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Exclusive: HR directors not pushed hard enough to understand return on investment of healthcare

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Specially-commissioned research by HR magazine and Simplyhealth finds HRDs want to do more to understand the ROI of their healthcare benefits spend, but they are not being pushed hard enough to by CEOs or FDs. Peter Crush reports.

Despite experiencing one of the most severe recessions in history, HR directors say they are not yet under pressure from their CEO to demonstrate the return on investment on healthcare benefits. Instead, it is they who are putting pressure on themselves to identify it, and it is this that is becoming their own source of frustration.

This is the surprising, if slightly schizophrenic, result from the first-ever research into healthcare benefits by HR magazine and Simplyhealth. In a specially-commissioned survey of more than 270 HRDs/HR business partners and HR managers in May/June, there was a noticeable lack of concern from CEOs about measuring healthcare costs against benefits: half of respondents said there was 'no real pressure to measure the ROI of healthcare expenditure', with a further 59% saying their healthcare budget depends on factors 'other than ROI'. (Just 11% said it did depend on ROI). In addition, 74% of respondents said that in the coming year, they would only be required to demonstrate the same level of ROI as they were currently doing, and 46% admitted to not measuring any ROI at all.

But this lack of demand for measurement is clearly something that irks HRDs. A substantial 56% of respondents said they would like to be able to measure the effect of their healthcare spend, but pleaded they 'do not know where to start'. An even larger number (88%) agreed there was a case for measuring healthcare spend, but admitted they did not know how to quantify its cause and effect. The 13% of HRDs that said they were under pressure from the FD or CEO to measure healthcare ROI followed it with the caveat that they 'did not think it was something they could deliver'.

These results will support the view of some that healthcare spend is notoriously difficult to justify beyond very simple notions such as it is a good thing to do and that there is some (but not quantifiable) impact on productivity and engagement (see Healthy Returns?, HR, June 2010). In fact a third thought making this link was actually impossible. The problem is that while fewer than one in 10 said they were confident they could supply data they knew their CEO or FD would be happy with, this 10% does at least think it is possible to produce data in one way or another. And, between these two extremes is a larger middle ground of opinion. Most (45%) said the best they could do was provide indicative data, but just about the same percentage (43%) said it actually 'frustrates' them that they are not able to measure the cause and effect of their spend.

On one level, respondents have an innate feeling that healthcare benefits spend must have some sort of business ROI. A third thought it did, even if they did not measure it, while a further 18% agreed with the statement, 'It is straightforward to link healthcare spend with improved business performance'. An emphatic 46% believed 'healthy workers are more productive workers' (see page 30). Yet when asked in more detail - such as whether healthcare benefits spend specifically contributes to better productivity or engagement (or both), the results become far muddier: 19% believed the link between providing healthcare benefits and a rise in productivity was the same as the impact it has on engagement. But a significant minority also believe differently. Some 12% think the link between healthcare benefits and productivity is 'stronger' than the link with engagement; yet an equally large minority (10%) think it is engagement, not productivity, that healthcare spend affects the most.

Just how they know this, of course, is questionable, given that many admit to not measuring ROI at all, but the message is clearly that the impact of healthcare benefits spend is a muddle. Indeed, as just over 13% of respondents preferred to say, it doesn't always follow that healthy employees are any more productive than unhealthy ones.

"This research shows there is a real need for HRDs to better understand healthcare ROI," says Laura Hickman-Sparkes, head of corporate marketing, Simplyhealth. "Part of this responsibility should come from providers to explain to employers the impacts their products can have, but employers also need to accept that while it may be difficult to isolate, say, healthcare's effect on engagement, they can still measure what healthcare initiatives they have in place now, with what they may change over the next 12 months."

So how much do companies spend on healthcare benefits? More than 80% of respondents spend £0-500 per head on healthcare benefits (with half of these in the £0-£100 range), and the majority of respondents say the reasons for spending it are more for retention/attraction and keeping up with the Joneses' than for any noble motive of improving productivity, engagement or even, surprisingly, health itself. Nearly 64% believed their healthcare benefits help them retain good staff, with the same percentage believing it gives them a competitive advantage. More than a third now think what they need to offer has become a minimum requirement to attract staff, but virtually none (3%) think it's gone too far. Spend looks 'just right',

According to the survey, nearly 64% of HR professionals think a good healthcare package retains talented staff. However, the remaining 36% admitted they didn't know or weren't sure of this. Half admitted it was something that was difficult to prove; 35% said 'common sense' told them it was the case, but they had nothing more concrete to go on. In fact, fewer than one in 10 HR professionals actually said the link between healthcare spend and retention was something they measure.

Desire to measure the link, (even frustration that they can't), twinned with a lack of demonstration of it, seems to be a confusing mix. But perhaps it is explained by the fact that not enough pressure is being exerted on HRs to prove ROI. Half said they could still justify enhanced spend on healthcare packages (only 20% said 'no'), while more than 60% still said they were no under pressure to reduce private medical insurance spend - something that has skyrocketed in cost over the past few years. Three-quarters of respondents said their healthcare benefits budget would be staying the same in the coming year. "It's great to see so many CEOs think healthcare spend is just the 'right' thing to do but, with pressure on company finances, I think there is still a need for HR to understand the measurement of it," says Hickman-Sparkes. "This will give HR a strong advantage in discussions about raising, or even reducing, healthcare benefits spend."

One interesting find, though, is that HRDs feel staff should be increasing the amount of salary they set aside for an enhanced range of benefits. More (29%) said staff should increase the amount they contribute rather than employers upping what they spend (24%) for them. Wage freezes in the private and public sectors notwithstanding, some 56% of respondents said health benefits were already either partly or entirely paid for by employees. Only 44% of employers offer fully employer-paid for health benefits.

But employers do not just think staff should help them out, they feel the new Government has a role too. The HR/Simplyhealth research asked HR professionals whether Government could play a greater role by giving businesses better taxable advantages to offering health benefits. A whopping 72% agreed; while a further fifth felt businesses were dis-incentivised from providing healthcare benefits because the tax system penalises them for doing it. "This is a moot point among employers at the moment," says Hickman-Sparkes. "Government has just increased insurance premium tax, which in this case is an increase in the tax on health insurance. Employers are rejecting this tax, and saying they don't want the burden of health benefits to rest on them." HR

Watch our HR magazine/Simplyhealth webcast where we discuss the survey results and ROI issues with HR experts at hrmagazine.tv

IGNORANCE ABOUT CASH PLANS

Of 15 different types of healthcare benefit, private medical insurance (PMI) was the most popular, with 68% of respondents offering it. This was followed by flexible working (59%) and sickness absence management schemes. A surprise was the lack of popularity of health cash plans - which have not been suffering the sort of price inflation (5%-8% a year) of PMI, and which offer an increasing variety of services. Only two types of healthcare benefit were less popular. When asked, 40% of respondents admitted they hadn't heard of cash plans, and 47% said they were not sure what types of benefits they cover. Says Laura Hickman-Sparkes of Simplyhealth: "This was a surprising, but also worrying result. Cash plans have extended their services, so if HRDs don't know what they cover, they could be duplicating spend. They might, for example, be separately paying for an EAP product, but most cash plans actually have an EAP as part of the product."

WHAT HRDS THINK OF FIT NOTES

Fit notes, the replacement for sick notes, were introduced two months before the research was conducted. In the first survey to seek reaction to it and its impact on healthcare benefit provision, the HR/Simplyhealth survey found staff were not, as had been predicted, being forced to return to work early before they were recovered. About half of our sample said the majority that would have been signed off sick, were still signed off sick. Slightly more than half believed people will become ill just as often as before. "This shows there is lukewarm reception to quite a significant change in government policy," says Laura Hickman-Sparkes, head of corporate marketing, Simplyhealth. "It's not seen as something as significant as was expected." However, there was some dissent. Some 11% said staff that may have previously been signed off ill were now being assessed as fit to work, and a significant 38% of respondents felt it was too easy to be signed off from work and that fit notes may prevent bogus illnesses. This being so, HRDs could expect to reassess what health benefits provide. Some commentators have predicted fit notes will mean more calls being put through from worried employees to EAP service providers.