Although the costs incurred by employees dealing with insurance issues may not be visible to a company's bottom line, it still makes sense to reduce these administrative burdens.
A new study from Stanford University finds that the time employees spend with insurance administrators clearing up questions and issues—called "sludge" by researchers—has costs in the tens of billions annually. The study, led by Jeffrey Pfeffer, a researcher and author, found that the direct cost of time spent by employees on health insurance administration was approximately $21.57 billion annually, with more than half (53%, or $11.4 billion) of those hours spent at work.
The study noted that excessive time spend on managing benefits can have several negative outcomes. "Red tape can exert significant compliance burdens on people's accessing rights and benefits, thereby imposing time costs and depriving people of resources or services to which they are ostensibly entitled."
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In addition, these burdens from dealing with red tape can affect different types of employees in different ways, putting heavier burdens on employees with fewer resources, for example. And the stress of dealing with administrative burdens affects an employee's relationship with their employer—creating workplace dynamics that can lead to job dissatisfaction, absenteeism, and employee turnover.
"In behavioral economics, [researchers have] urged people in both the public and private sectors to clean up 'sludge,' the unnecessary forms and complexities that inhibit people from making good decisions or taking desirable actions," the report said. "Although much of the original research on administrative frictions has focused on government agencies…it is plausible that administrative burdens occur in all kinds of organizations including businesses, with effects similar to those observed in the public administration literature."
Dealing with sludge takes time
The study drew on Gallup polling from 2016 that specifically asked how much time respondents spent in talking to insurance companies about administrative issues, such as settling claims, asking questions, and getting prior approvals.
The report found that individuals who reported phone conversations with a health insurer in the past week spent an average of 32.57 minutes per call. The relatively long conversations could have an impact on how people viewed their employer-sponsored insurance, the report noted. "These interactions were on average protracted and could readily impose cognitive load on people, distract them from their work, and consequently influence their attitudes toward their workplace and their jobs," the report said.
In addition, although part-time workers were less likely to have insurance, and therefore less likely to have administrative issues, those who did have insurance reported similar results: they spent an average of a half hour on the phone when talking to insurance companies.
In addition, the research showed that 13 percent of Americans reported talking to an insurance company in the last week—suggesting that such calls are relatively frequent. "We would argue that, holding aside the emotional toll on people who have to fight with their health insurer for coverage and payment, the direct cost of time spent and the proportion and absolute number of people spending time are substantively important," the researchers said.
Invisible costs, real consequences
The report concludes by suggesting that although the costs incurred by employees dealing with insurance issues may not be visible to a company's bottom line, it still makes sense to reduce these administrative burdens.
The researchers noted that benefit administrators could be required to report on metrics around administrative burden to employees. Employee surveys could also shed light on how much time workers are spending on insurance issues, and how responsive the insurer or benefits administrators are being to employee questions and issues.
"The most important and straightforward managerial implication of this study is that clients should choose benefits administrators in part on their ability to minimize the time workers have to spend dealing with them, because that time exacts both direct and indirect costs and may burden the internal human resource staff as well," the researchers said, adding that more investigation into these costs are needed. "Studies of health insurance and its effects on access to and the cost of health care should incorporate the effects of administrative hassles on both of those outcomes. Most importantly, studies of 'sludge' and its effects could profitably expand to consider the effects of sludge in the private, not just governmental sector."
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