Magnitude and Effects of “Sludge” in Benefits Administration: How Health Insurance Hassles Burden Workers and Cost Employers

Administrative burdens may have substantial direct and indirect costs for employers and employees, making them important research topics. In this research, Stanford Graduate School of Business Thomas D. Dee II Professor of Organizational Behavior Jeffrey Pfeffer, along with Dan Witters, Sangeeta Agrawal and James K. Harter, examine the time employees spend dealing with their health benefits administrators.

Using a nationally representative sample, the researchers found that the direct cost of the time spent by employees dealing with health insurance administration was approximately $21.57 billion, with 53 percent of that time spent ($11.4 billion) at work. The time spent on administrative burdens can also have spillover effects on employee attitudes. Specifically, they found that, controlling for self-reported health and various demographics, people who spent more time on the phone with their health insurer were less satisfied with their current workplace, less engaged, more likely to report significant stress, more likely to have missed a day or more of work, and more likely to feel burned out at work. The estimated cost of additional absence was $26.4 billion, and the productivity cost of reduced satisfaction was approximately $95.6 billion.

Benefits constitute about 30 percent of employee costs, but there has been little study of how the “sludge” associated with accessing those benefits absorbs employee time and affects attitudes. Therefore, understanding administrative efficiency in benefits administration is an important topic.