Medical and pharmaceutical costs represent only 25% of the total health costs for employers. What makes up the other 75%? The big drivers are complex and ongoing, like absenteeism, presenteeism, workers' compensation, short-term disability and long-term disability costs.

In fact, a recent study by Towers Perrin found that companies that focus primarily on supporting and improving employee health, and commit to rigorous management of their health plans and delivery processes, were able to reduce their costs by up to $1,500 per employee.

A recent study prepared for Cigna by TSC, a division of Yankelovich, Inc., sheds light both on the prevalence of these problems and their impact on productivity.

According to the survey, 46% of U.S. workers were absent at least once in the past six months, not including vacation days or holidays. Additionally, presenteeism - when an employee comes to work sick or distracted by family or personal issues - happened more than twice as often as absenteeism (about seven presenteeism days per employee in the past six months, compared to just three days absent).

Approximately 61% of employees admitted to reporting for work while ill or emotionally distressed, and two-thirds of employees said they do not get enough sleep.

Not only were these conditions widespread, but respondents also noted that they had noticeable effects on their productivity. About 45% of workers said that lack of sleep impacted their work performance, and 62% of those who came to work too sick or distracted to perform their best said they were less productive on those days.

This tracks closely with other research on this topic. A study led by Ron Goetzel at Cornell University's Institute for Health and Productivity Studies found that employee absences for depression and related conditions can lead to an annual productivity loss of $4,741 per employee per year. Presenteeism also takes a notable toll. An employee with migraine or headache issues at work can cost an employer more than $38 a day in lost productivity.

A recent study by Dr. Ronald Kessler of Harvard Medical School and his co-authors found that these health-related productivity costs are more than four times greater than medical and pharmacy costs. The study highlighted the need for a "full-cost" approach to managing health, which means accounting for not only medical and pharmaceutical expenses, but also for wellness and prevention issues.

Case study

When tested by real companies, this focus on prevention and wellness works. For example, Waste Management recognized long ago that the total health costs went far beyond medical premiums. The Houston-based company has about 46,000 fulltime workers. It handles waste collection and recycling for residential, industrial, municipal and commercial customers in the United States and Canada. It operates landfills, recycling facilities, waste transfer stations and waste-to-energy plants.

It created an integrated approach to employee health, with a strong emphasis on return-to-work and wellness programs that address the root causes of health costs and lost-productivity costs. The company began its journey in 2002 and has realized impressive gains in productivity and real reductions in health costs over the ensuing time period.

How did it start? Like most companies, Waste Management knew a large portion of its medical costs were driven by a small percentage of workers. Based on sophisticated data-mining and analysis, the company confirmed that, in fact, only 10.3% of employees accounted for 80% of health spending. The average cost for employees in this group was 35 times greater than the average cost for the vast majority of employees.

Using this information, Waste Management created a specialized return-to-work program and deployed occupational health counselors in the field to provide on-the-ground support to help individuals recover more quickly and return to work within the parameters their doctors had set.

At the same time, the company created powerful incentives to keep employees safe and get injured employees back to work in transitional-duty jobs. In the first year after the program was initiated, the company experienced a 45% reduction in lost-time claims and a 40% reduction in lost workdays, leading to millions of dollars in lost-time and medical cost-savings.

Over the same time period, the company shifted away from its past philosophy for employee benefits, part of which was to find the carrier with the lowest fees and providers' discounts, and then let that drive savings in the health plan.

Waste Management began to improve the design and administration of health benefits and improve employees' (and their family's) engagement in all of their benefits. The company expanded its benefits to include health coaching, incentives and specialized programs to address and prevent chronic conditions, such as low back pain and heart disease - both of which are among the leading causes of disability. These efforts resulted in a $17.6 million reduction in medical and productivity-related costs in 2007.

Waste Management's ultimate goal was to manage all health benefits - occupational and nonoccupational health, short- and long-term disability, and behavioral health - with an integrated, employee-centric view that maximizes health and productivity.

Integrating health and disability

Unfortunately, many employers continue to overlook this need. Despite the high costs at stake, a study from the Integrated Benefits Institute found that only 56% of employers have or plan to have a strategy in place to manage health and productivity.

The main reason employers overlook the need for such a strategy, the study found, is simple: a lack of basic information. Not understanding the outcomes and costs versus benefits, gathering poor data, or simply not knowing enough kept respondents from realizing the full impact of health care costs and creating a plan to combat them.

The good news is that there are proven methods to tackle these challenges. Cigna's 2007 Integration Value Study of 40 customers provided evidence that integrating health care and disability programs offers employers a significant opportunity to reduce their costs and improve their medical and disability outcomes.

Specifically, the study demonstrated that employees in a program designed to meet needs for both health and disability had at least a 5% - and up to a 37% - greater likelihood of returning to work as a result. With smart strategies, employers can rebuild and strengthen the groundwork and foundation of their employees' health. Failing to address this big picture is like ignoring a leaking roof while investing in new carpeting. Why ignore a massive, unnecessary drain on your budget at a time when every dollar counts?