Making up for lost time: Absence management plans are gaining greater acceptance with employers, adding business opportunities for insurers. (Disability: Industry Strategies).

Absence management is gaining greater acceptance by employers as they find it necessary to track all types of absences from disability and workers' compensation to incidental lost days that occur one or two at a time. This trend adds a new dimension of business for disability and workers' compensation insurers.

Absence management programs, which began with workers' comp, define and compile lost time at the workplace. They are now spilling over to disability coverage as employers begin to fully realize the impact on their bottom line of the direct and indirect costs from these absences.

"Absence management programs are becoming more important because employers want them. Programs have historically been benefit centered, [but] now are becoming employee centered. Insurers are being pushed out of their core business to accommodate employers," said Connie Miller, director of strategic market development for Intracorp, a medical claims management company. The nation's largest disability insurer, UnumProvident, predicts that absence management programs also will become more popular because of their impact on medical costs. "We did studies using our database to understand the relationship between disability and medical costs. On average, 10% of employees on disability consume more than 50% of employees' medical costs," said Ralph Mohney, senior vice president of Return to Work Services for UnumProvident.

The second-largest workers' comp carrier in the United States, Liberty Mutual, agreed, saying that employers want absences managed because evidence shows such programs improve profitability. "When you look at companies that have gone from a program with no management of absences, you see a much longer disability or higher workers' comp stay, higher medical and short-or long-term disability costs. Absence management saves money, improves productivity for employers and makes happier employees as well," said Dan Lyons, vice president of group market and manager of integrated disability management at Liberty Mutual Group. The Boston-based insurer estimates that managing absence saves employers between 30% and 35% of workers' comp costs annually, compared to unmanaged programs.

Disability and workers' comp insurers are designing new products, using data to target injury-prone duties and preplan meaningful limited duties to enrich absence management programs to meet the profitability challenges of employers. These efforts are being fueled by the fact that if a claim is reported faster, the employee will be returned to work full time more quickly and with more success.

Managing Through Integration

In the past, disability and workers' comp insurers treated occupational and nonoccupational absences by simply processing forms and didn't discuss them with physicians or employers. The soft economy and more regulatory requirements, however, are driving insurers to offer their policyholders an integrated management approach.

The majority of leaves of absence that meet the conditions set out in the Family and Medical Leave Act are due to an employee's own medical condition, such as a pregnancy. That means employers experience a lot of overlap with short-term disability, so integrating FMLA tracking with short-term disability programs is a logical fit. The FMLA entitles eligible employees to take up to 12 weeks of unpaid, job-protected leave in a 12-month period for specified family and medical reasons, according to the U.S. Department of Labor.

"Companies have difficulty complying with the federal and state requirements and are looking to vendors to manage that for them. The FMLA tracking part of our business doubled last year, doubled from the beginning of the year to July and will double again by the end of the year. There's a need from a compliance standpoint; laws are difficult to administer, particularly for broad-ranged institutions that are dispersed geographically," Mohney said.

MetLife, the second-largest disability writer in the United States agreed that the FMLA is an extremely complex program for employers to administer. "Of all the various mandated programs out there, FMIA is the most troublesome, beating affirmative action COBRA and OSHA [Consolidated Omnibus Budget Reconciliation Act and Occupational Safety and Health Administration]. It requires individual record keeping that has to be administered based on complicated state and federal regulations," said Thor Kayeum, assistant vice president of MetLife's disability division.

Kayeum also pointed out that insurers have responded to employers' needs "from multiple angles. Historically, programs have cropped up and are disconnected. They all have their own organizational units and internal processes. In the middle is the employee trying to figure out how to access the system. The average American doesn't know the difference between an occupational and nonoccupational disability. The more you integrate, the more you take the unproductive costs out of the system."

MetLife's absence management program uses a single, integrated point of entry for absences. Policy-holders' employees call in their short-term disability, long-term disability or FMLA days or workers' comp absences to a toll-free number. Kayeum said MetLife's programs take into account all the reasons employees aren't working, including unscheduled absences, if a customer requests it. "Unscheduled absences, such as 'mental health' and sick days, that are a week or less comprise 30% to 40% of lost time. There's a growing demand for us to manage them," Kayeum said.

Nucleus Solutions also works with insurers and employers to uncover the root causes that drive employee absences. Ed Anderson, president and co-founder of the software and consulting company, said that while 50% of employee days off are managed under workers' comp or disability claims, the remainder aren't. The one- or two-day occasional absences are disruptive to employers and Anderson says his company's job is to ascertain whether they are due to a bad employee or just a bad place to work.

Nucleus Solutions' Web-based software system can integrate an organization's workforce, operational and financial data to track, analyze and report employee absence metrics. A customer can report absences via a secure Internet or interactive voice response input. Supervisors or human resources staff can input or access absence data at anytime via the Web. Nucleus analyzes the data for each employer group and can identify high-risk use areas of the business. The data is used to comply with OSHA or other government regulations.

Anderson said his company's technology also cuts down on lost work time by uncovering the occupational drivers of absence. By analyzing employer data, Nucleus can isolate departments and supervisors who aren't following attendance management guidelines, identify supervisors who have an overly permissive attitude toward absence and discover whether poorly kept facilities are a factor in lost work time.

The Cost of Absence

Employers are realizing that unscheduled and scheduled absences are adding to their direct and indirect costs of doing business. "Just five years ago employee absences were thought of as just another part of doing business. Now that it's discovered that total absences can be 20% of payroll, it's another area to look at to save money," Kayeum said.

More businesses are looking to curb absence in order to improve productivity and profitability. "You have to have an optimal workforce to have the best shot at earnings. Business is built on human capital," said Intracorp's Miller.

The cost of absence includes direct costs, such as wages for work not performed, hiring temporary workers and unscheduled overtime. It also includes such indirect costs as reduced time spent with customers, lost revenue, higher benefit expenses and unwanted employee turnover.

MetLife reported that indirect costs are five to seven times higher than direct costs for most employers. To drive the cost factor point home to employers, specifically supervisors, insurers are using technology to analyze data to illustrate the cost of absences in the currency of the employer. MetLife shows clients what absence is costing its competitors and compares it to what they are paying. MetLife then helps employers analyze what's driving the costs. "We're not just dumping reports on their desks. We're trying to prevent [absence], then manage it and then look at the results to make it better," Kayeum said.

UnumProvident also provides its customers with status reports containing comparative reporting and analysis of absences. Touting it has the largest database on disability in the world, UnumProvident takes incidence-rate data from a policyholder's industry and compares it to a competitor. For example, UnumProvident found that in the case of one of its clients, a paint manufacturer, employees' absences equaled the cost of 500,000 gallons of paint retail. In another case, it showed a large hospital group that its absence rate equaled the cost of 300 empty beds. "The comparisons help us to build awareness of cost factors," Mohney said. In some cases UnumProvident's absence management program has been able to slice the length of policyholders' short-term disability by about 40% and long-term disability by 30%.

Preloss Planning

Intracorp's absence management program applies a preloss approach to bringing employees back to work safely and quickly. Intracorp uses its new comprehensive database that matches the functional abilities of workers to the physical requirements of the job. The database contains 15,000 common transitional duties and can be customized for specific employers. To build the preloss contingency plan, Intracorp begins by identifying those areas that are driving the cost of absence--the high severity, most costly jobs of the client's business from a workers' comp standpoint, said Miller. Using the new database, Intracorp is able to pinpoint the high severity jobs' cost, analyze them and identify transitional duty opportunities.

Miller also stresses that the transitional jobs aren't of the "pole painting variety." Intracorp works with employers to examine each job's responsibilities and breaks them down into high quality, high value-added tasks, eliminating any part that would hinder the injury's healing. For instance, a warehouse worker with a back injury claim, who would normally do heavy lifting, can return to work and package or update OSHA information. By taking a preloss approach, management will be prepared with a transitional duty for the injured worker once a claim is filed.

The Medical Cost Factor

The newest emphasis in absence management is focusing on the impact of disability claims on an employer's medical costs, according to UnumProvident. With costs for prescription drugs and medical tests expected to rise 15% this year, that's an important area to address, Mohney said.

UnumProvident also determined that different impairments have different cost dynamics. Although maternity leaves are one of the most frequent causes of short-term disability, they don't impact medical costs like depression and back injuries that tend to spill over into long-term disability. "Early intervention is the key to shortening the length of the claim. Individuals who consume the greatest medical costs are those that go on long-term disability. The consumption of the costs begins through short-term disability, so getting involved early with extensive clinical support makes all the difference in the world," Mohney said.

As soon as a claim is filed, UnumProvident determines if it could possibly become long-term. It is assigned a case manager during the short-term disability phase and that manager stays with the case until the end, checking on medication use and physician visits and making sure the treatment plan is followed.

Solving the Unsolvable Claim

Workers' comp claims that linger for several years are a huge reserve drain for insurers, as well as a potential litigation nightmare. Workers' comp insurers place money in reserve for every claim; therefore the longer the claim runs, the more money that must be put aside to pay to the claimant. The Workers Transition Network provides companies with a solution for their claimants with permanent physical restrictions.

Workers' comp insurers or companies that manage workers' comp claims, such as AIG Claim Services, pay a flat up-front fee to the network to work on bringing a final solution to a long-tail case. The network also receives a contingency fee if a final solution to a claim occurs. Jim Kremer, director of Workers Transition Network, said the network finds in more than 50% of the cases it takes on that claimants are re-employed within five to eight months of joining the program. "We work with clients on a self-directed job search. These are people who have been out of work for as long as 36 months and who have been told what to do during that time and feel like they have lost control of their lives. We put them in control of their life," Kremer said.

WTN's tactic is to get claimants, who have been out of work for years, acclimated to a daily routine by getting them positions at nonprofit agencies, such as museums or soup kitchens, while they work with WTN vocational counselors on getting a permanent position in the field of their choice. This approach works well, says Kremer, because it reawakens the work ethic and the job becomes a more recent work reference. It also becomes a "paying" job as the workers' comp benefits are transferred to become a salary.

In one case that WTN handled, a woman in her mid-30s who had been out of work on a workers' comp claim for three years with an injured hand, arm and shoulder, gained new skills at her office job at the nonprofit agency. The interim position in an office allowed her to develop computer and writing skills, while her WTN counselor helped her find a permanent office job in 11 months. The total reserve return for the workers' comp insurer was $101,600.

Several states require vocational rehabilitation as part of the workers comp process. WTN's process is especially successful in these states, according to Kremer, because claimants' attorneys also recognize that the program is so beneficial, that most judges would not rule it as being burdensome to the claimant. "It separates the claimants who want to milk the benefits from the motivated workers who see it as a life line. In the hundreds of cases we have handled, only three have gone in front of a judge, and the judges have said, 'I don't know why you wouldn't want to do this,'" said Kremer.

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Top 10 Workers' Compensation Injuries

Back problems cause the most worker's compensation claims, according to
NCCI Holdings Inc.'s Workers' Compensation Statistical Plan database.
The data reflects injuries that occurred in NCCI states in 2000, the
latest data year available.

Number of                 Nature of
Claims     Body Part      Injury

306,000    Lower Back     Strain
171,000    Finger         Laceration
106,000    Eye            Foreign Body
 69,907    Hand           Laceration
 66,480    Multiple Body  All Other
                          Specific Injuries
 59,749    Knee           Strain
 56,437    Multiple Body  Strain
 53,146    Ankle          Sprain
 47,485    Shoulder       Strain
 45,673    Thumb          Laceration

Source: NCCI Holdings Inc

RELATED ARTICLE: Lost Time Facts

* Approximately 2.8 million work days are lost annually due to employee injuries and illness, according to the U.S. Department of Labor.

* Costs associated with employee absence can add up to 5% to 6% of total payroll, reports human resources consultant Watson Wyatt.

* The absence at Fortune 1000 companies is increasing, in some cases by as much as 10% to 20% a year, according to a study by Nucleus Technologies.