OBJECTIVES: To estimate the most costly disease conditions affecting medical, absenteeism, and short term disability (STD) expenditures affecting a subset of American employers. METHODS: The Medstat Group's 1999 Health and Productivity Management (HPM) Database was used for this analysis. The HPM database links medical, pharmacy, STD, and absence claims for over 340,000 employees. Medstat's Episode Grouping software product was used to classify and organize employees' inpatient, outpatient, emergency department (ED) and pharmaceutical claims temporally, so they could be connected to the treatment of any given condition. Absence and STD claims associated with each clinical episode were then added. The most costly physical and mental health conditions were then ranked by their overall medical, pharmacy, absence and STD expenditures. RESULTS: Across all physical health conditions, employers paid an average of $2505 per eligible employee for medical care (71% of total), $316 per employee for STD (9% of total), and $703 per employee in absence (20% of total). Medical care expenditures included money for: inpatient care--$687 (20% of total), outpatient care--$1321 (38% of total), ED treatment--$57 (2% of total), and pharmaceuticals--$440 (12% of total). When considering per-eligible payments for mental health conditions, $94 (53% of total) was paid through health benefits, $23 (13% of total) was paid through STD programs, and $61 (34% of total) was as a result of employee absence from work. Medical expenditures for mental health care included money for inpatient care--$21 (12% of total), outpatient care--$45 (25% of total), ED treatment--$0.3 (0.2% of total), and pharmaceuticals--$28 (15% of total). CONCLUSIONS: Although health care expenditures account for the majority of costs faced by American businesses, productivity-related costs can be high as well. Inpatient, outpatient, ED, and drug cost, along with STD and absence costs, varied greatly by disease.