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Managing the cost of absence: as the cost of medical and disability programs continues to rise, employers are seeking ways to reign in expenses and keep employees as productive as possible. An effective disability management program can provide the keys to success
Risk & Insurance, August, 2003 by Mindy W. Toran
When an employee is out of work, their absence affects far more than a company's productivity. The employer loses money, because the company still has to pay the wages of the absent employee. Production suffers, because there are fewer people to perform the work. Employee morale is reduced, because employees feel put upon to take up the slack. And, if an employee is out for an extended period of time, the employer has to invest even more money in training a new employee to take over the responsibilities of the injured individual.
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Employee absences have largely been viewed as an unavoidable and unmanageable cost of doing business. But that's beginning to change. The sluggish economy and double-digit medical plan cost increases are forcing employers to pay closer attention to the effect of their benefits and risk management programs on business operations, as well as on budgets, notes a recent survey conducted by Mercer Human Resource Consulting and Marsh Inc.
According to the survey of 723 U.S. employers, the total cost of time-off and disability programs averaged 15 percent of payroll in 2001--10.3 percent for scheduled time-off benefits including vacations, holidays and personal days/ floating holidays, and 4.7 percent for unscheduled absences, including incidental absence/sick days, salary continuation, short- and long-term disability, and workers' compensation. Controlling the direct cost of absence was a top priority of 49 percent of respondents, followed by reducing the impact of absence on operations (47 percent).
Managing Absence
"Employers are beginning to realize that many [employee absences] can be addressed with sound, clinically based health management initiatives and disability management techniques," says William Craig, MD, an absence management expert at Marsh. "The frequency with which employers are using techniques to manage disability is increasing, including prompt claim reporting, focusing on plan design, integration of claims intake, establishing returnto-work and transitional duty programs, integration of occupational and non-occupational disability programs, effective communication, and accurate measurement and reporting of results."
Nearly half of all respondents surveyed (47 percent) have integrated shortand long-term disability plans with one carrier or administrator. Of those, 49 percent reported improved cost control and 71 percent reported improved administration. While the integration of STD and LTD programs with workers' comp has been slower to materialize, 7 percent of survey respondents--and 11 percent of those with 10,000 or more employees have integrated all three programs with a single carrier or administrator.
"An increasing number of employers are moving toward establishing a distinct disability management plan," says George Faulkner, an absence management expert at Mercer. "We're seeing more interest in the integration of medical and disability data, more analysis of claims and greater scrutiny of the top cost drivers relative to specific injury conditions. In addition, employers are taking a closer look at how incidence rates and disability durations, total lost workdays, lost revenue and reduced productivity are affecting their bottom line."
Lynne Maloney, manager, product development and marketing, group markets, at Liberty Mutual in Boston, notes that, "The primary objectives of an effective disability management program are managing the total cost of absence in the workplace, including direct and indirect costs, and ensuring that employees have a satisfying experience throughout the process, which ultimately results in their returning to work. The key to a successful disability management program is understanding the specifics of those objectives, and identifying the best way to achieve them."
Employer participation is extremely important in disability management programs. "Employers need to play a significant role in the return-to-work process," says Barton Margoshes, MD, chief medical officer at Cigna Group Insurance in Philadelphia. "Employers need to develop a corporate culture that supports and values employees, and implement policies and procedures that incent return-to-work, no matter where an injury occurs."
According to a survey conducted by the Gallup Organization in 2001 for Cigna Group Insurance and Intracorp, "Employees with nonwork-related injuries or illnesses who were satisfied with their employer's involvement during their disability returned to the job, on average, in 63 days. Employees who were not satisfied returned in 123 days--a 60-day difference. Employees with work-related disabilities who were satisfied with their employer's involvement returned to work in 73 days, while those who were dissatisfied stayed out of work 120days. Satisfaction greatly increased when employees received a phone call two or three times from their company while they were out of work.
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