Index of Articles for the Spring 2006:
• Making Disability Management Accountableby Fred Heffner, Ed.D., and Jasen M. Walker, Ed.D., CRC, CCM
Disability management initiatives will need to consider measuring cost-effectiveness. This article delineates how disability management can impact organizational costs and provides numerous ideas on how to construct cost monitoring systems while determining the overall accountability of the Disability Management Program.
INTRODUCTION
Disability in the workplace is expensive. The Census Bureau predicted that the total medical, income replacement, and productivity-level related costs of workplace disability would top $340 billion in 2000. That year, The Mercer Human Resource Consulting Group reported absenteeism costs were 14.3% of payroll. The US Department of Labor reveals that companies lose 2.8 million workdays each year because of employee illnesses and injuries. Disability management consultants cite studies that indicate of the 500,000 newly disabled workers each year who remain out on disability five months or more, only half will ever return to work. Workplace disability is expensive, but no planned interventions or solutions to preventing and managing lost time will be acceptable to business leaders unless the proposed programs offer more than anecdotal results to justify continuing support.
According to research models employed by Rutgers, the State University of New Jersey, in conjunction with UNUM and the Washington Business Group on Health, a framework for conceptualizing losses and expenditures has yielded information on what employers generally spend and how they spend it on workplace disability. For nearly 20 years now, it has been well documented that the full cost of workplace disability is composed of Direct Costs + Indirect Costs + Disability Management Costs.1
Direct Costs are thought of as benefits for medical absence (sick leave), short-term disability, long-term disability, disability pension, workers’ compensation, the disability component of Social Security taxes, and miscellaneous accident insurance.
Indirect Costs are expenses that occur when an employer is absent due to a disability. These costs of disability, which are in addition to the more straightforward direct costs, include: 1) the added expense of using replacement workers; and 2) lower productivity typically resulting from initial use of replacement workers, lack of replacement, or disabled worker before after absence.
Disability Management includes a variety of activities and programs intended to prevent disabilities from occurring and/or to minimize the impact on employers and employees. Included in these costs are resources used for claims management, return-to-work programs, wellness programs, employee assistance plans, medical clinics, and safety programs. As noted, using this type of framework, The Mercer Human Resource Consulting Group has reported that absenteeism costs were 14.3% of payroll in 2000, and it was predicted that these costs would steadily climb.
Disability management expenditures have historically represented approximately 1/8 of total disability costs on average. Every organization is unique and commitments to disability management vary tremendously. However, Disability Management Programs (DMPs) have been utilized increasingly over the past decade by businesses seeking to control the cost of workplace disability. The Washington Business Group on Health, in collaboration with human resources consulting firm Watson Wyatt Worldwide, has surveyed large employers since 1996 regarding their DMP activities and concerns. The most recent survey results indicate that 43% of large corporations have implemented some form of integrated DMP, up from 23% in 1996. As the workforce ages, the incidence of disability among the employed population is expected to rise thereby challenging employers to maintain proactive disability management initiatives, programs that recognize the importance of prevention and the necessity to accommodate the needs of a very skilled, but aging workforce.
There are three distinct ways employers can achieve significant gains from operating quality DMPs:
• Return-on-Investment (ROI)
• Productivity increases
• Improved employee relations
Each of these outcomes carries significant potential for employers. To determine whether their DMPs are cost effective, employers must accumulate and analyze relevant data. This can be accomplished by having an external audit or by facilitating interdepartmental cooperation through a committee designed to gather and analyze costs before and after a planned DMP development. The most fundamental and critical function of a quality DMP is to gather and accumulate data relevant to the programs. These data include, at minimum:
Direct Costs:
• Benefits for medical absence
• Short Term disability
• Long Term disability
• Disability pension
• Workers’ Compensation
• Number of absences (by department)
Departmental personnel can help a DMP planning committee by tracking and reporting the number of days lost for all employees secondary to injury or illness, the total number of claims per year, the average number of lost time days per employee, and the average length in claim duration, among other things. [A worksheet which might be used as a template for accruing data is given in Appendix A.]
Indirect Costs:
While the greatest value of a quality DMP derives from the Direct Cost savings, there are substantial Indirect Costs savings as well. The primary Indirect Cost savings are:
• Expense of replacement workers.
• Productivity differentials associated with using replacement workers.
Additional Indirect Cost savings that are not as easily assessed include:
• Reducing the number and severity of accidents and illness as a results of disability management education through safety and wellness programs and other efforts to educate employees.
• Reducing the number of employees seeking legal representation and litigation.
• Increasing in-house efficiencies achieved by Human Resources and supervisory staff in dealing with accidents/illnesses immediately, comprehensively, and with heightened expertise.
• Reducing lost-time duration through the aggressive application of transition-to-work programming.
• Enhancing the loyalty and dedication of employee as they come to appreciate the interest of management in their welfare.
• Decreasing the potential for non-compliance to federal, state, and local laws.
• Increase productivity.
• Create a safer workplace.
• Provide for fairer and higher quality heath care and treatment for employees.
• And above all, ensure healthy and committed employees.
Disability management brings together human resource managers, occupational health and safety personnel, employee assistance program coordinators, rehabilitation case managers, departmental supervisors, and union representatives in a collaborative effort to maintain employee health and productivity while ensuring legal compliance with government mandates such as the Americans with Disabilities Act and the Family and Medical Leave Act. When appropriate, internal legal experts or “house counsel” may be involved in disability management issues that confront a governing team. Interdepartmental cooperation can be time consuming and expensive, and in addition to the costs of these previously stand-alone human capital programs, a disability management team can absorb time and costs. However, coordination, and when appropriate, integration of human capital strategies, is necessary to reduce costs associated with injury, illness, and absenteeism. The cost of constructing and maintaining a proactive DMP will need to be part of the organizational rationale or justification for moving the program forward year after year.
RETURN ON INVESTMENT
Having baseline data for Direct, Indirect, and Disability Management Costs at the start of proactive disability management allows an organization to make comparisons with similar data following intervention and further allows the organization to make decisions regarding ineffective and/or unnecessary strategies implemented during a comprehensive disability management protocol. For example, organizations utilizing contract rehabilitation case managers
Employers are becoming increasingly dissatisfied with anecdotal results to justify their support of DMPs and are more and more insistent on verifiable measures (the so-called “metrics”) for these programs. There are no national benchmarks or standards for evaluating DMPs. Individual employers need to develop and rely on their own evidence-based practices. It should be noted that Human Resource professionals are not necessarily supportive of return-to-work commitments and disability management programming. Top level management will need to recognize this reality and work through any internal resistance operationalizing disability management. Another caveat is that older workers will have higher incidences of chronic illness, but these realities are offset by the experiences and loyalties these workers bring to the organization.
Each of the costs/benefit domains identified above carries significant potential for employers. To determine whether their DMPs are cost effective, employers must accumulate and analyze relevant data. The most fundamental and critical function of a quality DMP is to gather and accumulate data relevant to the programs. These data include, at minimum:
Monetary Costs:
• Employee benefits
• Number of claims
• Average benefit cost per claim
• Benefit cost as a % of payroll
• Number of workers’ compensation claims
• Average workers’ compensation cost
• New hire training costs
• Re-training costs for returned workers
• Short-term disability costs
• Long-term disability costs
• Number of absences
• Average duration of absences
• Cost of absences (days x employee wage cost)
Productivity Gains:
• Number of days lost time for all employees
• Number of occupational claims
• Number of non-occupational claims
• Average number of lost time days per employee
• Average claim duration
• Cost of claims
Employee Relations Improvements:
• Family Medical Leave Act (FMLA) days
• Number of employees returned to work
• Number of Transition-to-Work returns
• Retention rates (measures as a negative: i.e., lost employees)
• Results of employee survey on satisfaction (anecdotal)
In addition to these kernel measures, there are factors that might be classified as accruing to Administrative efficacies. These measures would include:
• Claim and benefits analysis (timeliness, accuracy)
• Program administration costs
SETTING DISABILITY MANAGEMENT OBJECTIVES
Employers desirous of gaining control of their DMPs for the purpose of realizing significant cost savings should start by deciding what they hope to gain from their program. The Weyerhaeuser Corporation, a long-time exemplary of such programs, implemented their program with the following objectives:
• A significant decrease in the number of employees injured on the job.
• An increase in return-to-work rate and fewer lost days.
• An improvement in the quality of services provided to injured workers.
• A reduction in workers’ compensation costs.2
It is important to note that Weyerhaeuser and other exemplary programs felt that they were not well served by “third party administrators” and subsequently brought all of their disability management planning and administration in-house. Employers seeking full, and quality, control of their DMPs will be well served by emulating the Weyerhaeuser model in respect to third party services.
When they decided twenty years ago that gaining control of their DMPs was an important thing to do, several companies like Weyerhaeuser made public the results they achieved by implanting carefully crafted DMPs into their operational procedures. Some selected outcomes (dating from their inceptions) of implementing in-house DMPs include:
1. The Weyerhaeuser Company:
• Reduced its workers’ compensation claim rate from 24 per 1000 employees in 1985 to 15 per 100 employees in 1989.
• Reduced its lost-work-day rate from 102 per 100 employees in 1985 to 53 per 100 employees in 1985.3
2. The Walbro Corporation:
• In 1985, invested $100,000 in a revised DMP and returned the investment in 10 months.
• Reduced its workers’ compensation cost by more than 55 percent the first year of the revised program.
3. The Will-Burt Company:
• Reduced its workers’ compensation costs from $200,000 in 1985 to $9,000 in 1990
• Medical costs declined from $1,961 per employee in 1985 to $1,993 in 1990, even though the medical cost index increased by 83% during this time period.
4. ThyssenKrupp Budd Company
• In 1993, the Philadelphia self-administered workers’ compensation program of the ThyssenKrupp Budd Company was renovated using the ideas presented in this compendium.
• Stephen J. Fireoved, Esquire, led the DMP over the next 10 years using an interdisciplinary team approach as recommended by CEC Associates.
• 90% of participants (injured workers) in that program transitioned to full duty with no ongoing restrictions, and that particular location of the Budd Company essentially functioned without the support of a third-party administrator.4
CURRENT STATISTICS
For employers who want more extensive data on disability management, CEC Associates, Inc., has found that the three most prolific sources of the costs factors in disability management programming are:
1. The Washington Business Group on Health: www.wbgh.org
2. UnumProvident: www.unumprovident.com
3. Liberty Mutual: www.libertymutual.com
While the format by which they report on disability costs for employees varies as their Web sites upgrade from time to time, there is a wealth of information on costs available on these three sites. The National Business Group has an affiliation with Wyatt Watson which does regular employer surveys, and Liberty Mutual also conducts employer surveys and reports their results. Currently, the Liberty Mutual Web site has a “Lost Productivity Calculator” that can be useful in ascertaining costs.
References
1 UNUM Life Insurance Company of America, “The Full Cost of Workplace Disability Study,” 1989, 1992, and 1996.
2Akabas, Sheila H., Gates, Lauren B., and Galvin, Donald E. Disability Management: A Complete System to Reduce Costs, Increase Productivity, Meet Employee Needs, and Ensure Legal Compliance. AMACON (A Division of American Management Association). New York, 1992.
3Akabas, Sheila H., Gates, Lauren B., and Galvin, Donald E. “How Weyerhaeuser Improved Its Workers’ Compensation Program.” Disability Management Sourcebook. Washington Business Group on Health, 1989.
4Fireoved, Stephen J. “Development and Implementation of a Successful Disability Management and Return To Work Program.” Presented to the Philadelphia, Pennsylvania Association of Occupational Health Nurses, November 9, 2004.
APPENDIX A: Quantifying the Cost of Employee Disability
The following units can serve as a guide for employers to establish base-line data in respect to the cost of employee disability. The recommendation is that data be gather on each of the units and then accumulated for management review. (Employers may choose to add additional cost factors. Data may be –should be-- divided by such factors as salaried employees, hourly employees, specific department employees, etc.)
MONETARY COSTS Annualized Totals
Employee benefits ___________
Number of claims ___________
Average benefit cost per claim ___________
Benefit cost as a percentage of payroll ___________
Number of workers’ compensation claims ___________
Average workers’ compensation cost ___________
New hire training costs ___________
Re-training costs for returned workers ___________
Short-term disability costs ___________
Long-term disability costs ___________
Number of absences ___________
Average duration of absences ___________
Cost of absences (days x employee wage cost) ___________
PRODUCTIVITY GAINS
Number of days lost time for all employees ___________
Number of occupational claims ___________
Number of non-occupational claims ___________
Average number of lost time days per employee ___________
Average claim duration ___________
Cost of claims ___________
EMPLOYEE RELATIONS IMPROVEMENTS
Family Medical Leave Act (FMLA) days ___________
Number of employees returned to work ___________
Number of Transition-to-Work returns ___________
Retention rates (measures as a negative: i.e., lost employees) ___________
Results of employee survey on satisfaction (anecdotal)
APPENDIX B: The Questions Senior Management Should Be Asking to Determine the Accountability of Their Disability Management Program (DMP)
Are the costs of creating and operating a DMP justifiable? In light of escalating lost-time costs and declining productivity, the questions senior management should be asking about their Absentee/DMP include:
1. Do we measure the productivity of our workforce?
2. How do we measure this productivity? What are the formalized or documented procedures we have for gathering this data?
3. What are the specific data we should be accumulating to have a meaningful baseline to serve as the basis for sound management decisions?
4. Are there standardized metrics available as benchmarks? If so, where can we find them?
5. Are we interested in employee satisfaction as a significant business factor?
6. Do our annual lost time costs affect our business results?
7. Do we distinguish between the costs ascribable to return-to-work situations and our overall health care costs? If not, are there viable business reasons for not doings so?
8. How do our absenteeism results and the attendant costs thereof compare with similar-sized companies?
9. Do we recognize and address the similarities and differences among our short-term disability, long-term disability, workers’ compensation, and Family and Medical Leave Act statistics?
10. Do we gather and analyze data on claim adjudication costs and timeliness of resolution?
APPENDIX C: How Effective Are Disability Management Programs (DMPs)?
Determining the effectiveness of a DMP rests on the inclusion of basic components. Of these, the single most important determinant is the presence and sincerity of the top management commitment to disability management. Next, a DMP may be deemed to be effective if it addresses all (or at least most) of the following aspects of workplace disability. A DMP that lacks significant components from the following may be deemed to fall short of effectiveness.
The program has documented procedures and methods that are regularly applied to:
1. measure on an ongoing basis the fiscal return (bottom line) from the DMP;
2. demonstrate the specific responsibilities of the supervisor/Human Resources professional to their employees in respect to present or potential disabilities;
3. demonstrate the specific relationships between medical providers and occupational rehabilitation providers;
4. assign responsibility and accountability to individuals for the program outcomes;
5. integrate and resolve the frequently competing interests of health care benefits, insurance issues, workers’ compensation, health and safety education, labor/management issues, and (when relevant) third-party providers;
6. evaluate and address deficiencies in staff competencies to conduct an effective DMP; and
7. address the issue of the organization’s leadership to understand the impact of the economy and labor market on the practice of rehabilitation and return-to-work programming.
Other critical issues in respect to determining program effectiveness include the understanding and application of:
1. Transition-to-Work methods and materials
2. The need for competency of staff in basic skills such as problem solving, communicating, writing, and identifying and qualifying the use of appropriate assessment tools.
Discounts for Disability Management Programs?
As the information piece above indicates, providing discounts on workers’ compensation premiums is dramatically productive. The 5% discount to employers who create and conduct safety programs for their employees generated more that $200 million for employers in Pennsylvania.
CEC Associates, Inc., has proposed to Pennsylvania State Legislators that a similar discount to employers who have implemented state-of-the-art Disability Management Programs (DMPs) be provided a comparable incentive. If a 5% discount for safety programs generates more than $200 million for the employers of Pennsylvania, consider the return-on-investment for employers given a discount for operating a comprehensive DMP: even more results and even more savings.
To add your personal or company endorsement to the proposal, to become a partner in the advocacy of a disability management discount, or for more information on CEC’s proposal, contact Dina at (800) 246-9767 or Dina@cecassoc.com.
Small-Company Employers and Disability Management
Unplanned absences are more critical for small companies than for mid-sized or large companies. The impact of one person being absent for an extended period is much more severe when individual employee have unique responsibilities and where it is much more difficult for work colleagues to pick up the slack.
Critical actions the small employer needs to take when an employee will be off for an extended period of time (beyond two weeks) include:
§ Understanding and monitoring the attendant insurance issues to keep a moderate lost-time situation from escalating to a major or long-term situation.
§ Applying state-of-the-art methods, especially transition-to-work, to bring the ill or injured worker back, even if on a temporary part-time basis and/or with modified transitional duties.
Insurance carriers tend to provide more services to their larger premium-paying companies, and small company employers will need to press harder for meaningful communications and satisfactory resolutions than larger employers. One crucial question for small employers to ask is whether the insurance coverage (workers’ compensation, group heath, or disability insurance) covers physical therapy and case management services. In order to avoid long-term disabilities, insurance coverage should pay for the cost of contracting for vocational rehabilitation services to optimize return-to-work.
When insurance coverage may not be adequate, the employer needs to engage in serious contingency planning. This means identifying occupational rehabilitation experts to turn to for critical experienced advice in time of need before the incident occurs. The most cost-effective strategy is to plan ahead and conduct in-house consultations with qualified vocational rehabilitation professionals prior to an occurrence.
As with all other issues of business management, success will favor those who practice proactive planning and preparations because there is essentially no other aspect of running a business that can be more costly than the absences of key employees at critical times.
Do Safety Programs in the Workplace Work?
The answer is, in Pennsylvania at least, they do!
A report in Health and Safety News showed that injuries in Pennsylvania reached a four-year low, and attributed the results to the state’s incentive of offering discounts to employers on their workers’ compensation premiums for safe workplaces. The report also states that workplace injuries in 2004 were down to 93,566, the lowest number since 2000. That number was down more than 5,500 injuries from 2003. Additionally, the number of work related deaths dropped by 10 in 2004, to 130.
The Pennsylvania Secretary of Labor and Industry, Stephen Schmerin, reported that 6,100 businesses covering more than 840,000 employees are taking advantage of the state’s certified program. The Secretary stated that employers have saved almost $200 million since the program’s inception through a 5% premium discount for having a certified program.
For further information on the workplace safety initiative titled “Work Safe PA,” visit: www.dli.sate.pa.us.
According to the National Safety Council (NSC) (www.nsc.org), workplace death rates are down 17% since 1992, but the rate of fatalities off the job is up 14% in the same period. This statistic is evidence that workers are safer on the job than they are at home or in the community.
Alan C. McMillan, CEO of the NSC, said, “The business costs of off-the-job accidents is staggering when you take into account lost wages and productivity, medical and disability payments, and training new employees.”
NSC statistics for 2004 show that twice as many workers – or 6.8 million – were seriously injured while off the job than were injured while working. Of the 49,000 injury-related deaths in 2004 involving workers, roughly 90 percent occurred while employees were off the job. Off-the-job injuries accounted for employers losing 165 million days of production time, compared with 80 million lost work days as a result of workplace injuries.
What Causes Workplace Injuries?
There are, of course, many causes of workplace injury, but one condition that appears to be present in many of these is anger. A study reported in the January 2006 issue of the Annals of Family Medicine showed that workplace injuries are frequently preceded by anger. The measures used in the study placed the level of pre-injury anger at either “quite a bit” or “extremely,” and further characterized the intensity of the anger as “irritable,” “angry,” or “hostile.”
The study, conducted by Daniel C. Vinson, M.D., MSHP, of Family and Community Medicine at the University of Missouri-Columbia, appears to show that angry people are more susceptible to serious injuries in the workplace. Serious injuries are defined in the study as those “serious enough to require emergency medical care.” The study also concluded that the risk for injury when angry is higher for men than women. Vinson states succinctly, “Workplace injuries are more likely when one is angry.”
Carefully planned and implemented Disability Management Programs make provisions for Employee Assistance Programs (EAPs) and Managerial Mediation. One of the basic components of an EAP is providing supervisor training in recognizing and dealing with employee anger. Managerial Mediation is a proven method to help employers resolve employee anger and resultant interpersonal conflict.
CEC Associates, Inc., provides seminars for employers on planning and implementing EAPs that address anger as a risk factor for employees. CEC Associates, Inc., also offers Managerial Mediation training, a successful strategy in preventing conflict in the workplace from becoming occupational injury and/or disease.
To discuss EAPs and/or Managerial Mediation seminars for your staff, please contact Dina at (800) 246-9767 or Dina@cecassoc.com.
The Workforce Investment Act of 1998 (WIA) that became effective July 1, 2000, established America’s Workforce Network (AWN), a national workforce preparation and employment system to meet the needs of businesses and job seekers. Customers have easy access to information and services through the One-Stop Career Center system.
AWN is a nationwide system of workforce development organizations that helps employers find qualified workers and helps people manage their careers. The One-Stop Career Center approach provides a single point where customers can access a wide array of job training, education, and employment services. It also provides a single point of contact for employers to provide information about current and future skills needed by their workers and to list job openings. WIA requires the participation of relevant programs administered by the Departments of Labor, Agriculture, Education (including Vocational Rehabilitation), Health and Human Services, and Housing and Urban Development.
Basic information and the location of One-Stop Career Centers may be accessed by calling the toll-free telephone help line at 877-US2-JOBS (877-872-5627). Internet users can gain access through America’s Service Locator at www.servicelocator.org.
Source: U.S. Department of Labor
Office of Disability Employment Policy
The UnumProvident Insurance Company recently published a study titled Aging U.S. Workforce Creates Challenges to Corporate Health and Productivity. The study was conducted by CEC’s long-time colleague, Dr. Ken Mitchell, Vice President of Corporate Return-to-Work Development for UnumProvident. Mitchell is the original developer of the “co-malingering” concept in disability management which CEC has endorsed and espoused to others for more than a decade.
Salient factors in Dr. Mitchell’s findings are:
§ Although workers age 40 and older experience a lower incidence of work injuries, short-term disability and unscheduled absences than younger workers, the average time they miss due to an injury or illness is greater by nearly a third.
§ Workers older than age 40 account for 50% of all short-term disability claims and up to 75% of long-term disability claims.
§ Primary reasons for long term work disruptions for this age group include impairment of the musculoskeletal and circulatory systems as well as mental and cancer disorders.
§ The additional presence of risk factors such as smoking, lack of exercise, and obesity can result in healthcare costs for this population that are nearly 300 percent higher than the younger workforce.
Do these facts spell insurmountable problems for employers? Not according to Dr. Mitchell, who writes: “The good news here that there are tried and proven effective steps that management can take to lessen this occurrence and benefit not only aging employees, but all employees.”
What are the “effective steps” employers can take? The answer is to plan and conduct effective Disability Management Programs (DMPs) for their employees.
To read more about Dr. Mitchell’s study, including a case study he discusses, visit: www.unumprovident.com/newsroom/publications. The case study considers Coors Brewing Company’s DMP, which includes a “transitional work program.” To learn more about quality disability management programming, visit CEC’s site: www.cecassoc.com. To learn more about transition-to-work programming, including the methods and materials needed to implement such a program, contact Dina McAfee at (800) 246-9767 or Dina@cecassoc.com.
Despite its status as an advanced industrial nation, the United States has some unusual characteristics. For example, while its health care system is the most expensive in the world, its citizens are neither healthier nor do they live longer than citizens in a number of other countries.