The (Not So) Hidden Costs of Member Absences

The (Not So) Hidden Costs of Member Absences Cara Bass, Mercer Denise Fleury, Mercer www.mercer.com Join the conversation #mercerconf

Today s agenda Trends Mercer s 2010 Absence Management Survey Understanding the full cost of absence Best practice approach for absence management Making the business case 1

Mercer s Absence Management Survey, 2010 Trends in managing absence

Mercer s 2010 Absence Management Survey Mercer s Absence Management Survey is our seventh survey on this topic. The first was conducted in 2000. This survey was fielded in the summer of 2010 473 employers participated in the survey Additional data was collected through the Mercer Benefits Valuation Database (with over 600 participants) 3

Top stories Mercer s 2010 Absence Management Survey Reducing the impact of absence on operations and improving Family Medical Leave (FML) administration are the top priorities for nearly half of respondents Outsourcing of FML administration has increased significantly over the past three years Asked about the challenges in FML administration, the great portion of respondents (54%) cited tracking and administering intermittent leave even though intermittent leaves account for just 8% of all leaves About a third of employers have formal nonoccupational RTW programs; most say these programs are effective in reducing absence and/or improving productivity More employers are referring employees on leave to EAPs 4

Reducing the impact of absence on operations is top priority for nearly half of survey respondents Reducing impact on operations Improving FML administration 46% 46% More effective tracking and reporting for disabilities 35% Implementing a consistent approach for occ. & nonocc. disabilities 35% More effective tracking and reporting for incidental absences/sick days 33% Redesigning plans to reduce cost/absence 24% Linking disability programs with health management program(s) 22% 5

Nearly half of respondents have centralized tracking and management of all types of absences in one department The responsibility for managing and tracking absence varies based on absence type 52% 48% All types of employee absence are managed and tracked by one department 6

Outsourcing of FML has increased significantly over the past three years Employer size All employers 100 999 employees 1,000 4,999 employees 5,000 or more employees 10,000 or more employees 2007 14% 5% 11% 25% 24% 2010 25% 13% 29% 37% 39% 7

More employers* using EAPs to assist in absence management in 2010 Employees routinely referred to EAP after going out on leave for: Psychiatric disability Medical disability 17% 28% 26% 44% 2010 2007 Family or medical leave (FML) 25% 16% Workers compensation 12% 9% Other 14% 6% None of the above 44% 65% *Among employers that offer an EAP 8

Use of on-site or near-site medical clinics for RTW Among employers with a formal RTW program Workers compensation STD/SC Other nonoccupational RTW Have clinic(s) but they are not involved in RTW activities Don t have on-site or near-site clinics 50% 25% 24% 6% 43% 9

Understanding the full cost of absence

Keys to managing the cost of absence Presence and productivity continuum Absent Present Performing Fully Productive An employer s profitability is tied to employees being healthy, present and productive on the job 11

Absence types The management of lost time Unplanned, incidental absences* Five work days or less where the occurrence was not known and approved ahead of time Planned absences Short or moderate duration where the employee s supervisor is aware and/or approved the absence in advance Extended absences* Lasting beyond one week, often unplanned and generally due to illness Example: Sick days, FMLA Example: Vacations, holidays, FMLA Example: Short-Term Disability, FMLA, workers compensation * Unplanned, incidental and extended absences are the lost time that employers try to minimize and/or manage. 12

Understanding the cost of absence Results of 2010 Mercer/Kronos study Direct and indirect cost of incidental absences = 5.8% of payroll 1 Direct costs = 2.0% Indirect costs = 3.8% Direct and indirect cost of extended absences = 2.9% of payroll 1 Direct costs = 0.6% Indirect costs = 2.3% Total cost = 8.7% of payroll Cost of health care = 13.6% of payroll 2 Potential total impact of health care reform = 22.3% of payroll 14% 12% 10% 8% 6% 4% 2% 0% 0.6% 0.5% 0.6% 1.5% 1.9% 2.2% 0.9% 2.8% 0.6% 2.0% 9.6% 9.6% 9.6% 9.6% 9.6% Exempt 11.7% The Direct Cost of Absence Nonexempt Salaried 12.0% Nonunion Hourly 12.4% Planned Incidental Extended Union Hourly 13.3% All 12.2% Incidental unplanned absences Examples: casual sick days, personal emergencies Extended absences Examples: short-term disability, extended FMLA leave Planned absences Examples: vacations, holidays 1-Mercer/Kronos 2010 Survey Report on the Total Financial Impact of Employee Absences 2-Mercer 2010 Survey of Employer Sponsored Health Plans 13

Focusing on the indirect cost of absence Indirect costs are often viewed as soft, given less importance The Indirect Cost of Absence Indirect costs include Temporary workers Overtime Business disruption Lapse in product delivery Customer satisfaction Employee turnover 30% 25% 20% 15% 10% 5% 1.9% 2.3% 12.6% 2.1% 4.0% 18.3% 2.5% 4.8% 19.4% 3.1% 5.2% 2.3% 3.8% 16.5% 16.4% Most businesses care about each of these hard dollar operational costs How can they be linked to absence? What s the impact on productivity? 0% Exempt 17% Nonexempt Salaried 24% Nonunion Hourly 27% Planned Incidental Extended Union Hourly 25% All 22% 14

Productivity loss is a major factor in the indirect costs Replacement workers cost more than regular pay Overtime: 33%-44% more Temporary/contract workers: 15% more When supervisor fills in: 19% more And, replacement workers are less efficient 71% as efficient during unplanned incidental absences 79% as efficient during extended absences 79% as efficient during planned absences In addition, since most employees work in teams Absence reduces work output of remaining 4 8 co-workers by 22% Source: Mercer/Kronos 2010 Survey Report on the Total Financial Impact of Employee Absences 15

Degree of senior management awareness of the cost of types of absences Percent of respondents reporting that senior management is aware of the cost of Vacations Holidays Workers compensation Incidental absences/sick days Disabilities Family or medical leave (FML) Employer-sponsored leave of absence 30% State-mandated leaves 22% 42% 41% 45% 61% 60% 65% Mercer 2010 Survey of Employer Sponsored Health Plans 16

Polling question # 1 The indirect cost of absence Q: How concerned is senior management about the indirect cost of absence? 1. Concerned 2. Very concerned 3. Aware of indirect costs but not concerned 4. Not aware 17

Senior management concern about the indirect costs of absence* Another top story from the Mercer survey Not aware Very concerned Aware of indirect costs but not concerned 32% 7% 18% 43% Concerned * Mercer National Absence Management Survey, 2010 18

Why is absence management a challenge for employers?

Why has managing absence costs been so difficult? Environment is constantly changing Government regulations in flux Bills being introduced at the federal and state level (with increased penalties for noncompliance) Continued expansion of an already broad range of state requirements Lack of consistency in state law parameters (i.e., eligibility, entitlement, covered benefit types, etc.) Since the beginning of the recession the problem has gotten worse Employees doing more with less Increasingly stressful work environments Increase in use of employer health plans Uptick in incidental and disability absences Companies needs and goals are constantly changing Competing demands for internal investments of time and money 20

Why is absence management administration a challenge? Complex regulations and processes Regulations and policies Complex regulations at all levels of government: federal, state and local Multiple, interrelated plans and policies Penalties and litigation associated with noncompliance Labor-intensive processes Multiple stakeholders and departments (human resources, payroll, benefits, legal, labor relations, risk management, staffing, operations) Complex workflow processes Numerous steps and handoffs Potential for multiple, contradictory processes and technology solutions Policy and regulatory maintenance and adherence Activity frequency Time sensitivity 21

Polling question # 2 Employer compliance confidence Q: How confident are you that you are in compliance with federal, state and local leave legislation? 1. Very confident 2. Confident 3. Somewhat confident 4. Not confident 22

Employer confidence about being in compliance with federal, state, local leave legislation Somewhat confident Not confident 12% 4% Confident 33% 52% Very confident 23

Polling question # 3 State and local leaves Q: Approximately how many state and local leaves exist nationally? 1. 50 100 2. 101 200 3. 201 300 4. 300+ 24

Polling question # 3 State and local leaves A: Currently there exist more than 300 state and local mandatory leave statutes nationwide, covering matters as diverse as voting and jury duty, service by military service members and emergency responders, medical and legal needs of victims of violence, parental attendance at school activities and many more. 25

Complaints, grievances and lawsuits The 2010 Mercer Survey on the Total Financial Impact of Employee Absences found that FML tracking is an area of risk for employers. 26

Compliance watch items, penalties and fines Penalties and government watchdog agencies are increasing On January 10, 2011, the EEOC issued final regulations interpreting GINA (Genetic Information Nondiscrimination Act of 2008), which imposes restrictions on obtaining and managing employees Genetic Information, which is broadly defined and needed for leave of absence administration Effective December 13, 2010, the Department of Labor (DOL) and the American Bar Association (ABA) will roll out a cooperative venture that will assist potential plaintiffs in obtaining legal counsel and documentation for claims under FMLA The DOL receives approximately 35,000 employment-related claims annually (more than the DOL could historically handle). Now, the DOL will connect the claimant to a local ABA referral service that will provide access to private attorneys to assist with the claim. Jewel-Osco was ordered to pay a total of $3.2 million in settlement to 110 former employees for violation of the ADA accommodations in their leave processes 27

Best practice approach for absence management

Maximize your return on investment Impact direct, indirect and administrative costs Optimize plan design Benefit and Payroll Spend Harmonize policies Reduce leave approvals and durations through compliant, best-in-class process Utilize technology for data management, employee and manager self-service, reporting and analytics Align internal stakeholders and third-party providers Mitigate the risks of a rapidly changing regulatory environment Integrate absence management into your health strategy Measure and manage workforce productivity Lost Work Days Expenses 29

What is an effective absence management strategy? A blend of strategy, solution and analytics Consistent administration of all leave types (incidental to extended) Technology to support adjudication and workflow Detailed absence analytics to support strategic company policy decisions Communication strategies to properly educate employees Coordination and ownership of specialized third parties Design and regulatory expertise Metrics & Measurement Technology Plan Design People & Process 30

Making the business case Administrative costs Human Resource department time Manager/workforce time Technology Communications Reporting Direct and indirect cost savings from: Reduced incidence rates Reduced duration Actionable data Legal and regulatory support Expertise for ongoing administration Litigation avoidance 31

In closing Absence management is about people Employers that take strong action to reduce unplanned absences are: More productive More profitable Better able to compete And don t forget, absence management is about people Employees allowed the time that they are entitled to Employees better able to manage a work/life balance 32

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