Human Resources: Using the Power of Disability Integration to Manage Employee Absences

Do you know how much employee absences are costing your company? Most HR managers would agree that unscheduled absences are costly and disruptive to an organization, yet two-thirds of U.S. companies surveyed recently didn´t know what their absence rate was or how their experience compared with their own industry. Too many employers today still don´t track their sick time or disability absences and don´t know how much it is costing them. If they did, they might be shocked.

Overall, direct and indirect costs of employee absences together can exceed 20% of payroll, according to one study. The study showed that direct costs of employee time-off - including program costs, workers´ compensation payments, short- and long-term disability income protection payments, sick leave and administrative costs - average 14.3% of payroll.

When you factor in the hidden "soft" or indirect costs associated with such absences - such as temporary help, overtime expenses and reduced productivity - you add another 7% of payroll. In 2001, the overall average annual cost of unscheduled absences was $755 per employee - not an insignificant number!

Several current market trends today are compelling companies to take a critical look at their lost-time costs. Our uncertain economy along with downsizing and hiring freezes are putting pressure on employers to find new ways to keep workers on the job and productive in order to stay competitive. In addition, escalating health care costs - projected to increase 13% -16% in 2002 - are prompting employers to investigate the links between health care, disability and productivity as they seek to reduce their overall benefit costs.

The Value of Managing Employee Lost Time
Here´s the good news - tools are available that can help employers lower disability costs, increase employee productivity, streamline claims processing and improve employee satisfaction. Sound too good to be true? It´s not, because hundreds of companies today are successfully achieving those objectives by using an integrated disability management (IDM) approach directed towards effectively managing lost time.

Actually, there are a variety of definitions of IDM, all of which can provide value depending on an employer´s specific needs and issues. In general, IDM is used to effectively managing lost time arising from disability and other unscheduled absences regardless of whether the illness or injury occurs on the job or off. Today, many IDM programs also include FMLA absence management as well.

It´s important to emphasize that IDM isn´t an "all or nothing" solution. Rather, it´s a flexible approach that offers employers a framework in which changes can be implemented over time. It´s been shown that employers can achieve cost savings even when they move toward integration incrementally and that integration doesn´t require a major corporate upheaval or massive reorganization.

Small Changes, Big Results
In fact, simple changes to existing policies and practices can often yield significant results. In one survey, for example, organizations that simultaneously implemented disability case management, involved line supervisors in absence management and designated an internal absence manager had a 74% lower worker absence rate than employers that did not.

This kind of implementation approach to IDM leverages best practices and high value. It does not insist that companies use only one vendor for all their disability management needs or that they fully integrate all their programs to yield a positive outcome. It supports a variety of possible actions that employers can take, including simplifying benefit plan design, creating wellness and disability prevention programs, identifying the drivers of lost time and implementing actions to reduce or minimize those drivers and educating supervisors on return to work programs, among many others.

Getting the Right Information
The best way to implement an IDM program is to start by understanding the drivers of lost time and how they affect productivity. They´re different for every organization. In some companies, for instance, only a small percentage of absences are work related, while at the same time there may be a high incidence of stress-related claims. Other companies may experience a high level of workers´ compensation cases, or may find that musculoskeletal/orthopedic -related illnesses or injuries are causing a disproportionate share of lost-time claims.

Determining what is driving the absence management environment requires measuring and quantifying the costs associated with all lost-time absences. Not only is this type of data analysis important in identifying opportunities for savings, it can also help employers:

Make sense of how company benefits are being used;

Understand how employees move from one disability coverage to another;

Spot recurring patterns of injury that can help prevent accidents;

Help improve worker productivity and control overall benefit costs.

Identify chronic conditions where targeted disease management program will improve employee health and productivity.

Although such absence information is invaluable, statistics show that six out of 10 U.S. employers today do not track disability-related time loss. Without that information - or a measuring system in place to get it - it is difficult or even impossible to manage lost-time costs effectively. So for many employers, more effective management of lost time starts with integrating and analyzing their lost time, health and productivity information.

Setting goals
Once an employer understands the context of unscheduled absences, the next step is to determine what the organization hopes to achieve from integration. Goals and objectives will vary by company, depending on management level, whether baseline data is available and characteristics of the corporate culture.

Research has shown that, for most companies, cost savings are the primary reason for integration, but that is only one goal among many. Not surprisingly, the number two reason employers cite for integration is to maximize productivity. And while senior management often expects cost savings to come from integration efforts, those who manage integrated programs are also looking for employee satisfaction, administrative savings and efficiency from IDM, as well.

Taking the first steps
After appropriate goals have been identified, it´s time to start implementing. This step can appear daunting to some HR managers, but no one ever said changing the way benefits have been traditionally administered is easy! Fortunately, help is available from those who have already made the commitment to IDM.

In one study, employers reported that the first step they took was usually a concrete one aimed at moving them quickly toward their goals. For some, it was integrating short and long term disability income protection plans and using a single vendor with a additional focus on development of an integrated return to work program.

In other situations, implementing a managed FMLA plan with integrated intake for FMLA and short-term disability was the major step. Still for, for others it was consolidating claims management with a common intake, integrating return to work case management and integrating lost time information.

Yet, when asked in retrospect what they would do differently, many employers said they would first seek senior management support before starting to integrate. Other said they would spend more time preparing for the change and would offer more education and training before kicking off their integrated program. So it appears that it´s well worth the effort to spend more time up front in planning and building corporate support prior to implementation.

Does it really work?
Research consistently demonstrates that IDM, no matter how it is defined or implemented, can bring about the results employers are seeking. One insurer reports that some large-employer customers have experienced a 30% decrease in their costs of disability and workers´ compensation, and a 25% decrease in lost workdays by using absence management planning. The ongoing Staying[at]Work surveys by Watson Wyatt, the worldwide management consulting firm, have documented savings of 0.25% to 1.0% of payroll from integration.

Other case studies report disability cost savings of as much as 40% to 50%, although such reductions were usually found among employers who transitioned from unmanaged to integrated programs.

Overall, it´s been shown that the four most effective disability management activities, in terms of cost reduction, are transitional and modified RTW programs, case management, behavioral health interventions, and safety training, and that the use of multiple disability management activities results in even better outcomes.

This research confirms that greater integration - defined as having a "single source" for managing the various elements across workers´ compensation and STD and LTD programs - leads to greater savings. Having the same case management system, RTW program, internal manager and intake or claims reporting point was the most effective in terms of cost savings for these three types of disability programs.

With convincing results like these, it´s time for more employers to consider the advantages of moving toward integrated disability management and the power it provides in managing employee absences.

1 Staying[at]Work: Integrated Disability Management Around the World, Watson Wyatt Worldwide and Washington Business Group on Health (WBGH), 2000/2001.

2 "Employers´ Time-Off and Disability Programs Survey - 2000," William M. Mercer, Inc., and Marsh USA, February 2001.

3 "2001 CCH Unscheduled Absence Survey," Human Resources Management Ideas & Trends, October 24, 2001.

4 "A Survey of Integrated Benefit Best Practices," Integrated Benefits Institute (IBI), January, 2002.

5 "Staying at Work: Improving Workforce Productivity Through Integrated Disability Management - Fifth Annual Survey Report," Watson Wyatt Worldwide and WBGH, 2000/2001.

6 Staying[at]Work: Integrated Disability Management Around the World, Watson Wyatt Worldwide and Washington Business Group on Health (WBGH), 2000/2001.

7 "A Survey of Integrated Benefit Best Practices," Integrated Benefits Institute (IBI), January, 2002.

8 Ibid.

9 UnumProvident Data Base, 2001.

10 "Staying at Work: Improving Workforce Productivity Through Integrated Disability Management - Sixth Annual Survey Report," Watson Wyatt Worldwide and WBGH, 2001/2002.

11 "A Survey of Integrated Benefit Best Practices," Integrated Benefits Institute (IBI), January, 2002.

12 "Staying at Work: Improving Workforce Productivity Through Integrated Disability Management - Sixth Annual Survey Report," Watson Wyatt Worldwide and WBGH, 2001/2002.

Author
Phil Bruen is the Vice President of Group Income Protection Management for UnumProvident Corporation and is responsible for market and product development of group disability offerings. Previously he was responsible for short term disability risk and underwriting guidelines, market segmentation, target marketing, risk analysis and renewal strategy for the company´s short term disability line. With more than 20 years of experience in the disability insurance industry, Bruen has held a variety of sales and marketing positions within the company, including national sales director and group account executive.