downtime, designed to keep us alert and responsive to our surroundings. Due to the ultradian rhythm, a cycle that governs both our sleeping and waking lives, the brain can only focus for 90-120 minutes before it needs a break. After this time a 20-30 minute break is required to refresh and revitalise the brain in order for it to perform well at its next task.

Scientific research shows that our brains are not designed to concentrate intensely for eight hours at a time. They need regular breaks in order to function at their best.

So instead of instilling a workplace culture of grafting for excessively long hours, it is more cost-effective to encourage your employees to stick to the normal working day and enable them to take regular breaks so they can recharge. This type of working practice is not just good for your employees’ health, it’s good for their morale too – a clear indication that they are valued. This in turn will result in greater engagement, increased productivity and a reduction in absenteeism and presenteeism.

Healthy, engaged employees provide a competitive advantage for any company, so an investment in workplace wellbeing makes sound business sense. Reducing your costs by cutting back on healthcare is a false economy, negatively affecting both your staff morale and your bottom line. In the current climate of spiralling healthcare costs, it’s more important than ever to think carefully about the healthcare benefits you offer. Seek expert advice from insurance specialists and healthcare providers to work out the best strategies to enable your business to deliver quality, cost effective healthcare, which ultimately will benefit all.