Author: Annmarie Lipold

Employers do not have to be held hostage to rising workers’ compensationcosts. But it takes strategic planning to get and keep them under control. Hereare some ways to control costs and to build a top-notch workers’ compensationprogram at the same time:

Keep employees healthy. MCG Health, Inc., is not experiencing workers’compensation premium increases largely because it is committed to keepingemployees healthy, says William Hayes, vice president of human resources for thenonprofit corporation and head of the health system of the Medical College ofGeorgia. “Healthy employees are less likely to file for workers’ compensationbenefits.”

MCGHI’s 3,000 employees stay healthy because of a health insurance plan thatprovides annual physicals and low-cost coverage to encourage them to getnecessary medical care. The organization also has a wellness program and anexercise facility.

Prevent workplace injuries and illnesses. “Preventing claims is always themost effective strategy,” says Eric Oxfeld, president of the NationalFoundation for Unemployment Compensation and Workers’ Compensation inWashington, D.C.

Prevention also demonstrates a company’s commitment to employee health–amorale booster–while saving money on other insurance such as group health anddisability, says Sara Taylor, president of Structured Health Resources Inc., aChicago disability-management consulting company.

Go beyond compliance with Occupational Safety and Health Administration (OSHA)regulations and examine workers’ compensation claims to find high-risk areas,says Paul Moss, vice president for global health, safety, and environment atDade Behring Inc. For this medical-diagnostics manufacturer, motor vehicleaccidents and ergonomics were the biggest workers’ compensation costs. To reduceaccidents for the 750 employees who operate cars and vans, the company providesannual defensive-driver training and requires accident reports for everyincident.

Dade Behring also initiated an ergonomic program. Initially, 77 percent ofthe employees assessed experienced varying degrees of physical discomfort. Aftertraining and changes to the work environment, 90 percent of those employeesreported the reduction or elimination of symptoms.

    Keep employees happy. Good labor relations are crucial, Oxfeld says. “Theworkers’ compensation experience is always worse in work environments wherethere is a lot of labor-management tension.”

Promote early claim reporting. Front-line managers need to know how to handlea workrelated injury or illness. At Dade Behring, front-line managers aretrained to contact the proper personnel, ensuring that claims are handled asquickly as possible, Moss says.

    Manage medically. International Truck and Engine is taking medical casemanagement a step further by targeting its “highest-risk plant”–a3,500-employee facility that files 70 percent of the 17,000-employee company’sworkers’ compensation claims–says Dr. William Bunn, vice president of health,safety, and productivity. The self-insured company is working with medicalproviders near the Springfield, Ohio, plant to develop treatment guidelines.Injured employees will receive the same quality of care, regardless of theirmedical provider, so that they can return to work as quickly as possible.

Establish a return-to-work program. Taylor recommends a “work maintenanceprogram” in which employees stay at work while getting the medical attentionthey need. For example, an employer could help an employee with carpal tunnelsyndrome by setting up surgery on a Friday afternoon, arranging transportation,and getting the employee back to work, with restrictions, on Monday morning.

    Even better, create a disability-management culture. Employers need to changetheir attitudes about disability, Taylor says. “Disability is negotiable.”What should determine employee disability is not the medical provider but theemployer’s willingness to adapt to the restrictions or limitations of an injuredemployee.

Manage vendors. Make sure internal departments and external vendors are clearabout their roles and responsibilities, Taylor says. Establish accountability.At Dade Behring, Moss says, it is necessary to “aggressively manage” itsthird-party administrator to ensure that cases are handled thoroughly.

Develop supporting plans. Company policies describe how the corporate cultureprevents and manages disability, Taylor says. Awareness of current policies isessential to improving disability-management efforts and to making betterpurchasing decisions.

Benchmark results to measure progress. “Internal data must be captured toanalyze the effects of your program,” Taylor says. Begin by assessing the costof workers’ compensation as a percentage of payroll or the cost of lostproductivity per injured worker. Also track claim-specific information, such asnumber of workers’ compensation claims, number of lost workdays, average claimcost, and average claim duration.

Shop around. “A lot of medium-sized employers are going to find their ratesgoing up rapidly,” says John Burton, publisher of Workers’ Compensation PolicyReview. To get a better deal, employers should investigate policies with largerdeductibles, state-based assigned-risk pools, or group self-insurance, which istypically offered through state-based trade associations.

For Moss, pricing was about the same from several insurers, so he lookedclosely at value-added services, such as claim-management services, and theinsurers’ records for closing cases. After shopping around, Dade Behring keptits insurer–but with higher service expectations.

Consider self-insurance. Even though MCGHI has not seen a premium increase,it will begin self-insuring its workers’ compensation program in 2003, Hayessays. He expects that selfinsuring will cut costs in half.

The organization currently has a $250,000 deductible for workers’compensation insurance and is paying a total of about $400,000 a year inworkers’ compensation expenses.

Get involved. Employers play a key role in developing state workers’compensation laws, Oxfeld says. “States will listen when employers can showthey are having a problem.”

Workforce, February 2003, pp. 46-48 — Subscribe Now!

Just managing non-occupational disabilities was a big deal six or seven yearsago. But to combine that effort with occupational disabilities, now that was anovelty.

Since then, virtually every benefit-integration practice that employers haveintroduced has brought a high level of satisfaction, says William P. Molmen,general counsel for the Integrated Benefits Institute. To catalog thosepractices, IBI released “A Survey of Integrated Benefits Best Practices” inJanuary. The report represents 103 employers with an average of 8,700 employees.

About 77 percent of employers integrated benefits to manage employeedisability. They did this by combining workers’ compensation, short-termdisability, and long-term disability so each area is managed in the same manner,whether or not the disability is work-related. Family Medical and Leave Actadministration is almost always part of integrated disability management. Abouthalf of these IDM programs integrate or coordinate group health with disabilityprograms. This often means managing the treatment needed to shorten disability.

Three top practices
    The most effective integration strategies are return-to-work, integrated casemanagement, and common claims intake. Some of the most common practices areamong the least used, the report said. These include same-performance outcomemeasures, ICD-9 medical diagnosis codes for occupational and non-occupationalmedical records, interactive voice response for disability reporting, and helpfor injured employees obtaining Social Security disability benefits.

Other effective but costlier practices include empowering one corporate unitto make all purchasing decisions, linking the company’s integrated claims datasystem to the human resources or payroll data system, and using a singleinsurance broker or consultant to integrate the programs.

Lessons learned
    If they could do it again, the employers said, they would approach someaspects of benefit integration differently. About half would first enlist seniormanagement support. “Our case studies show that it’s always easier to sellthe integrated program to supervisors when there is ongoing senior managementsupport,” Molmen says.

Major corporate reorganization is not necessary to implement integration, thesurvey found. Most employers began incrementally by consolidating andintegrating claim management–such as single claims intake or a transitionalreturn-to-work program regardless of injury cause. Some employers also said theywould have created database resources for planning and monitoring integratedprograms. Others would have spent more time and resources on employee training.

Workforce, December 2002, pp. 50 — Subscribe Now!

To Libby Child, it just made sense. If her company, Steelcase Inc., couldsave money and help its employees on workers’ compensation by bringing themback to work, then the same results would occur for employees on long-term andshort-term disability. Even better, says Child, the integrated disabilitymanager for the Michigan manufacturer of custom office furniture, the company’sdecision to change the way it administered benefits before the economydeteriorated has made a significant difference in raising productivity andcontrolling costs.

The Grand Rapids-based firm was enjoying the fruits of integrated benefits:higher productivity, improved morale, increased administrative efficiency, andfewer legal hassles. Then the economy faltered, and Steelcase laid off more than1,000 employees. Its benefit-integration program–which combines long- andshort-term disability, workers’ compensation, medical case management, andFamily and Medical Leave Act administration–helped keep the cost of layoffs incheck. The program has enabled employees, laid off or not, to receive propermedical treatment and benefits for the appropriate amount of time, whileensuring that they do not simultaneously dip into different benefit streams. Asother employers watch medical and disability costs skyrocket, costs at Steelcaseare increasing at a much slower pace, Child says.

So, what exactly is benefit integration? It coordinates any combination ofbenefits, including health, disability, time off, and workers’ compensation,to meet human resources objectives, says George R. Faulkner, a principal withNew York-based Mercer Human Resource Consulting. “All we are talking about isbeing smarter about how benefits are delivered,” notes William P. Molmen,general counsel of the San Francisco-based Integrated Benefits Institute (IBI).

At Steelcase, it works like this: a disabled employee calls a toll-free phonenumber and, after following the prompts, connects with a representative whofiles the claim, collects necessary FMLA information, and directs the worker toa medical case manager if necessary. Employees at the $3.1 billion company getthe same treatment regardless of whether the disability is work-related. Thanksto benefit integration, the combined cost of short-term disability, long-termdisability, and workers’ compensation has dropped 13 percent, from $1.63 per$100 of payroll in 1998 to $1.42 in 2001. Restricted workdays have plunged 73percent, from 63,000 in 1992 to 16,943 in 2000. Lost-time days have declined 70percent, from 4,313 in 1992 to 1,313 in 2000. And the number of litigateddisability-related cases fell from 15 in 1996 to 6 in 2000.

Employee satisfaction also has improved under the integrated approach, Childsays–from 1.2 on a 4.0 scale in 1997 to 3.5 in 2000, according to an in-housesurvey. “The employee satisfaction kept going up and up,” she notes. Gettingemployees and managers to adapt to the new procedure was the biggest hurdle. Ittook six months to get them on board, despite a full-scale promotional campaign.”They weren’t sure who to call, when to call, and how to file a form,” shesays.

But once that initial period had passed, managers and employees took to theconvenience of calling just one number to report a lost-time injury or illness.Employees also appreciate the consistent return-to-work policy, whether they areon workers’ compensation or short-term or long-term disability.

Comerica is another company that is reaping the rewards of benefitintegration. The Detroit-based financial services provider saved millions ofdollars in lost wages in its first five years of integrated benefits, also known as absencemanagement, says David R. Groves, vice president of corporate health management.

The company, which has 308 branches and posted net income of $710 million in2001, saw the cost of disability-related lost wages drop from $8.7 million in1995 to $5.3 million in 2000–a decline of 39 percent. During the same period,average lost-time claims shrank 42 percent, from 52 to 30 days, and totaldisability days dropped 49 percent, from 65,000 per year to 33,000.

The savings can also be more immediate. Just 12 months after hiring athird-party administrator to manage and cover much of its integrated disabilityprogram, Owensboro Mercy Health System, in Owensboro, Kentucky, was able toconvert 3,096 lost-time days to restricted-duty days. This saved theorganization $282,815, says Pam Cox, manager of human resources development.

Lured by such promising results, more and more employers are pursuing benefitintegration.

Lured by such promising results, more and more employers are pursuing benefitintegration, according to the 2001 Employers’ Time-Off and Disability Programssurvey, released in May by Mercer Human Resource Consulting and Marsh Inc.

Of the companies surveyed, half of those with 1,000 or more employees havealready begun to integrate their short- and long-term disability plans with onecarrier or administrator. This compares with 40 percent of same-size employersin the previous year. Another 19 percent are planning or considering theapproach.

Some employers are grouping more benefits in their plans. Nine percent ofemployers with more than 1,000 employees are integrating short-term disability,long-term disability, and workers’ compensation, and another 22 percent areplanning or considering implementing such programs, according to the survey.

Impressive results
    Business results explain the trend toward benefit integration. Benefitcoordination provides cost control, increases employee satisfaction, and easesadministration, the survey reports. Employers that are integrating benefits citecost control as the top reason. “Employers are looking more long-term becausethey are frustrated with short-term fixes” such as negotiating insurancerates, hiring new carriers, and designing plan cutbacks, says Faulkner, whoco-authored the Mercer/Marsh report.

A labor shortage and rising disability costs motivated Owensboro Mercy HealthSystem to begin integrating benefits in 2001, Cox says. “We had experiencedrising workers’ compensation costs and increased long-term and short-termdisability premiums.”

Savings on benefits alone can amount to 40 or 50 percent, depending on thedegree to which disability programs were already managed, according to “ASurvey of Integrated Benefits Best Practices,” conducted by IBI and releasedin January. Most employers can benefit by integrating, says Phil Bruen, vicepresident of group market and product development for UnumProvident Corporation,a disability insurance company in Chattanooga, Tennessee. However, companieswith high turnover or few disability cases might not have the optimal culturefor benefit integration, he says. Companies or firms composed primarily ofself-motivated professionals, Faulkner adds, such as law firms, also may nothave a great need to integrate benefits.

Despite the advantages of benefit integration, it can still be tough for theHR professional to convince the CFO that this is a strategy to pursue.

Making the case
    Despite the advantages of benefit integration, it can still be tough for theHR professional to convince the CFO that this is a strategy to pursue. Sinceimplementation of an integrated benefits program will disrupt processes,culture, and departmental responsibilities, “you are going to have to prove itwill provide value,” Faulkner says. In fact, many respondents to the IBIsurvey said they would have put more effort into selling the program to topmanagement.

“CFOs want to know how better delivery of benefits will affect cash flowand the bottom line,” IBI’s Molmen adds. He recommends explaining the fullcost of lost productivity resulting from absence. IBI research of 60 employersshows that the full cost is generally twice the out-of-pocket benefit cost.Metrics to consider include the full cost of absence as a percentage of payroll,revenue, or income, he says.

The cost of unscheduled absence per $100 of payroll is an underusedbenchmark, Faulkner says. The 476 employers in the Mercer/ Marsh survey spent anaverage of 4.4 percent of payroll on benefits related to unscheduled absences in2000. That means for each employee earning $40,000 a year, companies spent about$1,760 on sick leave and time off for disability, according to survey data. Theindirect costs of unscheduled absence–including hiring temporary staffing,paying overtime, poor customer service, and additional training–could easilydouble that figure, the report says.

Human resources can sell integration to top management in different ways. AtComerica, good benchmarks helped get the CEO and executive management behind anintegrated return-to-work program, Groves says. To get top management support,he told them that on any given day, the number of employees off on disabilitywas equivalent to the number needed to work 16 to 18 branches. Also, Grovesdeliberately called the initiative a return-to-work program, as opposed to anintegrated program, making it easier for decision-makers to grasp the concept.

Vendor guarantees of a 10-to-1 return on investment really got executiveattention, Cox says. And in Owensboro’s case, the returns exceededprojections. At Steelcase, Child used the success of the already-in-placeworkers’ compensation return-to-work program and an experimental integratedreturn-to-work effort to get management interested. She also emphasized theemployee morale boost and the easier claim administration that integratedbenefits would bring. Without the non-occupational disability piece, “we werelosing opportunities,” Child adds.

Consensus-building is also critical, because operations and line managerswill want to see the benefits of any new process that will affect their jobs,Faulkner says, “so it isn’t just looked upon as an idea from HR because theyread it in an article.”

Groves assembled a committee of representatives from every business unit atComerica to get their buy-in on integration before approaching the CEO. “That’san absolutely necessary step,” he says. The committee developed a philosophystatement that the CEO adopted, setting the tone for implementation.

Incremental integration
    Integrated programs do not all look alike, Molmen says. Employers willapproach integration differently, depending on corporate culture, vendors, andbenefit design flexibility. Owensboro and its vendor, for example, havedifferent roles in the integrated program. The vendor covers short-term andlong-term disability and manages those programs along with the workers’compensation program, which is self-insured. The vendor medically managesnon-occupational claims, whereas an in-house nurse handles workers’compensation medical case management. Coordination of FMLA administration isalso handled in-house, Cox says.

Bruen recommends an incremental integration, starting with returning injuredemployees to work regardless of whether their injury or illness is work-related.Molmen notes, “You can do it incrementally and still have good results.”

At Owensboro, the vendor began by developing an effective return-to-workprogram for workers’ compensation cases in August 2001. Then in January 2002,it added the same program for non-occupational disabilities, which begins after15 lost workdays.

Comerica also built its program incrementally. In 1995 it began areturn-to-work program for non-occupational disabilities, Groves says. In 1997,the company formed the corporate health management department to oversee theworkers’ compensation, short- and long-term disability, wellness/health,employee assistance, and violence-in-the-workplace programs. The department alsooversees Family and Medical Leave Act administration and Americans withDisabilities Act compliance. In this way, he says, the continuum of employeehealth, from wellness to return-to-work, is better managed.

Then in 1998 its workers’ compensation and non-occupational third-partyadministrators began managing disability in tandem. In 2001, the company’snon-occupational disability vendor began fielding calls from employees andsupervisors to report disability–work-related or not–on a single toll-freenumber.

At Comerica, short-term disability begins after a worker has been off the jobfor five workdays and lasts for 180 days, after which long-term disability kicksin. Any occupationally related incidents must be reported.

Steelcase’s program is self-insured for the first six months of short-termdisability because that is when the company can have the biggest impact, Childsays. Long-term disability kicks in after six months and is fully insured. Atthe time of the program’s inception, all disability claims were managedin-house. Currently the company handles FMLA administration, workers’compensation, medical and disability case management, and return-to-work,whether or not the disability is work-related. A vendor manages any cases inwhich an employee is off work entirely.

Steelcase built its program from scratch in 1997. “There wasn’t anythingout there on the shelf that was of interest to us,” Child says. Few vendorswere offering programs that truly combined workers’ compensation withnon-occupational disability benefits. And it was difficult to get vendors towork in tandem.

If Steelcase were just now beginning to integrate benefits, Child says, thecompany would take a harder look at what vendors have to offer. Otherwise, shehas no regrets. Benefit integration enhances the company’s bottom line in goodtimes and bad, while helping out employees. And that works for her.

Workforce, December 2002, pp. 46-50 — Subscribe Now!