Promoting productivity and Workforce Effectiveness.

INTEGRATED BENEFITS PROGRAMS HOLD THE PROMISE OF SIGNIFICANT COST SAVINGS AND BETTER EMPLOYEE RETENTION. THEY MAY BE PARTICULARLY ATTRACTIVE TO LARGE COMPANIES WITH MULTIPLE BENEFITS LINES.

Are you a GFO with oversight responsibility for your company's employee benefits programs? If so, you have the opportunity to join a growing number of your peers nationwide who have seized the opportunity to manage employee benefits as a business strategy to help contain corporate overhead while maximizing workforce health and productivity. Meeting shareholder demands, in many instances, requires a workplace culture that motivates and enables employees to stay healthy and be productive at work.

Demands on America's work force are changing dramatically. More than ever before, the global economy and technological advances require a highly trained and skilled workforce. A recent Michigan Business School survey notes that CEOs rate attraction and retention of employees as their most important business issue. Yet mergers, reorganizations and corporate belt-tightening are weakening the bond between employer and employee, requiring increased resources to acquire and retain skilled employees.

At the same time, employee benefit costs keep rising. Workers' compensation (WC) losses are climbing, and group health costs are resuming the upward spiral disrupted by managed care. Short-term disability (STD) and long-term disability (LTD) costs alone typically average between 1 percent and 1.5 percent of payroll. Yet research by the Integrated Benefits Institute (IBI) shows the indirect costs of disability can be many times greater when the productivity effects of absence are factored in.

As the workforce ages, chronic pain, chronic fatigue and carpal tunnel syndrome are creating disability at an alarming rate. Workplace pressures also are contributing to increases in substance abuse, stress-related illness and mental illness. As you plan for the future, it is important to recognize what's happening in the work place today:

* 8% to 12% of payroll is spent on benefits and indirect costs such as lost productivity for employees absent from sickness or injury (Washington Business Group on Health).

* Data from the American Institute of Stress and the American Psychological Association indicate that job stress and related problems cost companies as much as $200 billion annually.

* Over a three-year period in the 1990s, the number of cases of repetitive strain injury reported increased four-fold, requiring 30 days off work, on average (U.S. Bureau of Labor Statistics).

* Over 50% of lost productivity comes from absences of a week or less (Towers Perrin).

* Health care premiums are expected to increase from 15% to 20%, and workers' compensation costs will increase 9% to 15% in 2000 (National Coalition on Health Care).

Administration of different benefits in separate corporate departments can result in conflicting philosophies, redundant administrative costs and internal turf issues that lead to inefficient benefit delivery. CFOs often are able to provide the leadership needed to promote the coordination of these benefits functions. As companies develop strategic financial plans, CFOs should challenge risk management and human resources departments to develop programs that provide a solid return on investment for the benefit dollar while also meeting employees' health and productivity needs.

Health and productivity gains through integrated benefits. Many employers are moving to meet these multiple goals by exploring means to coordinate or integrate delivery of employee benefits across traditional benefits lines. A recent survey by IBI showed that 45% of responding employers are actively exploring such initiatives or are integrating health and disability benefits. Two-thirds of those with 5,000 to 10,000 employees are involved in integration plans, as are 81% of employers with more than 10,000 employees.

What's at risk from maintaining the status quo? For the CEO, a major question in considering such an integrated benefits approach is likely to be, "What can health and productivity management bring to the bottom line?" Some CEOs may view direct benefits costs as all that are at risk from ineffective employee benefits delivery, but savvy employers are finding the potential dollar downside from absences is far greater.

IBI is documenting the potential costs from employee absence through its research and industry benefits benchmarking programs. Results from the productivity-loss analysis demonstrate the much larger savings opportunities that an effectively functioning employee health, disability and absence benefits delivery program can bring.

Productivity loss dwarfs direct benefits costs. One IBI study documents productivity losses from non-occupational sickness and injury for one American manufacturer's 65,000 employees over a three-year period. IBI looked at lost productivity based on the cost of maintaining the pool of workers necessary to cover the shift needs for absent workers day-to-day. IBI found the costs of lost productivity were three times greater than the direct benefits costs paid those workers. One IBI member noted, "We've been killing ourselves to save pennies on medical expenditures and have completely missed the boat on the big-ticket item - productivity."

Productivity is important for more than manufacturing employers. IBI's benchmarking program also documented the productivity impact of potential lost revenue from absences for 11 telecommunications companies representing 710,000 employees. Based on average revenue per absent employee, IBI estimated potential revenue losses at as much as $11.5 billion in 1999 -- the equivalent of 8% of total revenue for participating companies.

What benefits are included? Employer programs to coordinate or integrate benefits delivery vary with employers' needs, size and identified problems. Some may combine delivery of WC temporary disability with short- and long-term disability in an integrated disability management (IDM) program. IDM treats disabling sickness and injury the same regardless of cause and case-manages medical treatment to encourage return to productivity. Others may coordinate group health and group disability, seeking a WC-type approach for nonoccupational benefits programs, delivering intensive medical treatment targeted to minimize time away from work. Still others may start their integration efforts with a program to coordinate STD benefits management with LTD plans in a single program. Such programs can provide the early warning necessary to avoid having a short-term disability episode turn into a longterm liability.

Elements of a program: IBI has written 11 profiles of employer programs that manage health and productivity through benefits integration. From those case studies emerge several common trends for employers that adopt integrated programs:

* Substantial savings in direct benefits. Benefit program savings ranging from 15% to 35% over several years are not uncommon.

* Incremental change to avoid wholesale reorganization of traditional benefits units and data systems. Instead of merging risk management and human resources departments, employers export benefits delivery and case management to a centralized unit delivering claims services across traditional benefits lines.

* A single claim intake system for all claims. Employees don't have to guess (often wrongly) which program to call, and employers can begin claim management quickly without first determining which program is responsible.

* Data monitoring capabilities to allow employers to determine if their benefits program is working, how sickness and injury costs and incidence will change going forward and where to fine-tune integration efforts.

* Case management components to help physicians, workers and supervisors understand how medical treatment can affect ability to return to the normal functions of living -- including work.

* Transitional return-to-work programs, often borrowed from an already successful WC program, allowing employees to avoid a disability mind-set and return to productivity before full physical recovery.

The IBI profiles show how employers make the business case to senior management for programs that require at least some new investment. Perhaps surprisingly, relatively few case studies report promises of substantial savings from benefit integration initiatives, at least going in. Integrated program proponents and senior management seldom know their current costs upon which to base savings estimates, especially for non-occupational disability and absence.

Real-life example: Pitney Bowes. A review of one of BI's case studies helps to put program results in perspective. Pitney Bowes approached integration as a means to moderate alarming trends in healthcare costs, particularly among its older, stable Connecticut manufacturing workforce. Fragmented insurer relationships and multiple healthcare providers made it difficult to identify and capture potential savings. Administration of most benefits resided in the personnel department, reducing turf concerns, but there was no structure to actively promote cooperation. Benefit delivery was paternalistic and inflexible.

A move toward integration was launched. A corporate partnership with employees and the resultant commitment to maintain high-value benefits precluded increasing deductibles or employee co-payments. The goal: maintain or improve quality benefits while containing costs.

Administrators of the new integrated program credit effective case management for a decrease in STD lost-time days by 42% two years after program started. Between 1991 and 1998, WC claims per employee fell 29%, cost per employee dropped 38%, and cost per claim was down 11.6% -- all with no decrease in benefits.

Pitney Bowes also offered employees improved wellness and health management initiatives at no cost. From management's perspective, these programs were highly successful. When Pitney Bowes compared program results to baseline costs, first-year savings produced an ROI as high as 3.4:1. On a going-forward basis, comparing participants to non-participants produced a ROT as high as 4.8:1.

Pitney Bowes' integration strategy had four core principles:

* Target key medical cost drivers for early management through state-of-the-art data analysis.

* Return employees to productive employment as early and fully as safely possible through intensive disability case management.

* Expand on-site medical clinics to foster early reporting and management of both occupational and non-occupational medical conditions.

* Monitor the medical and disability costs related to an injury for non-work conditions as well as for WC claims.

Central to two of these principles is an intensive data effort, the Integrated Health Information System (IHIS), inaugurated in 1993. Management functions for all benefits are driven by THIS data. The ability to know which injuries resulted in which medical procedures and disability payments - for both work- and non-work-related injuries - was an approach virtually unique to Pitney Bowes at the time.

Pitney Bowes also adopted other key integration components. A single call-in number for all disabilities is an important key to early intervention and active case management. In addition, much of the company s screening, testing and wellness efforts occur in on-site clinics, provided free to workers and treating both work and non-work conditions.

Pitney Bowes' robust data system allowed it to increase its mental health benefit after analysis showed that absence due to mental illness could be as costly as that from cardiovascular disease. Its data system also permitted Pitney Bowes to develop its own claims management protocols.

Though benefits integration may not be an easy answer for all employers, research shows that large employers are seriously considering the advantages it can bring to employee health and satisfaction, and the bottom line. Employers also are becoming increasingly aware that one of their best sources of skilled and knowledgeable workers includes their own pool of absent or disabled workers. Having those workers on the job and working productively can be worth far more to an employer's bottom line than the direct benefit costs saved.

Dr. Thomas Parry is President of the Integrated Benefits Institute, a national nonprofit research organization headquartered in San Francisco. IBI identifies and analyzes health and productivity issues as they cut across traditional benefits programs of workers compensation, group health and non-occupational lost time. Phil Lacy is the Integrated Benefits Practice leader for Royal & SunAlliance, a global property and casualty insurance company that is an FEI Strategic Partner. Lacy has spent 22 years in disability insurance and has been involved in health and productivity programs for the past six years, working with intermediaries and large employers.