Health Absence Productivity Trends and New Perspectives Atlanta

Health, Absence, & Productivity Trends and New Perspectives Atlanta Association of Health Underwriters May 13, 2005 Barton Margoshes, MD Chief Medical Officer CIGNA Group Insurance 1

Demographic Tsunami Aging Workforce + Chronic Diseases Increasing Medical + Disability Costs 2

Aging Workforce ● In 2010, 51% of labor force will be over 40 � US ● Census Bureau In 2003, Americans aged 55 and older made up approximately 12% of the workforce - the highest percentage ever recorded � Bureau ● Aging labor force is expected to cause 37% increase in incidence of disability � JHA 3 of Labor Statistics Factbook 2001

Chronic Conditions ● The five illnesses where costs increased the most were heart disease, asthma, mental disorders, cancer and hypertension � Health ● Affairs 8/04 “The highest rate of increase in medical and disability claims costs is among 30 to 39 year olds, and both are due to obesity. ” � Helen Darling, president of the National Group on Health, a Washington, D. C. consortium of 208 large employers ● 26% of STD episodes involve a chronic illness and represents 52% of employee medical costs � CIGNA 4 Study, 2004

Rising Medical Costs ● Factors fueling rising costs include: � Rapidly rising hospital unit costs � Prescription drug cost increases � Increasing consumer demand � Aging population Health care as a % of GDP 5 Total cost = unit cost x utilization Employee contributions Source: John Hopkins Bloomberg School of Public Health

6

Disability Costs ● 33% of employers reported in a National survey that short-term disability incidence rates increased while only 10% reported a decrease in incidence rates ● Employers responding to the survey also cited certain disability conditions as increasing in cost or frequency (ranked from high to low): � stress or depression (70%); � cancer (60%); � low back pain (57%); � upper extremity repetitive trauma, such as carpal tunnel syndrome (55%); � other musculoskeletal issues (52%); and � respiratory conditions (37%). 2002 Survey of Employers' Time-Off and Disability Programs by Mercer Human Resource Consulting and Marsh Inc. 7

Individuals Receiving LTD Increased 62% from 1992 -2002 Source: Department of Labor 8

The Aging Workforce & Lifestyle Health Risks Correlate with Short Term Disability ● Risk factors studied: � Age � High blood pressure � High cholesterol � Diabetes � Family history of � Obesity � Tobacco use � Lack of exercise heart disease Source: Wayne Burton, M. D. , IHPM North American Summit Meeting 2000 9

The Impact of Lost Productivity ● Average $6, 000 Per Employee Per Year ● Averages 15% Of Payroll Employer Costs of Lost (% of Payroll) Direct Indirect Total AON 4 -6% 8 -12% 12 -18% Towers Perrin 8 -12% 4 -6% 12 -18% Watson Wyatt 6. 1% 2 -4 x direct costs 12 -30% Mercer 4. 4% . 5 -4 x direct costs 7 -22% Direct Premium Costs – Only 1 -2% of payroll 10

Presenteeism According to studies at Cornell University 60% of the total cost of worker illness stems from”on-the-job productivity losses” also known as “presenteeism” exceeding what companies spend on medical and disability benefits and sick days. The biggest productivity drains are headaches, allergies, and arthritis. 11 Research shows the average U. S. employee loses 115 productive hours each year to health conditions, costing employers an estimated $2, 000 per worker per year.

Integrated Health & Productivity Management Model ● Holistic approach to optimize a company’s human capital – investment in an employer’s people ● Addresses presenteeism, lost time, and employee health to lower costs and increase productivity ● Health related systems involved include: Healthcare � Incidental absence & FMLA � Short and long term disability � Behavioral health � 12 �Pharmacy �Wellness and disease management �Workers’ compensation

Non Health Related Systems involved in a HPM Model 13 � Corporate Culture � Policies and Procedures � Benefit plan designs � Alignment of incentives � Training and human resources � Employee communication � Data Integration

Integration Rationale ● The ultimate health outcome is return to work and productivity BUT return to work is not a traditional healthcare outcome ● There is inherent fragmentation within the healthcare and disability system ● 14 � Healthcare controls cost and quality through appropriate medical utilization and medical necessity � Disability management controls cost and quality through matching functional ability and functional demands of the job Integration helps employers measure and manage the total cost of benefits

Integration is not just for large employers Interest in Linking Benefits by Employer Size 15 The Workplace Path to Productivity and Health, Integrated Benefits Institute 2004

Goals of HPM Strategy 16 The Workplace Path to Productivity and Health, Integrated Benefits Institute 2004

CIGNA’s Disability & Healthcare Connect ● A comprehensive and integrated approach for controlling quality and cost outcomes of a disability event ● Key components include: ● 17 � Proactive pre-disability outreach � Coordinated disability and medical case management � Referral to disease management services � EAP assessment and referral Common philosophy, linked processes and technology

Key Study Findings 18 ● Short term disability (STD) durations and return to work percentages are consistently better for claimants having both CIGNA Disability and CIGNA Health. Care ● 20% of employees were responsible for 91% of employee medical costs ● Employees on short term disability represented only 5% of employees, but were responsible for 35% of employee medical costs ● Behavioral health conditions associated with a medically related disability result in poorer outcomes (durations 28% longer; incidence rate 7% greater)

Key Study Findings (continued) 19 ● Most of the top cost drivers are the same for both disability and medical ● Disability claimants with chronic conditions experience longer durations whether or not the disability was primarily due to the chronic condition ● Employees engaged in Well. Aware’s (disease management) Cardiovascular Disease and Low Back Pain programs experience shorter disability durations & lower incidence of short term disability

Proven Results Solutions that Address Both Medical and Disability Cost Drivers Have a Greater Impact 20% Claimants with both a CIGNA STD and a CIGNA Health. Care claim have: 15% 10% 5% 0% 12% Shorter STD Durations 20 6% Higher Return to Work Rates

Average Medical & Disability Costs for Employees 21

Disease Management Reduces Both Medical and Disability Costs Admission Rate Reduction Medical Cost Savings Disability Incidence Rate Reduction Cardiac 4. 0% 13. 0% 7. 7% Low Back 2. 2% 12. 0% 18. 0% Condition 22 Disability Duration Reduction

Disease Management Reduces Costs Average Medical & Disability Costs for Employees 23

Summary 24 ● Healthcare and disability costs will continue to escalate due to demographic trends ● Aging, chronic diseases, and mental health are inter-related and will have an adverse effect on employers profitability and competitive advantage ● Employers need to consider the total cost of care (healthcare + disability + lost productivity) ● Investing in an employer’s human capital through wellness, disease management, quality healthcare, and integrated disability makes business sense

Questions 25