Incentives for Employers to Invest in Health Care

Ill health in the workplace generates costs to employers in two ways: through employees being absent from work and through reduced productivity when unwell employees continue to work. However, although studies suggest that early intervention will cause long-term sickness rates to fall, thereby reducing overall health care costs, UK employers and government agencies are not engaging in workplace health initiatives on a wide scale. In a report for Norwich Union Healthcare, a team led by NERA Associate Director Edward Bramley-Harker suggests that one way to correct failures in the market for workplace intervention is to use fiscal incentives to encourage investment in this area. The team argues that employers are the obvious stakeholder to lead investment, primarily because they have the means to identify workplace absence early and offer appropriate intervention.

The report further suggest that the incentives be applied to interventions focused on returning to work; be targeted at musculoskeletal diseases (MSDs) and mental illness, which account for a large portion of long-term absence from the workplace in the UK; and be applied to schemes that are approved as meeting qualifying criteria. They also suggest that the most appropriate fiscal incentives would in the first instance be provided through offsets against employer National Insurance Contributions. Such offsets would be relevant to both public and private sector employers. Matching funds may also be viable, albeit administratively more complex.

In making their assessment, the report notes that data in this area is relatively sparse. Information that is available suggests that workplace absence is a real cost to employers, and there is a large knock-on cost to society more broadly (including the National Health Service and Department for Work and Pensions). The difference between the social cost and the private cost seems to be large, at least in the case of MSDs and mental illness. This suggests that a pay-back to society from a fiscal incentive would be large. Further work in this area, perhaps based on detailed case studies with employers already offering workplace health intervention, would help to substantiate the case for fiscal incentives and give an indication of how the benefits of early intervention accrue over time.

Read the full report Sharing the costs – Reaping the benefits Incentivising return to work initiatives here

Reference NERA Economic Consulting (2007)

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