Employee Health is Human Capital

Human capital and equipment capital are very different. Human capital brings intelligence, problem solving, creativity, teaming, and “intrapreneurial” values to a business. Employees bring understanding, compassion, mentoring, and flexibility. That is why human capital is the most important asset of any business.  

A June 2010 survey supported by the Institute for Health and Productivity Management found that 62 percent of American businesses and nearly 85 percent of employees say the workplace must play a leadership role in creating a healthier workforce and helping to curb rising healthcare costs. In their own self interest, employees want employers to take an active role in creating a healthy workplace.

As individuals, personal human capital is the economic value workers bring to a company. The Health as Human Capital Foundation (HHCF) defines human capital as three personal assets: 

(1)   Skill — education and experiences,

(2)   Motivation — attitudes and values, and

(3)   Health — physical and mental capacity. 

The development of personal human capital creates income opportunities and long term financial growth for individuals. Without health all the other aspects of personal human capital are quickly diminished. Individual health and a healthy workplace is the link between personal career interests and corporate productivity interests.

Studies from HHCF indicate that identical companies, with equalized populations, and the same benefits can have an 84 percent difference in healthcare costs. Human capital combined with “corporate humanity” may be the answer. “Corporate humanity” is the degree to which companies treat employees as rational intelligent adults.  Human Capital Management Service Group (HCMS) studies show that companies that treat employees with respect and dignity in other areas of benefits and work assignments have lower healthcare costs. 

Few corporations have taken the time to develop inclusive ways to engage employees. Four areas to establish effective employee engagement are:

(1)   Shared Rewards — providing employees with something to gain

(2)   (e.g., Are employees eligible for bonuses?)

(3)   Shared Responsibility — putting employees at risk with something to lose

(4)   (e.g., Do employees have a paid-time-off-bank instead of sick leave?)

(5)   Asset Growth — giving employees something to protect

(6)   (e.g., Do you have a 401(k) available with at least a 3% corporate match?)

(7)   Ownership — allowing employees the freedom to choose

(8)   (e.g., Do you offer a consumer-driven healthcare or healthcare consumerism plan?)

Overall, corporate environments that engage individuals drive lower healthcare costs and improve productivity more than most companies have previously appreciated or recognized.  Improving human capital may involve a corporate makeover in many areas, a rethinking of the corporate treatment of staff, providing new support tools, creating opportunities for choices, raising expectations, and a promotion of personal responsibility.     

Corporate humanity engages employees within and outside of their health plan. Within the health plan it may be health saving accounts and healthcare consumerism. Outside the health plan it includes employees acting and being treated as adults. It’s time to recognize that health and healthcare costs do not stand alone within an organization. Health plan costs cannot be viewed as a single budgetary line item. We now know that the cost of healthcare is not only a function of the individual’s health, but the overall culture of a corporation.

Comments (9)

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  1. dave says:

    Employees are not viewed as human beings thatcan have issues with health- after all the purpose of employment is not to be healthy per se- the purpose of employment is to work. Employeers dont understand that ones ability to work is related to ones health- hence the neglect of health as far as employers are concerned.

  2. Joe S. says:

    I agree that employers should be concerned with the (human capital) health of their emplyees. However, in most business establishments, the employment relationship is not long run. So the employer has weak incentives to invest in this sort of thing.

  3. Devon Herrick says:

    Theodore Schultz shared the Nobel Prize in Economic Sciences for his research on what later became known as Human Capital Theory. He found the stock of human capital makes a huge difference in a nation’s productivity. But (as I recall) he also found it difficult to precisely predict where to invest for the best returns. In addition, human capital investments suffer diminishing returns. Primary education, clean water, sanitation and vaccinations in a poor society yields much bigger returns than free graduate education, for example.

    The need to invest in human capital is often the excuse progressives use to advocate for employer-mandated health insurance, socialized medicine, socialized education, nutrition programs, etc. Yet, critics of human capital theory often complain that it is difficult to differential between what is an investment and what is consumption.

  4. Larry C. says:

    I agree with Joe. In many organizations, maybe in most, the incentives to invest in employee human capital are weak. At least they are suboptimal.

  5. Bart Ingles says:

    The term “human capital” doesn’t make much sense to me as it applies to corporations. It’s hard to call something an in investment when you don’t have ownership rights over it.

  6. Virginia says:

    “Corporate humanity” seems like an oxymoron to me.

    It’s not just health care where corporations can invest. It’s quality of life (be in more natural light in offices or better vacation benefits, or the length of the work week). I think what we’re missing here is diminishing marginal utility.

    There comes a point where you’re no longer “investing” in your people. You’re pampering them. That makes them more inclined to stay, but it doesn’t always lead to better work product or higher corporate profit.

    I would bet that our current corporate sphere is in equilibrium. If companies spent more on health care (or vacation or other benefits, etc), they would lose money. If they spent less, they would lose workers or productivity.

    I once heard someone say: If you can get two full-timers to work 60 hours a week each, you just hired another full-timer for free.

    As long as the current employees don’t figure out that equation (or can’t afford to leave the company because of health insurance portability or need for paycheck, etc), then the company makes more money. and the employee is worse off. (Or better if you consider a paycheck the objective.)

  7. dave says:

    with machine logic employees can rationalize the inhumanity of not caring for people they depend on but with stress costing the Nation $300 billion a year and conditions like pain and fatigue costing almost as much we see the machine logic is inefficient and inhumane.
    Employers should care about the health of their employees as it the right thing to do and undoubtedly it serves their business better to have a healthy employee who is capable of working well rather then a sick employee who is impaired and isnt able to do the job as well as a healthier employee

  8. Chuck R. says:

    Virginia’s concerns about the line between investing in and pampering are on target. However, I would refer all readers to the areas of engagement outlined at the bottom of the article (Shared Rewards, Shared Risks, Asset Growth and Ownership). I recommend reading HHCF’s book on Aligning Incentives, Information and Choice. There are very, very specific policy implications which, if followed, yield close alignment, better business performance and better health.

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