From the February 2005 issue of Treasury & Risk magazine

Don't Buy A Benefits Policy, Buy A Benefits Process

Cort Business Services was tired of being had. The privately held Fairfax, Va.-based furniture rental company, with average annual revenues in the $450 million range, had the customary internal approach to workers compensation claims and employee disabil-

ity benefits--two systems and two insurers. But, the lack of coordination between these systems and insurers rendered Cort vulnerable to fraud. "We'd have employees call up claiming to have a non-work-related injury, and after they found out they couldn't collect as much money by being out on disability, they'd call back a different part of the company and say they had a work-related injury," says Jeff Seidman, Cort's vice president of human resources. "Neither side knew what the other was doing. The system got played."

To eliminate that possibility, Cort decided last April to outsource management of its short-term and long-term employee disability benefits and its workers compensation claims to Synchrony, a joint venture of insurers St. Paul Travelers Companies Inc. and MetLife Inc. Today, when a Cort employee is injured on the job or at home, a single call is made to Synchrony's 800 number. There follows a systematic investigation of the claim, the development of treatment protocols by claim and medical experts collaborating on case management and return-to-work objectives, and a single line of reporting back to Cort. "When all the information is going into and coming out of one place, you prevent employees seeking a fraudulent solution to a monetary need," says Seidman.

Cort is one of hundreds of midsize companies opting for Integrated Absence Management or IAM. By outsourcing the management of short-term and long-term disability with workers compensation, IAM offers an integrated approach to employee absences, referred to in the industry as lost-time workdays. Whether the injury or illness is occupational or nonoccupational becomes less important than the plan to return the employee to work.

By reducing employee absences and improving overall administrative efficiency, IAM promises significant savings and productivity benefits. "Lost work time translates into lost profits," says Vincent Armentano, vice president of workers compensation at Minnesota-based St. Paul Travelers. "In traditional systems, you have one bucket that says 'folks out on disability' and another bucket that says 'folks out on workers comp.' You have no coordinated information on how many lost-time days you have as an organization. If you can't measure it, you can't control it."

BOTTOM-LINE DIFFERENCES

Integrated Absence Management should not be perceived as either a one-size-fits-all solution or one for all midsize companies. Transitioning to an outsourced solution presents cultural risk. The system calls for disabled employees to be managed by a strict set of criteria requiring medical evidence: The old "note from my doctor" system no longer suffices. Internal process reengineering also may be required, since functions previously performed in-house, such as case management, are administered by the outsourcing service provider. IAM also isn't free: Service providers typically charge fees ranging from 75 cents to one dollar per employee, depending on the size of the organization and its management systems.

But insurance brokers and consultants say the return on investment can be impressive. "We've seen dramatic results for companies that had a very limited medical management system or coordination of disability claims, in the range of 10 to one, with the average ROI in the neighborhood of 2.5 to one," says Thomas Ryan, a managing director at New York-based broker Marsh Inc. "This is really picking up steam in the middle market."

While most case studies of IAM involve large enterprises, the savings cited in these studies are eye opening. "Companies can realize overall savings between 20% and 40% in both hard dollar and softer productivity benefits, depending on how aggressive they were previously about absence management," says Dan Lyons, manager of integrated disability management at Boston-based Liberty Mutual Group. "All things being equal, the same savings should play out for mid-size companies."

So far, that has been the case for Cort, which just 10 months after implementing IAM has noticed both improved return-to-work metrics and lower associated management costs. "Previously, three people in different parts of the company took reports from injured or ill employees or their managers," says Seidman. "There was great potential for errors given inconsistent procedures and no coordination of the data. We've now eliminated that. Each day we get an e-mail from Synchrony identifying disabled employees, the date of disablement and the potential date of return, all of which is consolidated. It used to take one person four hours a day once a week to consolidate [this data] to get it to payroll. It now takes 15 minutes."

The idea of combining workers compensation, short-term disability, long-term disability and, increasingly, Family and Medical Leave Act (FMLA) benefits is nothing new. Back in the early 1990s, several insurance companies attempted a single insurance policy combining workers compensation and disability insurance with traditional group health insurance. Marketed as "24-Hour Coverage," the concept encountered disparate state workers compensation regulations and insurers tucked it away.

PROCESS OVER POLICY

In the late 1990s, insurers decided the key to IAM was not a single insurance policy per se but an integrated process. "The goal was the same--to make sure injury prevention, treatment and related administrative efforts bring comparability, so that when you injure your leg at home you're facing the same kind of salary continuation and medical management as if you injured it at work," explains Dr. William Craig, a medical doctor and senior vice president in the risk consulting practice of Marsh.

Several insurers rolled out IAM solutions, including The Hartford Financial Services Group Inc., Cigna Corp. and Liberty Mutual. Each offers a single point of intake to report occupational and nonoccupational claims, an integrated data management system and an integrated medical management system with return-to-work strategies that push claims toward closure and get workers back on the job. The providers also can tailor an IAM program to the client's needs. "We offer a modular approach that allows the employer to bite off as much as they can as they head off on a continuum to implement a fully integrated program," says Lyons from Liberty Mutual. The Hartford says most clients start by integrating short-term and long-term disability and FMLA administration, and then add workers compensation when they are comfortable with the process.

For most midsize companies, IAM strategies are aimed at measurable bottom-line improvement. Hard dollar savings are achievable through reductions in average per claim costs and claim offsets between the workers compensation and disability benefit systems, as well as more correct cost allocations and easier identification and prevention of fraud risks. Softer dollar administrative savings also are realizable, thanks to having a single contact for claimants, a single intake for all claims and a centralized data management system. "Our estimates are that a company with integrated disability management will reduce lost-time workdays per claim by two days," says Armentano.

Like any outsourced solution, IAM frees staff from administrative responsibilities to focus on more strategic issues. "You remove the need for managers and supervisors to be involved with leave-oriented paperwork, which can be burdensome, particularly from a compliance perspective," says Katie Dunnington, director of disability products management at The Hartford. "I know clients that were spending seven to 14 hours of manager time on FMLA leave each week."

Armentano cites another potential benefit--reduced legal costs associated with workers compensation claims. "Attorney involvement is cut in half at our customers with integrated disability management," he says. "In the past, when a worker filed a claim for workers comp and was rejected, scant mention was made of other financial recourses like disability benefits, since that was handled by another silo at the company. The disabled employee was motivated to call an attorney next." With one provider handling workers compensation claims and disability benefits, Armentano says, "the employee is never lost in the system."

The financial rewards of IAM differ by company and are difficult to gauge, given the measurement shortcomings of previous systems. IHS Inc., a Denver-based global provider of technical information with $400 million in 2004 revenues, says its integrated approach helped pare overall administrative expenses and cut the number of short-term disability claims from roughly 90 a year to 75 today. The latter assisted a 13% reduction in short-term disability costs from 2002 to 2004, though the company is unsure if IAM is solely responsible. "I just know that we are managing absences here much better than before," says Beth Dickinson, IHS senior director of compensation and benefits.

LET SOMEONE ELSE BE THE BAD COP

Before IHS implemented IAM in 2000, a trio of managers administered employee absences: A workers compensation insurer handled absences caused by work-related injuries; an in-house nurse oversaw injuries caused by nonoccupational short-term disabilities and a second insurer handled long-term disabilities. "While each manager wanted to return employees back to work as quickly as possible, a lack of collaboration and coordination undermined them," Dickinson says.

Today, Liberty Mutual manages and integrates workers compensation and disability benefits for IHS on an outsourced basis. "Liberty Mutual handles all employee calls regarding absences and is the 'tough guy' when it comes to informing employees that they must return to work in six weeks because 'this is what the doctor says,'" says Dickinson. "Consequently, we have much better experiences with employees at a very stressful time for them."

IAM also improved morale at Cort, Seidman says. "When a manager knows an employee is injured, he or she is quicker to check up with the employee to make sure everything is going well," he explains. "You want to maintain a strong link between the disabled employee and the workplace."

Cort's employee absences are down by a few days, Seidman estimates, thanks to the timelier notification of injuries and illnesses. "The earlier you get a report from the employee, the quicker you can respond to the injury and the sooner we can determine alternate work," he says.

Seidman believes IAM also can tighten safety awareness across the enterprise. "When a work-related injury is reported to Synchrony's 800 number, we get an e-mail back alerting us that 'Joe Smith in Kansas was injured,'" he says. "I then turn around that e-mail to senior management, which prompts the CFO, for example, to pick up the phone and call up the manager in Kansas City to inquire about the accident. When a CFO calls you, it carries a lot of cachet."

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