Why your competitors are turning to absence management

By Annmarie Geddes Lipold

They're finding that a coordinated approach to all types of lost work time boosts employee health and corporate productivity.

Once upon a time employee absenteeism was just another "cost of doing business." Not anymore.

"The economic reality is—even with the recent economic downturn—highly skilled, highly trained workers are hard to find, and you need to keep them healthy and at work in order to compete in the world economy," says Thomas Parry, PhD, president of the Integrated Benefits Institute. Based in San Francisco, IBI is a nonprofit employer-focused research organization.

To deal with that reality, some employers are adopting a concept called "absence management." The idea, most experts agree, involves the management of all lost work time, whether disability or nondisability related. Absence management programs, which combine benefit administration and programs, can include workers' compensation, short- and long-term disability, family and medical leave administration and health care administration and wellness programs.

Employers who use this approach view a healthy workforce as part of their business strategy, Parry says, because it is an "absolute business necessity" to link benefits with business goals.

An important component of absence management, he adds, is information—knowing why employees are off work and addressing those reasons. Employers who do not consider disability-linked absences and their impact on productivity may underestimate the total cost of employee health problems by as much as 80 percent, according to Linking Medical Care to Productivity, a report released by IBI in 2001.

The study, which analyzed the relationship between medical care episodes and short-term disability at a Midwestern manufacturer with 72,000 employees, found that lost productivity—the cost of replacement staff for employees out on short-term disability—added up to nearly $1 billion.

Taking into account the cost of group health, short-term disability and hiring replacement staff, IBI found potential productivity loss "dwarfs" direct benefit costs. In short, for this employer a conservative measure of productivity loss accounts for three quarters of total absence costs.

A concerted approach

Many employers are already trying to reduce absence with initiatives like leave banks, telecommuting programs and other tactics. That is not absence management, says Veronica Hellwig, national thought leader with Watson Wyatt Worldwide. Still, she adds, such efforts could be part of an overall absence management program that, by definition, combines programs from different departments, including human resources, risk management and information technology.

Research shows that more employers are catching on to benefit integration. At the very least they are integrating disability programs, often the first step toward more comprehensive absence management. Of the 476 respondents to the Survey of Employers, Time-Off and Disability Programs released in March 2002, 45 percent said they had integrated short and long-term disability plans with one carrier or administrator, and 50 percent of those with 10,000 or more employees have integrated disability. The human resources consulting firm William M. Mercer Incorporated, and Marsh Inc., the risk and insurance services firm, both based in New York, co-sponsored the study.

"We thought the number was pretty high, but we have seen in the marketplace that more and more employers are doing this," says George Faulkner, a Mercer principal, adding that: "We tell employers that absence management can save them 1 percent of payroll."

Why employers are doing it

Beyond savings Richard Babcock, program director for The Hartford's absence management initiative, cites reduced absences, increased employee satisfaction and improved management information as common goals.

Research supports that observation. Ninety-seven percent of large employers surveyed in 2000 by IBI believe it is "important" or "very important" to reduce the impact of employee absence. IBI's report, Does One Size Fit All?, said large employers generally feel that evaluating program performance and simplifying benefit access is important. They do not focus on cost savings per se, but rather on minimizing lost time to raise productivity.

Staying@Work: Improving Workforce Productivity Through Integrated Disability Management, a Wyatt study released in 2000, found that typical program goals for absence management include productivity enhancement, improving return-to-work results, reducing benefit costs, increasing customer satisfaction and lowering labor replacement costs.

Absence management has several other advantages, says Kimberly Stattner, national practice leader for disability consulting for Hewitt Associates, the Lincolnshire, Ill.-based consulting firm. It simplifies benefit access by providing one place for employees to call and helps eliminate coverage gaps and duplication. "It's going to provide more comprehensive data as it relates to all absence events," she says, and "it should also help an employer track FMLA administration, because absence management is a centralized effort."

That effort aims to balance risk management costs with employee satisfaction, says Ed Quinlan, president of Quinlan Disability Consulting in Danville, Calif. Quinlan cautions that "you may not get significant savings" or be able to pin down dollar amounts. "Basically two thirds of employers don't even know what their costs are," he explains. "If they don't where they stand, how can you show savings? The number and length of claims drive everything. If your incidence and duration are below average, realistically what are you going to do to change that number?"

While saving money is not necessarily the top consideration, it is still an important one, according to IBI's Parry. Right now, he notes, employers are facing double-digit price increases in both group health and workers' comp coverage. They could try to address these financial concerns by combining or cutting back on benefit programs. Cutting back on health care benefits is "dangerous," he argues, because that could adversely affect medical quality and productivity. Instead, he advises, employers should look for new solutions to optimize total costs.

A freelance writer based in Arlington, Va., Annmarie Geddes Lipold has been reporting on workers' compensation, disability and employee health issues for the past decade. She is a contributing editor to Business & Health.

Resource Links:

The Hartfordwww.thehartford.com

The Integrated Benefits Institutewww.ibiweb.org

The Washington Business Group on Healthwww.wbgh.org

 

Why Your Competitors are Turning to Absence Management. Business and Health Time is Money: The Mechanics of Absence Management;21.