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It is economically viable to treat your workers - part 2 in series
Alizanne Cheetham, Ian Sanne and Chris Barker. Business Report. 13 May 2003. Republished courtesy of Independent Newspapers (Pty) Ltd.
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In most South African companies it is cheaper to treat than to ignore HIV/AIDS in the workforce. Analysis of 70 South African companies by FutureForesight, the firm of HIV workplace economics specialists, has shown the viability of completely funding HIV treatment in most cases.
Companies with low salaries have high HIV/AIDS prevalence, and can thus save substantially by treating. Those with high salaries have low HIV/AIDS prevalence - but similar magnitudes of savings, because lost productivity is more highly valued.
Progressive South African companies now recognise that the economic case for treatment does not depend on salary levels and prevalence does not determine the need to act quickly. But all but the top few are hamstrung by the costs of employing consultants to conduct an economic evaluation of their specific business.
The economic case is most simply constructed by first examining a single HIV-positive employee. During the last two years of life (full-blown AIDS), this employee will take at least 55 days' sick leave - based on extensive work by Boston University in South Africa - and the company will have to take a 25 percent drop in productivity. Research on depression alone shows that this is conservative.
When the company dismisses the employee on the grounds of incapacity, a three- to six-month waiting period will be applied by the disability insurer, which the company will have to carry. Lost time can be conservatively valued at three times daily salary - any lower and the business should not be running. A well-managed waiting period should cost no more than the salary involved.
The graph shows how this cost accumulates, with 25 percent of the costs falling in the two years before full-blown AIDS. The alternative is treatment.
Our second cumulative graph shows that treatment should start when the company would have started to lose productivity. The costs shown assume a gold-standard treatment and wellness programme, with drugs priced at today's retail pharmacy prices and dropping 10 percent a year until they reach 50 percent of today's prices.
Life extension should average seven years, provided the patient is treated early enough, and some minor costs are shown for disease monitoring before treatment.
The key to this proof's robustness lies in the absence of employment termination costs.
We will cover this in a future article, but for now we can say that the waiting period can easily be negotiated away. By starting on treatment the company gives the disability insurer a seven-year delay in the payout, which translates into a 40 percent decrease in the insurer's costs.
Independent brokerage firms, such as Alexander Forbes, are already securing agreements around expedited AIDS disabilities for their clients, on the strength of a credible HIV management programme.
This calculation is conservative and deliberately excludes controversial costs such as funeral leave, recruitment costs, provident fund impact, employee benefits escalation and, most importantly, the proven prevention benefits arising from voluntary testing. All of these would add to the economic case.
The net result, discounted to 2003 money values, is around break-even for someone earning R3 500 a month, but rises rapidly to R80 000 for a salary of R7 000 a month. It is easy to see how cross-subsidisation allows an employer to implement a common policy across the company, offering gold-standard treatment to chief executive and floor sweeper alike. Bear in mind, lower salary bands have higher prevalence but lower programme uptake.
High returns from treating skilled workers quickly offset the marginal losses that may occur in the treatment provision of the lower-earning job categories.
This cross-subsidisation is primarily through the benefits gained from offering treatment to middle management-level positions, and 74 percent of the companies analysed showed the economic viability of treatment across the workforce. Almost counter-intuitively, the economic argument is entirely independent of medical aid.
The company has a vested interest in treating its labour force. If the firm owns the costs, the employer still saves by implementing treatment, while medical aid is protected for the family.
Dr Ian Sanne, the head of Wits Health Consortium's Infectious Diseases unit, has been treating indigent adults for over seven years. Chris Barker is managing partner at FutureForesight, a consulting firm on HIV. Alizanne Cheetham, MA economics, also contributed to this article
This is the second in an eight-part series on HIV/AIDS and the workplace
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