The Cost of AIDS to Businesses in Africa Center for International - - PowerPoint PPT Presentation

Investing in the Epidemic: The Cost of AIDS to Businesses in Africa

Center for International Health Boston University School of Public Health Sydney Rosen, Jonathon Simon, Matthew Fox, William MacLeod, Jeffrey Vincent, and Donald Thea July 2002

With technical assistance from Eleanor Gouws and Brian Williams and financial support from the South Africa Mission and the Applied Research on Child Health Project of the U.S. Agency for International Development

Center for International Health 2002 www.international-health.org/aids_economics

Introduction

• Objectives of the study
• Analytical framework
• Companies in the study

Center for International Health 2002 www.international-health.org/aids_economics

Objectives of the Study

1. Evaluate the case for employers to “invest in the epidemic.” 2. Develop a methodology for estimating the cost of HIV/AIDS to organizations. 3. Calculate the costs of AIDS in the workforce to companies of different sizes and in different locations and sectors. 4. Estimate returns to investments in HIV/AIDS prevention and care.

Center for International Health 2002 www.international-health.org/aids_economics

Analytical Framework

• Market Impacts on

Wage Rates

• Market Impacts on

Insurance Premiums

• Physical Security

Direct Costs Indirect Costs

• Reduced On-the-Job

Productivity

• Increased Absenteeism
• Supervisory Time
• Vacancies
• Management Burden
• Production Disruptions
• Loss of Workforce Morale,

Cohesion, Experience

• Labor Disputes

Total Cost to Firm of HIV/AIDS in the Workforce

• Benefits Payments
• Insurance Premiums
• Recruitment and

Training

• Accidents

From an Individual Employee with HIV/AIDS From High HIV/AIDS Rates in the Workforce and Society

Center for International Health 2002 www.international-health.org/aids_economics

Progression of HIV/AIDS in the Workforce Cost to Company

Morbidity begins (some early mortality, some long- term non-progressors) Employee becomes infected Employee leaves workforce through death or retirement (some long-term survivors) Company hires replacement employee No cost to company at this stage Morbidity-related costs are incurred (absenteeism, productivity, management time, medical care) Termination-related costs are incurred (death and disability benefits, loss of morale, experience, & cohesion) Turnover costs are incurred (vacancy, recruiting, training)

Timeline

Year 0 Year 2-8 Year 6-12 Year 6-12

Liability Acquired by Company

Present value of all costs from years 0-12 Employee remains asymptomatic and fully productive No cost to company at this stage

Year 0-8

Timing of Cases, Costs, and Liability

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Companies in the Study

Site Co. A Co. B Co. C Co. D Co. E Co. F Sector Heavy industry Agric. Mining Mining Retail Media Location South Africa KwaZulu Natal Botswana KwaZulu Natal KwaZulu Natal South Africa Size of workforce >25,000 5,000- 10,000 500- 1,000 500- 1,000 <500 1,000- 5,000

• Est. HIV

prevalence 8.8% (1999) 22.9% (1999) 31.6% (2000) 24.0% (2001) 7.9% (2001) 10.2% (2001)

Discount rate: 7% (real) Median survival time: 9 years Assumptions:

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Results

• Cost per infection
• Aggregate costs per year
• Returns to investments

Center for International Health 2002 www.international-health.org/aids_economics

Cost (Present Value) Per Incident Infection

$0 $25,000 $50,000 $75,000 $100,000

Co A Co B Co C Co D Co E Co F

Present value per infection (2001 $US)

Contract/casual Unskilled worker Skilled worker Supervisor Manager

 $166,000

(Males age 35-49)

3.7 x 1.3 x 3.8 x 1.6 x 0.8 x 4.0 x

Center for International Health 2002 www.international-health.org/aids_economics

Why Is the Cost Per Infection So Different?

Variable Higher cost to firm Lower cost to firm

Level of death and disability benefits Large; defined benefit; benefit levels stable (Co A, C, F) Premiums capped; benefit levels falling (Co B, D, E) Medical care Medical aid coverage for all employees (Co A, C, F) Most use company clinics and public hospitals (Co B, D, E) Status of unskilled workers Permanent employees with full benefits (Co A, C, D, F) Many are contractors with few benefits (Co B, E) Salaries (labor productivity) Higher, so absences and turnover cost more (Co A, C, D, F) Lower, so absences and turnover cost less (Co B, E)

Center for International Health 2002 www.international-health.org/aids_economics

Distribution of the Cost

• f an Incident Infection

Leave and absenteeism Productivity loss Retirement, death, and disability Medical care Recruitment and training 23% 15% 45% 8% 8% 23% 15% 45% 8% 8%

56% 36% 4% 3% 56% 36% 4% 3% Company A Company B

Center for International Health 2002 www.international-health.org/aids_economics

0% 2% 4% 6% 8% 10% 12% 14%

Company A Company B Company C Company D Company E Company F

% of salaries and wages

Contract workers Unskilled workers Skilled workers Supervisors Managers Total

The “AIDS Tax” on Business: Aggregate Cost of Incident Infections 2001

Center for International Health 2002 www.international-health.org/aids_economics

Reducing the AIDS Tax: Profits from Prevention

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Unskilled workers Skilled workers Supervisors Managers Total NPV (profit) of prevention program The profit to the company for providing the program to all employees in this age group is:

Example: Company B, males aged 35-49 (2001)

• Costs $3/employee/year
• Reduces HIV incidence by  50%

For an STD management program that:

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Reducing the AIDS Tax: Profits from Treatment

$0 $3,000 $6,000 $9,000 $12,000

Unskilled workers Skilled workers Supervisors, managers Total

Savings from treatment

Example: Company D, African males age 35-49 (2001)

• Extends working life by 5 years
• Costs $400/person/year

For a treatment program that: The profit to the company for treating all eligible employees in this age group is:

Center for International Health 2002 www.international-health.org/aids_economics

Conclusions

• Shifting the burden of HIV/AIDS
• The value of intervention

Center for International Health 2002 www.international-health.org/aids_economics

Shifting the Burden

• Company B (and others) represents a low end estimate of the

costs of workforce HIV/AIDS; Company A (and others) is probably high end.

• Company B is bearing less of the total (economic) cost to

society of HIV/AIDS than is Company A.

• Company A intends to reduce its benefits and outsource

unskilled tasks; Company B has already done this.

• Businesses are systematically shifting the burden of HIV/AIDS

to the public sector, NGOs, workers, and households.

• The burden shift poses a public policy optimization problem:

how do we induce business action on AIDS while creating and sustaining jobs and development?

Center for International Health 2002 www.international-health.org/aids_economics

The Value of Intervention

• Even for low-cost companies, investments in HIV/AIDS

prevention and treatment can have positive returns.

• These investments have many other benefits, including

– retaining workforce skill and experience – improving employee morale and discipline and reducing impacts on labor relations – maintaining social stability in the surrounding community.

• Businesses are systematically under-investing in HIV/AIDS
• programs. They will have positive financial, social, and

ethical returns for many (perhaps most) companies.