w w w. w a t s o n w y a t t. c o m this presentation contains confidential and proprietary...

W W W . W A T S O N W Y A T T . C O M

This presentation contains confidential and proprietary information of Watson Wyatt & Company which may not be reproduced, transmitted or disclosed without Watson Wyatt’s prior written consent. Watson Wyatt & Company 2003. All rights reserved.

World Bank

Making the Business Case for Health and Disability Management in Middle Income Countries

March 4, 2004

2This presentation contains confidential and proprietary information of Watson Wyatt & Company which may not be reproduced, transmitted or disclosed without Watson Wyatt’s prior written consent. Watson Wyatt & Company 2003. All rights reserved.

Overview

The Case for Caring The Macro Economic Case for Action

– Demographic and Economic Factors

The Micro Economic Case for Change– Case Studies

– Key Findings

A Framework for Solutions


The Economic Reasons Are Clear

“While it is impossible to place a value on human life, compensation figures indicate about 4% of the world’s GDP disappears with the cost of diseases through absences from work, sickness, treatment, disability and survivor benefits”

International Labour Organization (ILO)

Using the same methodology, the annual global GDP estimate is a loss of US $1.37 to $1.94 trillion

The World Bank


Sample Disability Organizations of & for People With Disabilities

United Nations – “World Programme of Action Concerning Disabled Person”, 1982

– Decade of Disabled Persons, 1983-92

The United National Standard Rules on the Equalization of Opportunities for People with Disabilities – 1993

The Asian & Pacific Decade of Disabled Persons, 1993-2002 The Copenhagen Declaration of Social Development, 1995 International Labour Organization (ILO)

– Code of Practices on Managing Disability in the Workplace, 2001

National Institute of Disability Management and Research (NIDMAR)

– Consensus Based Disability Management Audit (CBDMA™) 2002

Returning Sick or Disabled Employees Back to Work Is

“A cost savings for employers

AND a lifeline for employees”

Wolfgang Zimmerman, NIDMAR


A changing framework for health and disability

Move from a medical model of “inability” to a social model of disability that eliminates barriers that are:

- Social- Political- Economic- Cultural- Environmental

SocialWelfare

EqualRights


Definition of Developing Countries

Developing Countries

Low- and middle-income countries in which most people have a lower standard of living with access to fewer goods and services than do most people in high-income countries. There are currently about 125 developing countries with populations over 1 million; in 1997, their total population was more than 4.89 billion.

Low income:Classified by the World Bank in 1997 as countries whose GNP per capita was $765 or less in 1995

Middle income:Classified by the World Bank in 1997 as countries whose GNP per capita was between $766 and $9,385 in 1995. These countries are further divided into lower-middle-income countries ($766- $3,035) and upper-middle-income countries ($3,036-$9,385).

Source: World Bank Website




Lower Middle Income Countries (54) Albania Guatemala Romania Algeria Guyana Russian Federation Armenia Honduras Samoa Belarus Iran, Islamic Rep. Serbia and Montenegro Bolivia Iraq South Africa Bosnia and Herzegovina Jamaica Sri Lanka Brazil Jordan St. Vincent and the Grenadines Bulgaria Kazakhstan Suriname Cape Verde Kiribati Swaziland China Macedonia, FYR Syrian Arab Republic Colombia Maldives Thailand Cuba Marshall Islands Tonga Djibouti Micronesia, Fed. Sts. Tunisia Dominican Republic Morocco Turkey Ecuador Namibia Turkmenistan Egypt, Arab Rep. Paraguay Ukraine El Salvador Peru Vanuatu Fiji Philippines West Bank and Gaza




Upper Middle Income Countries (34) American Samoa Hungary Panama Argentina Latvia Poland Belize Lebanon Saudi Arabia Botswana Libya Seychelles Chile Lithuania Slovak Republic Costa Rica Malaysia St. Kitts and Nevis Croatia Mauritius St. Lucia Czech Republic Mayotte Trinidad and Tobago Dominica Mexico Uruguay Estonia Northern Mariana Islands Venezuela, RB Gabon Oman Grenada Palau


The Case for Concern

Why should employers in developing countries be concerned?

– Attract and retain high producing workforce – Be competitive for benefits– Find more ways to reduce costs– Keep employees motivated– Reduce illness absenteeism– Improve administrative efficiency– Maintain, improve and manage health– Increase satisfaction– Multi-national companies interest in consistent labor and cost

management initiatives


The Operation of a Macro Economy & Why Demographics Matter

=Labor

GrowthRate

+

Demographics Qualityof workers,

capital stockand technology

Depends on consumer demand

GDPGrowth

Rate

ProductivityGrowth

Rate


Macro Economic View for Change

Labor Growth (Demographics): Global Aging Labor Growth Rates in Middle Income Countries Unemployment Rates

Productivity Growth (Health Indicators) Mortality Health Expenditures GDP and Per Capita Disability Prevalence

Other Issues Social Reform; wage and job protection


The Operation of a Macro Economy and Why Demographics Matter

=Labor

GrowthRate

+

Demographics Qualityof workers,

capital stockand technology

Depends on consumer demand

GDPGrowth

Rate

ProductivityGrowth

Rate

We know what we want here

We know what we have here

Do we haveenough of this

to make it work?


Working-age Populations (20-64) of Selected Countries in Thousands for Selected Years

2000 2010 2020 2030

Canada 18,943 20,911 21,517 20,985

Mexico 51,316 63,492 74,047 80,586

Japan 79,074 75,904 68,993 65,070

France 32,071 32,628 31,424 30,173

Germany 51,228 50,046 48,685 43,189

Italy 32,416 30,924 28,636 24,194

United Kingdom 32,197 32,540 32,345 29,380

United States 167,105 186,967 197,288 198,257

Source: United Nations, World Population Prospects: The 2000 Revision.


Reasons for Change: Labor Growth Rate

Source: United Nations Statistics Division

Average Annual Labor Force Growth Rate (2001-2010)

0.0

0.5

1.0

1.5

2.0

2.5

Low income Middle income Low er middle income Upper middle income High income

Countries

% L

abo

r F

orc

e G

row

th R

ate


Reasons for Change: Unemployment Rates


0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Africa Latin America/Caribbean Asia Developed Countries

Ma

le U

ne

mp

loy

me

nt

Ra

te (

%)


Reasons for Change: Mortality (upper middle income)


0%

5%

10%

15%

20%

25%

Amer

ican S

amoa

Argen

tina

Belize

Botsw

ana

Chile

Costa

Rica

Croat

ia

Czech

Rep

ublic

Domin

ica

Eston

ia

Gab

on

Gre

nada

Hunga

ry

Latv

ia

Leba

non

Liby

a

Lith

uani

a

Mal

aysia

Mau

ritius

May

otte

Mex

ico

North

ern

Mar

iana

Isla

nds

Om

an

Palau

Panam

a

Polan

d

Saudi

Arabi

a

Seych

elles

Slova

k Rep

ublic

St. Kitts

and

Nev

is

St. Lu

cia

Trinid

ad a

nd T

obag

o

Urugu

ay

Venez

uela

, RB

Upper middle income countries

Per

cen

tag

e o

f to

tal m

ale

life

exp

ecta

ncy


Reasons for Change: Health as a Percentage of GDP

Source: The World Bank Group: Human Development Network Development Data Group

0.0

2.0

4.0

6.0

8.0

10.0

12.0

World Low income Middle income Lower middle income Upper middle income High income

Countries

Public Expenditure of Total Health Expenditure as a Total % of GDP Private Expenditure of Total Health Expenditure as a Total % of GDP


Reasons for Change: Health Expenditure per Capita


$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Low income Middle income Low er middle income Upper middle income High income

Countries

Health Expenditure Per Capita ($)


Reasons for Change: Select Countries Prevalence of Disability


%

with

Dis

abili

ty

0%

5%

10%

15%

20%

25%

30%

35%

40%

India

Qatar

Kuwait

Singap

ore

Niger

ia

China Italy

Aruba

Belize

Saint V

incen

t & th

e Gre

nadin

es

Canada

Urugu

ay

Austra

lia

New Zea

land

Norway


Reasons for Change: Compliance & Wage Protection

Source: OECD 1994

Ranking of selected OECD countries by “strictness” of employment protection legislation

0

5

10

15

20

25

Most Strict Legislation Least Strict Legislation


Key Findings

Global aging (and infertility rates) is expected to reduce the labor force in industrial countries significantly

Health status and health care spending is lowest in low and middle income countries due to access and availability issues

Middle income countries have a large labor force and high unemployment rates, resulting in employer belief that the cost of replacing workers is lower than retaining existing workers

Middle income countries spend at least twice as much on disability related programs as they spend on unemployment

Disability benefits on average account for more than 10% of total social spending, in Poland they are double

Direct medical and disability costs are usually mandated and are paid through government assessments, therefore business has less incentive to change


Key Findings

Health indicators such as lifestyle issues drive a need for health management; smokers incidence rates are >27% in 58% of OECD countries, Obesity rates are growing with more than one third of the countries averaging a BMI rate of almost 15% or greater

Aging population drives fewer workers and increasingly more stress on social programs that cannot afford the increases


The Opportunity for Change

Health and absenteeism are key cost drivers for business Retaining an already well trained work force is key Access to timely and quality medical care is a critical issue for

employees and employers Companies who leverage these issues are operating at improved

cost levels and therefore more competitive Middle income countries could be positioned to leverage over-

burdened health care systems A component of the solution is a partnership with government and

business


Microeconomic Case for Change

Case Studies– Mexico

– Poland

Key Findings


The Business Case for Health, Absence and Disability ManagementA Case Study

Why Change? Direct and indirect costs of health & absence are not consolidated

in a way to show total impact Consistent metrics and tracking of the total cost of health and

disability costs are usually non-existent No common framework or interventions in place Many factors drain employee productivity and increase business

costs Unmeasured and unmanaged processes create inefficient systems,

disruption to business and impact employee effectiveness at work


Case Studies – Mexico & Poland

What Was Done:

1. Pilot sites were selected

2. Stakeholder & process evaluations were conducted

3. Internal & external gap analysis completed

4. All costs were analyzed; direct & indirect

- Employee benefits

- Business Systems

5. Root cause analysis of absence & disability completed

6. Recommendations were made & pilots launched for 6 months


Health Absence & DisabilityAligning Customer Requirements with Business Goals

Customers Employee Business Operations

Secondary Customers Work Councils/Labor

Representatives Government National Health Care Systems Business

• Human Resources• Health & Safety• Finance• On-Site Medical Clinics• Union Relations• Legal

Overall Expectations

Employees Safe work environment Reasonable pay and benefits After illness, return to work when

safe Business Operations

Productive and reliable work force Well trained work force Program improvements had

measurable impact on business goals (bottom line, productivity)

Reliable data to make decisions Cross functional support for change


The Business Case – costs are not easily consolidated

Profit & LossProfit & Loss

Variable Costs

Direct materials

Other variable costs(Transportation/Packing)

Direct Labor

Hours Capacity

Absenteeism

Hours Capacity Shortage Product Volume

Capacity increased to balanceAbsenteeism

Base Costs

Sales & Advertising

Government Assessments

Other; rent, depreciation, maintenance, legal, etc.

Plant ProcessControls

Volumes

Technology Effect

Materials Planning

Service

Quality

Absenteeism/Disability/Health


The Business Case

Illness/Disability Health Care

Direct Costs

Overtime Replacement Workers Quality Retraining Others

Indirect Costs

Employee Morale Management Time Government Requirements

Other Costs

The Total Cost of Health and Disability:


Mexico Case Study

Issues: Costs for sick leave and disability

increasing – 2x company average Medical clinics unable to provide effective

primary care Access to routine pharmaceuticals were

not available due to government barriers No clear communication when employees

were returning to work No consistent return to work programs in

place Overtime rates were raising outpacing

U.S. “sister-facilities” Government supplied health care systems

were overextended and inefficient however willing to partner with business

Recommendations/Impacts: Contracted with IMSS (National provider of

health care services) for priority care, service requirements, and integrated communication systems

Created an arrangement with National Health Insurance to provide medications that could be delivered through on site medical clinics

Created a standard software tracking system for all locations for improved measurements & cost impacts

Local ownership and leadership of Absence programs were key – cross functional steering committee created for sustainable change

Absence was reduced by 30% in first 6 months of pilot resulting in cost savings for company – employees had better quality medical care and retained valuable job


Poland Case StudyIssues: Absence rate was higher than company

averages

Multiple types of absenteeism caused time away – disrupting business operations

– Sick Absenteeism – paid at 100% salary

– Unpaid personal leaves

– Marriage, child birth, death in family

– Unapproved leaves

– Child care related absenteeism (80% of salary paid from government insurance)

Avoidable/preventable absence estimated to be 6% (1/3rd of absence)

Recommendations/Impacts: Defined Absence in two categories:

– Controllable Sick Child care Others

– Uncontrollable Government mandated leave Company provided leave

Measures established – showed range of controllable hours lost were 8.5 4.2 hours/employee in one calendar year

Supervisor outreach established

Triage to other support systems– Sick child care

– Flexible work arrangements

Approval provided for absence by supervisor

Absence was reduced by almost 20%


Case Study Lessons Learned

Country & business cultures vary greatly Total systems approach works best National healthcare systems can be a challenge and an

opportunity Return on investment will be direct, indirect costs and

productivity Reliable data is often scarce, but can be gathered Multinational businesses can be a facilitator of change Results are a win for both employers and employee

interests


A Framework for Change Health and Productivity Model

Population Health ManagementAn Integrated Strategy Across The Health Continuum

Wellness Management• Information• Motivation• Preventive Screening

Wellness Management• Information• Motivation• Preventive Screening

Risk Management• Targeted Intervention• Targeted Screening

Risk Management• Targeted Intervention• Targeted Screening

Demand Management• Self Care• Nurse Advice Line

Demand Management• Self Care• Nurse Advice Line

Disease Management• Compliance• Risk Management

Disease Management• Compliance• Risk Management

Disability Management• Case Management• Decision Support

Disability Management• Case Management• Decision Support

Health & Well Being

Low Risk, Optimal Health

Health & Well Being

Low Risk, Optimal Health

At Risk

Inactivity, Obesity,Stress, High Blood

Pressure

At Risk

Inactivity, Obesity,Stress, High Blood

Pressure

Minor Illness/Injury

Doctor Visits

Minor Illness/Injury

Doctor Visits

Chronic Disease

Diabetes

Heart Disease

Chronic Disease

Diabetes

Heart Disease

Disability

Traumatic Injury

Cancer

Disability

Traumatic Injury

Cancer

85% of Employees = 15% of Costs 15% of Employees = 85% of Costs

Source: 2003 Wellness Councils of America


Health Status Influences More Than Medical Costs In The Workplace

Health status and disability has a direct correlation to business bottom lines.

Direct and Indirect costs include:– Absenteeism from work

– Disability program use

– At work injury program costs

– Overtime/Turnover

– Family related medical leave

– Presenteeism (on-the-job productivity losses)

Non-Health related costs:– Government regulations are increasingly complex adding business costs to comply

– Management time to address workplace implications for the disengaged and absent


A Broad Framework for Solutions

• Political- Model changes after other successful companies and countries

- Assure equality of treatment

- Government is often a change agent for social development

• Economic- Globalization has put price pressures on all companies

– Develop a workplace strategy consistent with economic development principles

- Cost of social programs are outpacing ability to pay, new ideas are a competitive requirement

- Cost savings are throughout the system; create a baseline and measure impacts

- Stage economic development for innovation and capital investments

- Pressure for jobs and productivity require action


A Broad Framework for Solutions

Social – Government programs may welcome new ideas– Generate clear guidelines, rights, and responsibilities for programs– Promote success through communication and published studies

Environmental– Company policies and benefit programs can be a lynch pin for change– Leverage work already pioneered by other companies and countries– Benchmark best practice companies– Leverage private and non-profit enterprises to assist in solutions– Consider a community wide effort

Cultural– Country and company cultures vary– Sensitivity for privacy and benefit entitlement– Cross functional support within a company is critical– Involve public resources, employee and labor will be essential for success


A Business Framework for Solutions

Four variables influence the cost of health, absence and disability

Funding– Pools– Direct and Indirect ROI– Tiers

Benefit Plan Features– Integration/Coordination– Voluntary/Ancillary Programs– Private Plans

Prevention– Safety– Education– Health Management

Program Management– Policies/Practices– Healthcare Access– Return to Work– Administrative Services

Funding Prevention

ProgramManagement

Benefit Plan Features

“The only asset that’s unique to a company...an asset that can’t be replicated by rivals...is the quality of their workforce.

-Robert Reich 22nd Secretary of Labor of the United States April 2002 – Corporate Assets Redefined


Open Forum & Questions

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