Colin Ramsay (University of Nebraska  Lincoln) Exploring the Optimal Design of an Employer Sponsored SicknessDisability Compensation Insurance Plan When Sickness Presenteeism Is Penalized Abstract: We explore some aspects of the moral hazard issues (presenteeism, absenteeism, and shirking) on the optimal design of a 100% employer sponsored sicknessdisability compensation insurance plan when the employer penalizes sickness presenteeism. For simplicity we assume employees experience no mortality but can become sick. Specifically, we assume an employee’s health follows a simple multistate model with a “severely ill” sickness state where employees are symptomatic, i.e., they show signs of illness while at work, and presenteeism clearly exists. To combat absenteeism, the employer may randomly verify an employee’s claim of sickness. However, to combat presenteeism, we also introduce the new concept of a presenteeism penalty whereby employees who are found to be very sick while at work (and thus have low productivity) are sent home and receive a penalized sickpay that is lower than the normal sick pay. Thus sick employees must decide whether to stay at home and receive a sick pay (that is less than their working pay) or go to work sick and run the risk of being sent home and penalized. We assume employees are risk averse utility maximizers and each employee has one of eight strategies for staying home or working while sick that maximizes her lifetime expected discounted utility. For each employee strategy, Volterra integral equations are used to derive expressions for an employee’s lifetime expected discounted utility and the employer’s expected discounted accounting profits. Laplace transforms are used to derive asymptotic expressions for the solutions to these integral equations. To explore the optimal design, we focus on four primary plan design factors: sick pay, the presenteeism penalty, and two health check probabilities. These plan design factors have a direct impact an employee’s lifetime expected discounted utility and the employer’s profits over an employee’s working lifetime. The primary plan design factors are used as parameters in the asymptotic solutions to explore their impact on the optimal sickness compensation insurance plan. Using a hypothetical example, we found that shirking is very rarely a problem and that the employer’s profit is maximized when very sick employees are encouraged to stay home. Based on a joint work with Prof. Victor I. Oguledo and Ms. Annika Krutto. 
