The disability imperative.

Companies are battling increasingly high disability costs with integrated programs that coordinate the efforts of employers, employees, health-care providers, and disability carriers.

Determined to control costs, Minnesota-based Brown Printing Co. integrated its short- and long-term disability (STD and LTD) programs under a single carrier with top-flight disability-claims-management capabilities.

To reduce costs, Rochester, NY-based Bausch & Lomb combined an integrated disability program with early intervention and aggressive back-to-work efforts. These tactics have reduced costs by 35 percent.

Bottom line: The direct cost of disability is more than $160 billion per year, according to the National Academy of Sciences. Throw in a new ruling from the Financial Accounting Standards Board, which this year began requiring companies to reflect disability costs as a liability on financial statements. One response: a new generation of cost-management programs called managed disability.

"The growing costs of disability are much on the minds of our clients as companies seek new ways of reducing expenses and improving productivity," says John Wiggin, assistant vice president of group disability at ITT Hartford. "In these days of fierce competition, no CEO can afford to overlook a significant opportunity to pare costs, increase the bottom line, and keep employees productive."

SPIRALING COSTS

And fewer CEOs are, according to recent survey by Towers Perrin, a management-consulting firm in New York. Growing concern about the cost of disability not covered by workers' compensation is cited by 91 percent of the 120 large and medium-sized companies surveyed as the primary factor driving their managed disability efforts. Most respondents (71 percent) also view managed disability as a way to improve productivity.

The sensitivity to costs is driven in part by the hard, direct evidence that costs are up--way up for many companies. More than half (53 percent) of respondents who were able to provide information on cost trends reported rising levels from 1991 to 1992. The average increase was 10 percent, but a quarter of respondents reported increases of 20 percent or more.

The dimensions of the situation are striking. Each year, approximately 780,000 employees become so physically disabled that they cannot return to work at all for five months or more, according to The Menninger Return to Work Centers in Topeka, KS.

The direct cost of disability is just the tip of the iceberg. The full costs of disability outside workers' compensation--the combination of medical costs; income replacement; and the costs associated with absenteeism, such as retraining, replacement, and lost productivity--are only now being explored.

RISING AWARENESS

A recent study by the Washington Business Group on Health, an association of large employers concerned with health-care issues, puts total disability costs at about 8 percent of payroll. And even this number does not take into account such hidden expenses as overtime payments, the costs of using temporary workers and the reduced productivity of replacements, which total 3 percent of payroll, according to a 1991 survey by Portland, ME-based UNUM Life Insurance.

Increasingly aware of disability issues and costs, companies have taken steps t control the costs of disability benefits, and many are planning to take further action. Most respondents to the Towers Perrin survey either have embraced, or are in the process of embracing, managed disability as the primary means of controlling costs. Over half of respondents (56 percent) have implemented, or are planning to implement, managed disability programs.

Although managed disability programs can vary a good deal, they all have one common aim: to deliver benefits and services so that employers control costs, and employees return to work as soon as possible. "The focus should be on what employees can do rather than on what they can't do; on their abilities rather than their disabilities," Wiggin says.

The most effective managed disability programs have five key components: partnership among employer, employee, carrier, and health-care provider; prevention; integration of short- and long-term disability coverage under one carrier; cost containment, achieved through case management and by following duration guidelines; and management-information systems that track costs and measure success.

PULLING TOGETHER

Taken together, these components address all phases of disability from prevention through long-term disability. Thus, managed disability:

* Focuses its efforts on keeping those on short-term disability--typically those who are disabled for less than six months from going on long-term disability, through duration guidelines, case management, and rehabilitation, when appropriate.

* Applies vocational, rehabilitative, job-placement services, and physical modification of the workplace to return those who have moved from STD to LTD back to productive work lives.

* Seeks to prevent disability through wellness, safety, risk-management, and Employee Assistance Programs.

But the key to effective managed disability is cooperation among the employer, employee, carrier, and health-care provider. According to Wiggin, "The primary goal of this partnership is to get employees back to work as soon as possible."

A prompt return to work:

Reduces costs: The greatest single cost of disability is paying employees for not working. The sooner they are back on the job, the greater the cost reduction.

Increases productivity: When skilled and trained workers are disabled, productivity suffers.

Improves employee relations: Most employees who are sick or injured want to get back to work quickly, and they need support to accomplish this. By aggressively promoting early return to work, the company sends a powerful message to employees that they matter, and that management cares.

EXECUTIVE EDUCATION

The benefits of early return to work may seem obvious. Nevertheless, many parties in the managed disability equation must be educated about them.

Although all carriers have a vested interest in getting people back to work early, some emphasize it more than others, and some do it better. They have better administrative systems, better-trained personnel, and more experience. They are proactive; they intervene faster; they react better; they communicate more quickly and consistently. That's why it is important to evaluate performance before choosing a managed disability carrier.

The objective of managed-care providers may not necessarily overlap with the objective of getting the employee back to work quickly. In fact, the two goals may even conflict. For example, a managed-care provider may not approve of expensive diagnostic tests, even though the results of such tests may indicate more appropriate procedure to help speed recovery and an early return to work. But these same tests might be strongly recommended under a managed disability program.

To be sure, the employer has much to gain from getting the employee back to wor early. Nonetheless, the employer often can be a major stumbling block.

Why? Inertia and prejudice. Although human-resources specialists may encourage early return to work, managers or supervisors may hesitate to bring back someon who may not be 100 percent recovered. Supervisors may not give someone who is recovering a light-duty assignment or a different job unless it's corporate policy.

In some instances, it may be necessary to physically modify the workplace--by modifying workstations or building wheelchair ramps, for example--or to waive such job requirements as heavy lifting or keyboard use for employees who have been sick or injured. Many managers haven't been willing to make this kind of effort, nor have some companies.

But times are changing. Since the Americans with Disabilities Act went into effect in July 1992, companies now are required by law to look at employees' abilities rather than at their disabilities.

What types of products and services do benefits and human-resources managers feel are important when selecting a disability carrier? According to a recent survey by ITT Hartford in conjunction with Human Resource Executive magazine, promptness and quality of claims service ranked first, cited by 85 percent of respondents; followed by a carrier's responsiveness to problems; and its financial stability. On the employee side, the survey revealed that most were concerned about the timeliness of disability payments, their ability to return to work, and loss of income.

Of course, making a managed disability program work depends on the support of top management, including the CEO.

"A CEO's active support for early-return-to-work policies and procedures can have a dramatic effect on the organization," Wiggin says. "It gives every line manager and supervisor in the company an incentive to get with the program, and encourages a philosophy of maximizing abilities".

MANAGED DISABILITY'S FIVE KEY COMPONENTS

Partnership: The employer, employee, disability carrier, and health-care provider work together to return the employee to work as soon as he or she is physically or mentally able.

Prevention: The incidence of disability is curtailed through proven prevention techniques, such as Employee Assistance Programs, workplace-safety re-engineering, and wellness programs.

Integration: Salary continuation, short- and long-term disability plans are linked to facilitate early intervention in claims, create a single point of service, eliminate coverage gaps, and streamline administration.

Cost containment: Short-term disability costs are controlled through case management and duration guidelines to ensure that short-term claims don't becom long-term ones. Employers' liability for long-term disability costs is reduced through vocational rehabilitation programs and Social Security Assistance programs.

Management information: Today's advanced information systems now can track disability-related costs and measure the success of the programs. Claim frequency, duration studies, and cost-savings reports help to identify the most effective means of cost containment.

GLOSSARY MANAGED DISABILITY

Americans with Disabilities Act: An anti-discrimination law--in effect since July 1992 that entitles qualified, disabled individuals to the same employment consideration as anyone else. It also requires employers to make reasonable accommodations for impaired individuals.

Disability case management: Techniques for monitoring disability cases so that employees receive medical care and other support necessary for a prompt return to work. Differs from medical case management in that it focuses on the individual, his or her abilities, and the environment--not on the disease.

Duration guidelines: Standards that project how long an employee is expected to be disabled by a particular illness or injury. Such guidelines provide a benchmark against which individual cases can be evaluated. They help to identif cases that can benefit from additional assistance and resources from the carrier.

Employee Assistance Program: Treats employee problems such as substance abuse, financial or marital difficulties, and emotional distress that can cause disability.

Long-term disability: Injury or illness that typically exceeds six months in duration.

Managed disability: A process for delivering short- and long-term disability benefits and services so that employers control costs, and employees return to work as soon as possible.

Managed disability administrative services: Arrangement through which self-insured companies purchase managed disability services from established carriers. Since the companies risk their own money, they have a strong interest in controlling costs.

Medical case management: Techniques for controlling medical costs so that patients receive medical care within standard guidelines. The emphasis is on th acute stage of the illness or injury, when most costs are incurred.

Short-term disability: Injury or illness that typically lasts six months or less.

Social Security Assistance program: Helps employees with disabilities to receiv the Social Security benefits to which they are entitled. The program includes appeals of denials--a common occurrence, since the Social Security Administration denies 57 percent of claims.