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© Copyright 1999 Maclean Hunter Publishing Ltd. The following article first appeared in the February
1999 edition of BENEFITS CANADA magazine.
Winning The Health Management Game
An aging population has changed the rules for many health plan sponsors. For employers who want a
winning workforce and a healthy bottom line, prevention is the name of the game
BY FRED HOLMES
It isn't news to anyone that our population is aging. In his book, Boom Bust & Echo, David Foot
wrote of the predictability of future events based on the aging population. Yet, many employers seem to
have closed their eyes to the implications of this major demographic trend. Why are employers so reluctant
to tackle this inevitable and predictable subject matter? Do they hope it will go away when a
pharmaceutical manufacturer develops a pill to cure the symptoms? Or is it that most of those in senior
management hope to retire before having to deal with the problems of an aging workforce?
Pretending it isn't happening won't make it go away, as many employers with year 2000 (Y2K) computer
problems are quickly realizing. The difference is that the Y2K problem has a definitive date, whereas the
impact of the aging workforce will be spread out over time.
The fact remains that in Canada the baby boom generation, the largest segment of the population, has now
passed the age of 50. Its tail-end has hit age 30. According to population projections from Statistics
Canada, by 2006, 50% of the baby boomers will be over age 50. By 2016, 100% of the baby boomers will have
passed age 50.
Why is the age of 50 so significant to employers? Because, for both genders, the escalation of healthcare
consumption after age 50 is awfully rapid.
As the population grows older, employers need to figure out how to manage the cost of benefits plans and
maintain a workforce that must be healthy to be productive. This is an incredible challenge since
healthcare costs rise almost exponentially after age 50. Many studies, including one by University of
Waterloo's Dr. Robert Brown called Economic Security in an Aging Population: Implications to the design
and marketing of group products, and, most recently, Merck Frosst's Handbook on Private Drug
Plans, show that health goods and services consumption increases with age. In the senior years,
consumption rises for prescription drugs, vision care, hearing aides, semi-private hospital rooms, nursing
care and stays in chronic care facilities. Dental costs remain stable for those who have actively looked
after their teeth, but rises for those who didn't.
According to Statistics Canada and insurer rate manuals, sick days also increase with age. A worker under
30 will incur less than half the days off a 60 year old will--a difference of about six days off per year.
Similarly, we know that casual absence days due to illness increase with age and, says Canada Health
Monitor, with childcare duties.
How wonderful to be an employer whose workforce is well below the age of 50, where healthcare consumption
is relatively flat from age 20 to the mid-40s. But the reality is that everyone's workforce will age. It is
folly to rely on baby boomers' children and grandchildren (the so-called baby bust and echo generations) to
provide full replacement for retiring employees. The younger generations represent a much lower number of
potential new workforce entrants--they can't be relied upon to replenish today's workforce.
The result will be competition among employers for young successor employees, or bidding wars for future
workers. Yet, since not every employer can or will want to compete for these future young workers, the
strategy for many employers will be to retain older workers for their accumulated knowledge.
For aging workforces to be competitively productive in the future, they will need to be healthy. But are
employers looking at health?
BALANCING SUPPLY AND DEMAND
Until the recession in 1981 and 1982, benefits plans were in a period of growth. But, the recession ended
the expansionary years and signalled a shift to the containment of escalating costs. At first, these
initiatives focused on financing.
But as the 1980s wore on, employers began implementing cost-containment forays into flexible benefits,
restrictive formularies, capitation dental arrangements and benefit take-aways. The essence of these
actions was to shift cost from the employer to the plan member.
While the early 1980s recession drove the first round of cost containment, it is likely that the new
accounting rules for post-retirement non-pension benefit liabilities will trigger another round of cutbacks
as organizations seek to deal with their balance sheets. One of the realities of accounting systems is that
they create and promote accounting silos to charge expenses against, and credit revenue.
In the world of benefits management, we need to see the bigger picture. That means crossing the silos of
costs and focusing on the value. Cutting back health benefits may meet an accounting objective, but if the
withdrawal of the benefit results in higher rates of absence due to sickness, the employer's productivity
decreases with negative implications for the bottom line.
But, if we improve the health of the workforce, productivity improvements will materialize. Improvement, as
measured against industry benchmarks, should be counted as credit for internal accounting purposes.
If we believe that a competitive Canadian workforce is necessary for corporate survival in a global
economy, then health must be the critical backbone for keeping the workforce competitive. In this scenario,
the issue is for employers to focus on workforce health rather than on the cost of benefits plans. To
attain workforce health, the distribution and delivery of healthcare by an employer requires a completely
different mindset.
THE NEW DEMAND MANAGEMENT
While many cost-containment initiatives introduced by Canadian employers can be categorized as restrictions
on the "supply side," workforce health requires a different paradigm of delivery called "demand
management." Demand management is an approach to reduce future costs by tackling emerging health issues
today, and future health issues before they begin to manifest in an employee. This means more than health
promotion. It means disease management for the afflicted and prevention for those unafflicted.
Disease management should be an easy sell to employees. They want to recover from their affliction, or to
at least maintain a certain quality of life and productivity. For those whose lifestyle activities include
things that will impair their future health, such as smoking, prevention can only become successful if
personal health habits change.
Health promotion programs that result in a positive change in the personal health habits are known as
wellness programs. This is the direction in which employers must head to ensure their increasingly older
workforce remains productive.
COSTS PAY BACK
Despite the obvious demographic trends, employers are still showing a reluctance to recognize or deal with
the implications of an aging workforce. Is it because they are afraid of the unknown? Do older
decision-makers feel a personal discomfort, perhaps a conflict of interest between their personal needs and
wants versus the employer's shareholders?
Yes, demand management comes with an up-front cost in 20th century dollars. But the pay back will be in new
millennium dollars. Considering that, in 2010, the value of the 1999 dollar will be reduced to 80ยข or
lower, and will have less purchasing power than it does today, spending now reduces the future cost.
When we look at the cost escalation curves of typical benefits plans, the cost of looking after workforces
with an average age in the 40s is far cheaper today than looking after a workforce with an average age in
the 50s in 10 years. We can't escape the aging issue.
The strategic planning cycle of human resource practitioners must include a long-range game plan to deal
with it. No captain can win the game with an unhealthy team. Corporate leaders need a healthy workforce to
position their companies for success in the new millennium. It's time to face up to the challenge and do
what has to be done.
Fred Holmes is senior consultant for Buck Consultants Limited in Toronto.
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