Health & Benefits Perspective

Transcription

1 Health & Benefits Perspective March 2011 Managing disability absences in the era of health care reform By Denise Fleury and Rich Fuerstenberg The enactment of federal health care reform has placed employersponsored health plans at a crossroads, and most employers will be facing key strategic decisions over the next few years. As they study options ranging from extending coverage to more employees to allowing certain employees to be covered by public exchanges, it will be critical to consider the impact of such decisions on workforce health and, in turn, on company operations and overall business costs. Employees with serious health issues not only drive higher health care costs, but also are less productive, spend more time away from work and drive up disability payments. The cost of absence This Perspective reviews some of the prevailing absence and disability issues as employers decide how to move forward in the post health reform era. In s 2010 Absence Management Survey, respondents estimated that the direct cost of providing incidental absence benefits averaged about 2% of payroll. However, the indirect cost for replacement labor and loss of productivity may be as much as twice that (4%). While the direct costs of short-term disability (STD) and long-term disability (LTD) programs amount to only about 1% of payroll on average, indirect costs add another 2% for most employers. That s a total of about 9% of payroll. Together with the cost of providing medical coverage, which now stands at nearly 14% of payroll, employers spend the equivalent of nearly 23% of their payrolls on employee health and absence. These are significant amounts, certainly, and the management of these costs requires that employers understand and attempt to quantify their indirect costs related to absence. Unfortunately, indirect costs are often viewed as soft and are given less weight in employers strategic planning. But indirect costs are very real, and hardly soft. They include

2 the cost of hiring temporary workers, paying overtime and employee turnover. Indirect costs also include the even harder-to-quantify costs of business disruption and customer dissatisfaction due to, for example, product delivery delays or missed calls in the customer service center. Indeed, these are hard-dollar operational costs that have a direct impact on an employer s budgets and profits. Yet employers often fail to see the link between managing absence and increasing profitability. The challenge in tackling the cost of absence and disability The total cost of absence for many employers is high, and the correlation between employee health and disability is clear. Why, then, have so few employers successfully tackled these interrelated problems? To be fair, there are several key challenges to addressing these issues effectively. These include fragmentation of information; the difficulty of calculating indirect costs and in measuring effectiveness of interventions; and a constantly changing environment. Let s look at each of these. Fragmentation of information Health care, absence and disability costs are often tracked and managed separately in many organizations. As a result, plan designs may not be in sync, costs and other key metrics are not captured in one place and linkages go unidentified. When multiple vendors are used for health and absence plans, data are rarely integrated. Even if the employer uses a data warehouse, it usually does not include disability and absence data. The synergies lost in this fragmented approach affect both the employer and the employee. Quantification and measurement As we ve seen, while the indirect costs of absence (such as overtime, temporary workers, lost revenue, customer satisfaction and lost productivity) can be greater than the direct costs, they are harder to quantify. Many businesses measure each of these areas, but most do not link absence and disability data to these key business metrics. As for measuring the impact of strategies that reduce absencerelated costs, it can be difficult to establish baselines because the data may be hard to collect, may not be consistently defined or may not exist! The changing environment Increased government regulations, such as the Family and Medical Leave Act (FMLA) and state and local jurisdiction leaves, are a familiar fact of life for employers. But since the beginning of the recession, the challenge has multiplied as employees are asked to do more work, with fewer resources, in increasingly stressful environments. These stressors are leading to an increase in the use of employer health plans, plus upward trends in incidental and disability absences. At the same time, organizations business needs and goals are constantly changing, with competing demands for internal investments of time and money in tackling these complex compliance issues. 2

3 Integrated approach to absence management An employer s profitability is tied to its employees being healthy, Wellness and loss Injury, illness or present and productive on the job. According to the results of s prevention programs absence 2010 National Survey of Employer-Sponsored Health Plans, most large employers have recognized that connection and have implemented an array of health management programs. In fact, more than 80% of large employers use case management to focus on high-cost, complex claims. However, rarely are those Employer efforts integrated policies with the employer s disability Return and absence management Compliance to programs. To lower costs and gain the most Data management work value from health management initiatives, employers need Notification to manage / Measurement the cost of absence with an integrated approach that incorporates intake Continuous process their health management strategies. improvement At the center of such an approach are core management components best practice policies and processes, data management, and measurement in a continuous process improvement cycle. Wellness and loss-prevention programs revolve around this core to create Benefit a seamless flow from absence/illness/injury to notification/intake, Case management: Claim/clinical case management, payment benefit payments and return-to-work programs. integration: medical/disability linkages Wellness and loss prevention programs Injury, illness or absence Return to work n Employer policies n Compliance n Data management n Measurement n Continuous process improvement Notification/ intake Benefit payment Case management: claim/clinical Integration: medical/disability linkages True integration of disability and health management will require changes in how employers think about their programs and how their vendors report results. For example, most health care and disability experience reports focus on costs over the course of a single year and compare those results to those of the prior year. The reality is that serious health events that result in both health care and disability costs are rarely contained within a single calendar year. Employers will need to change their thinking to consider the cost of a single episode from the initial medical claim that may have been the start of the episode through all related medical expenses and, potentially, multiple disability claims. 3

4 Putting the pieces together Understanding the benefits of integrating absence and health management is easy. Developing and executing an integrated approach that s right for a specific employer are tricky, but there are some basic building blocks. Finding the right carriers Having the right vendor is crucial. When viewed separately, every employer has a unique current approach to health and absence management. Integrating those strategies will require employers to coordinate data feeds, communications, reporting and management processes across vendors. That may sound like a daunting task, but early adopters have pushed their carriers down this path and many are ready to work with the employer and other carriers to achieve success. But not every carrier will be the right fit for the employer s short- and long-term strategies. Specifically regarding absence management, carrier capabilities need to be well-matched to the employer s requirements. Evaluation for the right fit can include whether the vendor is high touch offering strong customer service and communications skills, the ability to provide a streamlined employee experience and aggressive clinical interventions. Some employers prefer low administrative costs and use price as an important differentiator, regardless of service levels. Balancing the tradeoffs can be challenging; some employers want high touch at low cost, while others may seek high impact interventions but remain reluctant to initiate internal process changes required for the carrier to deliver results. Recognizing that even the right carrier can t do it alone Although finding the right vendor is very important, it is still only part of the solution. Most employers must also make some internal process and even philosophical changes. The best-designed integrated absence and health management programs with best-in-class vendors can still fail if the employer is unwilling to adapt. For example, some employers will push their disability carrier to encourage return to work, but line managers may be unwilling to take a disabled employee back to work unless he or she is 100% recovered. Best practices suggest a comprehensive organization-wide approach to absence management that includes effective accommodation of early return to work, enhancing supervisor skills and assigning organizational accountability for achieving results. Along with these internal changes, investments in systems, vendor management, and data reporting can bring the program together in a new systematic approach of continuous process improvement. 4

5 Don t forget about plan design Plan design also needs to support the employer strategy. Disability benefits need to align with not just the medical plan design, but also other leave programs (paid and unpaid), statutory benefits and the FMLA. Through the recent recession, some employers changed their LTD plans from employer to employee paid. In making that change, did those employers consider what happened to continuation of medical and life insurance for disabled employees who do not elect LTD coverage? For employers that implemented a high-deductible medical plan, did they consider that the biggest impact of those high deductibles will be not only large out-of-pocket medical expenses for employees, but also reduced income due to STD and other disability benefits? Synchronization of benefits across all plans, with consideration of the impact of income replacement on disability durations, is key. Disability benefits may vary by years of service, duration of disability, and even participation in a health management program. Benchmarking can help, but like vendor selection, plan design needs to be tailored to the employer s needs. Ensuring compliance and operational excellence An important fundamental step is to create an efficient structure underlying core processes. Today, FMLA regulatory requirements span both occupational and nonoccupational absences. Many employers benefit from a common, centralized intake process for these absences. Advances in technology (web-based and/or telephonic) have made an integrated intake process feasible, efficient and effective. This standardized intake facilitates prompt reporting, compliance, uniform data collection as well as consistent eligibility and payment determinations. In addition, an integrated process can provide immediate notification to supervisors for operational planning and inform employees of benefits payable. It can also be used to establish linkages with health care management and intervention programs, such as employee-assistance programs, disease management and complex case management. Employers are increasingly outsourcing FMLA administration to take advantage of these advances 25% of all respondents to s Absence Management Survey (and 37% of respondents with 5,000 or more employees) outsourced in Changes in the vendor landscape support this new approach with expanded services that take advantage of technology solutions. At the same time, high-touch employee methods focus on early intervention for return to work, further reducing the impacts of absence. Many vendors today offer one stop integrated solutions for FMLA/leave of absences/ STD and LTD; some include workers compensation coordination of services as well. This integration has effectively streamlined administrative processes and improved the employee and supervisor experience. Among the employers responding to s Absence Management Survey, 25% reported that they have integrated FMLA, STD and LTD; an additional 47% have integrated two of the three, most commonly STD and LTD. 5

6 04195-HB About the authors Denise Fleury is a Senior Associate and an expert in the area of absence and disability management within s Health & Benefits business. Based in Newport Beach, CA, she can be reached at or denise.fleury@mercer.com. Rich Fuerstenberg is the National Group Benefits Specialty Practice Leader and an expert in the area of life, accident and disability benefits for. Based in Princeton, NJ, he can be reached at or rich.fuerstenberg@mercer.com. For more information, contact: Tracy Watts tracy.watts@mercer.com This Perspective is for information only and does not constitute legal advice; consult with legal and tax advisers before applying this information to your situation. Getting started Often, the best place to begin is with a diagnostic assessment to understand the current state of absence and disability management and what opportunities may exist for improvement. Not only can program gaps be identified, but baseline absence data can be collected which is critical to targeting and tracking results. Successful programs require the establishment of target goals and measurement and communication of results. This often requires going beyond the conventional, by identifying leading not lagging indicators. It means identifying prevalent business yardsticks and comparing operations metrics against absence data, revenue and profit goals. It means isolating key intervention metrics, such as clinical referrals on key diagnoses, comparative data on temporary accommodations for return to work, as well as effectiveness of prevention and wellness initiatives. Embracing change It s clear that health care reform will be a major issue for all employers in the next few years. But regardless of what choices employers make regarding reform, employee health costs don t begin and end with employer-sponsored health plans. With the full cost of disability absences nearing 10% of payroll for the average employer, organizations need to think holistically about total health care costs and solutions. Early identification of potentially high-cost members and integrated medical and disability care management interventions are emerging best practices. And though the approaches to tackling these challenges vary, one constant is critical to success: the effective alignment of vendor, plan design and measurement approaches with employer strategy. It s not an easy task, but amid the uncertainty of national health care reform and the additional cost it may bring, employee health and absence management has never been more important. Copyright 2011 LLC. All rights reserved.