As part of our ongoing commitment to providing PinnacleCare Members, business leaders and other prospective members with information about relevant health-related topics, we have prepared this paper highlighting recent developments in the area of the impact of illness on companies. Drawing on data describing the total cost of health and the innovative strategies leading companies are pursuing, this paper is designed to help business owners understand the value of a proactive approach to safeguarding and improving the health of key leaders and other employees.

People are the heart of any enterprise

No matter whether an organization makes the Fortune 500 or is a smaller, entrepreneurial or philanthropic venture, it is people who form the core of that enterprise, playing an important role in the smooth and successful operation of the company. Within each employee population, there are a few key people without whom the organization cannot thrive. He or she holds that role in the enterprise because of their accumulated skills and expertise that are essential to the organization. They are the creators of ideas, the drivers of success, and the engines that move the company toward a profitable and successful future. That is even more the case in family and privately held enterprises in which the organization's purpose, identity, and vision are usually closely tied to the people in leadership positions.

What would happen to a company and the effectiveness of the leadership team if one of these key people were struggling with a medical issue in their family? As you know, within today's healthcare system that is so focused on cost controls, quality care and adequate time are difficult to obtain and dealing with health issues can be enormously time-consuming and frustrating. While successful companies around the globe perform regular preventive maintenance on their equipment, have disaster recovery plans for core technology and back up their important databases, this proactive approach is rarely translated to mission-critical people. Though some organizations protect their investment in "human capital" through key-man life insurance, this does little to preserve the knowledge base and experience residing with these key people. And while some also offer proactive employee wellness programs and incentives, most get involved with the preservation and improvement of employee health only by providing a regular healthcare benefits plan.

"In every organization, there are people who are critical to the company's success, whether they have key client contacts or technical knowledge or are the visionaries who both embody the company's value and plot its future course," says Charlotta Winslow, PinnacleCare's Vice President of Executive Programs. "When a major illness or injury strikes one of those people, it's difficult if not impossible to replace their expertise while they receive treatment and convalesce. A similar effect is felt when a member of a key executive's family is ill. Though they may still come to the office and try to keep up with ' business as usual', they are significantly distracted by their family situation and unable to operate at full capacity. The economic impact these situations have on companies of all sizes is tremendous. Ill health simply drives huge costs for business."

What does poor health cost business?

Many discussions about the impact of healthcare costs on businesses focus mainly on the skyrocketing cost of medical expenses. Though the increase in spending on healthcare in the U.S. leveled off at 8.2% in 2004, it was in fact four times greater than the growth of wages and has increased close to 60% over the course of the past 4 years.(1) A study by the Centers for Medicare and Medicaid which projects U.S. healthcare costs for the next ten years cites the total cost for care in 2004 at $1.8 trillion, making the cost of healthcare 15.4% of the gross domestic product.(2)

What often gets lost in these discussions is the equally significant cost to business of indirect costs such as lost productivity due to illness. Looking at recent statistics for the cost of lost productivity due to common diseases, conditions, and risk factors is eye-opening.

In 2003, cardiovascular disease and stroke cost American businesses $142.5 billion
In 1997, Alzheimer's Disease and other forms of dementia cost $85 billion. In addition, the Alzheimer's Association found in a 2002 study that an additional $18 billion was lost because of caregiver absenteeism.
In 2000, $56 billion was lost due to obesity.
In 2002, the estimated cost of cancer was $110.7 billion.
In 1997, $54 billion in productivity was lost due to diabetes.
In 1995, arthritis was responsible for a $60 billion loss.
Each year, smoking costs businesses about $80 billion,(3) alcohol abuse $134 billion,(4) depression $44 billion ,(5) and asthma $4.6 billion.(6)

It is not a limited population of seriously ill people who are responsible for these staggering productivity losses. Even diseases that are not necessarily life-threatening such as headaches and the common cold cause employees to miss significant amounts of time from work. A recent study conducted by the Center for Work and Health, a non-profit arm of AdvancePCS, a national pharmacy benefits management firm, discovered that the average American worker loses 115 hours of productivity every year because of a health problem.(7)

Beyond productivity issues
In addition to the costs of lost productivity, companies must confront the additional costs of disability payments and the cost to find and train a temporary or permanent replacement for the ill employee. In a presentation at the 2003 National Forum on Health, Productivity and Absence Management Review, Thomas Parry, PhD, President of the Integrated Benefits Institute, calculated that for each average full-time employee, the hidden costs of absence add up to $3,288 in excess staffing and more than $10,000 in lost revenue potential.(8)

Adding further to the lost productivity equation is a situation uncovered by researchers which they term "presenteeism," that is the employee is at work but is unable to function as well as normally either because of his or her own illness or the distraction caused by the illness of a family member. A CBS News story on April 22, 2004 cites a study by the Institute for Health and Productivity Studies at Cornell University which found up to 60% of the total costs of employee illnesses come from people continuing to work despite illnesses that reduce their productivity.(9)

Ron Goetzel, Vice President, Consulting and Applied Research, The Medstat Group, and Director of Cornell University's Institute for Health and Productivity Studies, studied presenteeism and revealed these statistics in a July 2003 article in the "Journal of Occupational and Environmental Medicine."

Here is what Goetzel's investigations uncovered:

The average number of unproductive hours in a typical 8-hour work day is:
4.3 hours for workers with heart disease
4 hours for those with diabetes
3.2 hours for arthritis
2.3 hours for high stress
2.2 hours for depression

In a presentation at The Value of Health Executive Summit hosted by the Institute for Health and Productivity Management (IHPM) and The Conference Board in New York City in July 2005, GlaxoSmithKline Vice Chairman Robert A. Ingram shared this alarming statistic—in 2000, 45% of Americans suffered from a chronic disease such as allergies, hypertension, heart disease or diabetes. That percentage rises with the age of the population reviewed, which means that as the workforce—including those in senior management positions—is aging, these statistics will only get worse.

Needless to say, with the huge direct and indirect costs associated with illnesses, companies are increasingly focusing on ways to promote a healthier workforce. Prevention, disease management and measures to promote wellness are strategies that are becoming more commonplace. In fact, employee wellness is an important weapon in the war against rising healthcare costs.

Health promotion and risk management:

How U.S. business leaders are combating the high cost of ill health In an economy where human capital is increasingly at the core of a company's competitive advantage, it is essential that businesses, no matter how large or small, seek out creative, effective strategies and tools to protect this essential, often irreplaceable, investment.

When businesses look at the effect of rising healthcare premiums on profitability, they make what seems to be the most logical move to cut costs—they shift costs to employees by adopting all or some of the following:

higher premium contributions and co-pays
plans with lower benefit levels that often do not cover preventive care, health screenings, and prescription medications
plans that limit coverage for family members

But, as many business leaders are discovering, these changes can often end up costing the business more in terms of lost productivity and increased direct medical costs! That is because employees:

either can't afford the insurance and don't seek needed care and thus miss work or become less productive;
or, a lack of access to preventive and screening services results in diseases like heart disease, diabetes, and cancer undiagnosed until the employee or a family member develops symptoms and manifests a more severe form of the condition

In fact, a study by Tuck School of Business at Dartmouth found that doubling co-payments in a typical two-tier drug plan led to decreases in prescription medications of eight classes of therapeutic drugs, resulting in more visits to emergency rooms and longer hospital stays, both of which are significantly more costly forms of care.

"The real keys to cutting costs are lowering risk factors, adding preventive health management strategies, making early detection and screening easy to access and affordable, and improving employees' access to quality care," adds PinnacleCare's Charlotta Winslow.

It is no surprise then that CEOs at a number of businesses around the country are leading a movement away from simple cost-cutting toward health promotion and risk management. In his presentation at Value of Health Executive Summit, "Healthy Employees, Healthy Companies: Making the Connection," GlaxoSmithKline's Ingram outlined some common sense solutions to minimize the impact of poor health on business.

Disease prevention. Productivity losses can be predicted. A study by Wayne Burton, M.D. published in the Journal of Occupational and Environmental Medicine in 2000 showed that a person with 2-3 risk factors for major disease—such as weight, high cholesterol and blood pressure, smoking, inactivity, high stress, and poor nutrition—will lose five or more days a year from work. If there are four risk factors, the number of lost days jumps to 13. Risk factors are quite prevalent in the US population today. For instance, nearly 2/3 of Americans are considered either overweight or obese and this number doubled between 1980 and 2000. Obesity is a greater trigger for health problems and increased health spending than smoking or drinking. Individuals who are obese have 30 to 50% more chronic medical problems than those who smoke or drink. Thus modeling risk factors and then designing programs that are preventive in nature and promote enhanced level of impact is important and can include:

tobacco-free worksites, workplace-based cessation initiatives, and no cost coverage for evidence-based treatments to end tobacco use
a focus on diet and nutrition with tactics such as subsidized healthier foods in the company lunchroom
encouragement of physical activity through programs such as one at Johnson & Johnson that invites employees on walks with the CEO;
making available low-cost screening and early detection tests; and
access to quality treatment and clinical trials

Management of chronic diseases. Though you cannot eliminate chronic disease, much can be accomplished through improved management and measures that ensure employees comply with necessary regimens. This includes:

removing administrative barriers to accessing healthcare
not setting out-of-pocket costs from chronic disease management at lower levels to encourage patients to receive regular care
integrating disease management programs into the corporate culture and incentivizing employees to take better care of themselves

Employee health care is an investment that has bottom line impact
Leading by Example, a program launched by Partnership for Prevention in 2004, counts 19 CEOs, including 10 from Fortune 200 companies such as Pfizer, Inc., The Dow Chemical Company, Lands' End, and Pitney Bowes, as members. The program was designed to encourage CEO-to-CEO outreach on the benefits of viewing employee health and productivity management as an investment rather than a cost. Participating CEOs make health promotion and disease prevention an integral part of their business strategy and culture.

"Given today's healthcare environment, it is important that CEOs understand and appreciate the relationship between a healthy workforce and a healthy bottom line," said Partnership for Prevention's President John Clymer in a June 17, 2005 press release. The release continues, noting that healthcare costs pose a serious threat to the competitiveness of U.S. companies, citing annual productivity losses of $225.8 billion. Several studies quoted demonstrate that investments in prevention and workforce health pay off. Among the statistics noted:

A review of 73 published studies of worksite health promotion programs found an average $3.50-to-$1 savings-to-cost ratio in reduced absenteeism and healthcare costs.
A meta-review of 42 published studies of worksite health promotion programs found a 28 percent average drop in sick leave absenteeism and a 26 percent average reduction in health costs.

"At Pitney Bowes…creating a culture of health is consistent with a long-term focus on maximizing return on human capital. We have been able to document significant reductions in health care costs and absenteeism for participants, including projected $1 million savings in 2004 just for diabetes and asthma care," says Chairman and CEO Michael Critelli in the press release.

Highly compensated employee ill health hits businesses even harder

Another vantage point from which to consider the bottom line impact of ill health is the cost of lost time and share-of-mind for key people. Not only are key people typically highly compensated employees, but their value to the business in leadership, knowledge, skills and experience far exceeds the mere hourly rate. As demonstrated in a study by the Wharton School study, the true value of lost time is many times that of the calculated hourly rate. For example, a lawyer's total value was found to be 5.88 times the daily wage. If a lawyer is worth $1,000 per day, just a single day off the job will cost her firm $5,880. If she has to undergo coronary artery bypass surgery which has an average in-hospital and recovery time of seven weeks, the cost to the firm in lost productivity is nearly $300,000.

Clear indicators from business and politics

There are, unfortunately, many examples of the disruption caused by the illness or death of mission critical leaders. In 1997, Coca-Cola Co.'s Chairman and CEO Roberto C. Goizueta died of lung cancer just two months after being diagnosed. Though M. Douglas Ivester was named to step into the leadership position, his tenure was short and unsuccessful compared with Goizueta's legendary turnaround of the company. Ivester was asked to step down after just three years due to his poor handling of a number of crises.

McDonald's Corp. also suffered the loss of its CEO in 2004 when Jim Cantalupo, who was responsible for turning the fast food giant around, suffered a fatal heart attack at the age of 60 at a company convention. Charlie Bell, who succeeded Cantalupo, only served as CEO for six months. He was diagnosed with cancer just a month after taking on the leadership role at McDonald's, and died at 44, two months after stepping down. The following excerpt from the May 20, 2004 broadcast of the Nightly Business Report is illuminating:

EASTABROOK: "The 43-year-old Bell was diagnosed with cancer about two weeks ago and promptly underwent surgery. The operation came just days after former Chairman and CEO James Cantalupo died unexpectedly of an apparent heart attack. Since Bell's illness was announced, McDonald's stock has tumbled."

CARL SIBILSKI, RESTAURANT ANALYST, MORNINGSTAR: "At Morningstar we viewed Charlie Bell as the co-architect of McDonald's successful strategy over the past year. So we think it's kind of -- it's understandable that shareholders would be saying a few extra prayers for him these days."

The impact such events can have on shareholder value is significant.

An even more catastrophic example comes from the experience of TLC Beatrice International Holdings Corp., a snack food, beverage, and grocery store conglomerate that was the largest African-American-owned and managed business in the U.S. with $2.2 billion in sales at its peak. When Reginald F. Lewis, a noted philanthropist and CEO and controlling shareholder of the company died of a cerebral hemorrhage at 50, the company went through a series of leaders, ending with Lewis' widow, who eventually dissolved the company.

And it is not simply the illness of key leaders that can impact an organization. When a family member is seriously ill, it becomes difficult if not impossible for the leader to remain 100% focused on the work at hand. Former Democratic Vice-Presidential candidate John Edwards' wife Elizabeth was diagnosed with breast cancer in the hectic final days of the campaign. Though both Edwards and his wife continued campaigning tirelessly, he later admitted in an interview with Katie Couric on NBC's "Today," "Anybody who knew me well…would have seen the difference. I mean I was completely preoccupied with her, and how she was going to be—also our kids…they need us and we have to be there for them. So, for all those reasons (during the last days of the campaign), I was focused on Elizabeth."

Describing how PinnacleCare fits into the new paradigm of risk management Charlotta Winslow notes, "What we offer is a form of asset protection and 'disaster recovery' planning that in addition to providing a unique benefit to the executive, allows the company to proactively protect the health of key people. Our organization provides clients with a comprehensive approach to health management that saves them significant time and frustration and the ability to regain share-of-mind. PinnacleCare Advocates manage the entire process of seeking and receiving healthcare for clients and their families. This includes superior emergency and medical travel support; consolidated medical records for instant, global access; 24-7 support from a personal PinnacleCare Advocate team; cutting edge medical information to support informed decision-making; accelerated access to the best possible care for faster resolution of issues; an improved healthcare experience and much more. PinnacleCare is currently the only company offering this level of integrated, comprehensive health support for executives.

When mission critical employees know their care and that of their families is being overseen and guided by experts, they gain more time, peace of mind and a steadier focus on business."

The leaders of innovative privately held companies and forward- thinking public corporations will realize both the negative impact poor health management can have on their enterprise, while simultaneously recognizing that help is now finally available. Actions taken today to protect key people will have significant, positive short-term and long-term financial and other business implications.

For further information, contact Charlotta Winslow at CWinslow@PinnacleCare.com

Footnotes

Connolly, Ceci. "Health Care Costs, Spending Up: More in Middle Class Could Join Ranks of the Uninsured." Washington Post, June 21, 2005. On the Internet at http://www.washingtonpost.com/wp-dyn/content/article/2005/06/20/AR2005062001169.html. (Visited August 4, 2005).
Centers for Medicare and Medicaid. "National Health Care Expenditures Projections: 2004-2014." On the Internet at http://www.cms.hhs.gov/statistics/nhe/projections-2004/proj2004.pdf. (Visited August 5, 2005).
Centers for Disease Control. "The Power of Prevention: Health Care Spending is on the Rise." On the Internet at www.cdc.gov/nccdphp/popwer_prevention/pop_spending.htm. (Visited July 25, 2005).
Kirchstein, Ruth, M.D. National Institutes of Health. "Disease-Specific Estimates of Direct And Indirect Costs of Illness And NIH Support Fiscal Year 2000 Update." On the Internet at http://ospp.od.nih.gov/ecostudies/COIreportweb.htm#presentdata. (Visited July 27, 2005).
Rosack, Jim. "Depression Most Costly Illness for Employers." Psychiatric News, July 18, 2003, Vol. 38 Number 14. On the Internet at http://pn.psychiatryonline.org/cgi/content/full/38/14/19. (Visited August 3, 2005).
National Heart, Lung, and Blood Institute. Morbidity and Mortality: 2002 Chart Book on Cardiovascular, Lung, and Blood Diseases.
Pallarito, Karen. "Health Maladies Cost Billions in Lost Productivity." Reuter's Health. On the Internet at http://preventdisease.com/news/articles/maladies_productivity.shtml. (Visited July 25, 2005).
Parry, Thomas. "Calculating the Lost Productivity from Absence." On the Internet at http://www.ibiweb.org/forum-presentations/28. (Visited August 9, 2005).
"'Presenteeism' Plagues Firms." CBS News. April 22, 2004. On the Internet at http://www.cbsnews.com/stories/2004/04/22/health/printable613228.shtml. (Visited August 6, 2005)