Should employers provide health insurance to their employees? There are many reasons why they should. One is that employees are attracted to firms that offer health insurance, especially since their are tax and cost advantages to group health insurance purchased through an employer. Another reason is that if a worker becomes sick, that reduces productivity. But how much does it cost a firm when either 1) a worker is absent from work (absenteeism) or 2) the worker shows up for work but their productivity is impaired (presenteeism)?
A paper by Pauly et al. (2008) attempts to quantify these costs. Unlike most studies, they use manager estimates of lost productivity. While workers may have better information regarding how much productivity is lost during an illness, workers may have an incentive to answer strategically and further, managers will be the ones ultimately deciding how much health care preventing employee illness is truly worth.
The authors hypothesize that jobs with the following three characteristics will be more affected when a worker becomes ill:
- jobs with high values of team production,
- jobs with high requirements for timely output, and
- jobs with high difficulties of substitution for absent or impaired workers.
A firm of course, can invest in protection measures in the case of illness. For instance, it could cross-train workers, it could accumulate inventory to smooth out periods of down time, or might pay workers to work harder if an employee is missing. Nevertheless, the authors estimate the costs of absenteeism as follows:
|Job Type||Absence multipliers|
|Auto Service technician||1.05|
|Customer Service Reps||1.10|
|MD office receptionists||1.10|
|Hotel Desk Clerks||1.25|
The authors assume that the cost of being absent must be at least the employees wage if the labor market is competitive. We see that the cost of an illness is significantly higher than the wage. Also, jobs that were found to involve more teamwork, had times sensitive products, and for which workers were not substitutable had larger absentee multipliers.
For workers who are sick, but come to work, here is the cost to the firm as a percentage of the employees wage.
|Job Type||Acute %||Chronic %|
|Auto Service technician||12.5%||12.5%|
|Customer Service Reps||25.0%||15.8%|
|MD office receptionists||25.0%||25.0%|
|Hotel Desk Clerks||25.0%||25.0%|
One problem with this analysis is that it assumes that this is a one-time illness. If these are long term illnesses, it may be more cost effective for the firm to fire the employee because their sickness is either 1) driving up insurance premiums or 2) causing them to miss too much work. Offering a generous health insurance benefit may help to prevent illness, but may also attract sicker people to the firm. Thus, despite the article’s demonstration that the cost of employees missing work is significantly higher than their wage and that there are large costs when workers come to work when they are sick, it still does not mean that employers will want to offer generous health plans.
- MV Pauly, S Nicholson, D Polsky, ML Berger, C Sharda (2008). “Valuing Reductions in On-the-job Illness: ‘Presenteeism’ from Managerial and Economic Perspectives.” Health Economics, vol. 17(4): 469-485.