Creative management helps cut employee disability costs; case management and return-to-work programs are helping employers reduce expenses related to employee disability - includes related statistics on disability in the United States

Business & Health, Oct, 1993 by Nancy Varettoni

Case management and return-to-work programs are helping employers reduce expenses related to employee disability.

Last year, a 33-year-old man, who seemed to be in good health, collapsed. Tests showed he had a brain tumor. Six months later, though he was still undergoing radiation treatments, he returned to work as a financial aid officer with DeVry Inc., a private company that offers bachelor- and master-degree programs in business and technology-related fields. His short-term disability benefits had expired.

For Barbara Shereda, benefits manager for DeVry Inc., which is based in Oakbrook Terrace, Ill., this employee's situation offers evidence that her company's new approach to case management and increased employee awareness of disability issues may pay off, both monetarily and in improved employee relations.

Last October, DeVry's long-term disability (LTD) insurer announced a 20% increase in its premium for 1993. This increase followed on the heels of a 25% rise the previous year. However, the insurer offered to reduce the proposed rate hike by 5% if DeVry agreed to undergo a comprehensive analysis of how it handled disability cases and implement the insurer's recommendations for improvement.

DeVry is not alone in its efforts to manage disability costs more effectively. Companies such as Lacks Enterprises, a Grand Rapids, Mich., manufacturer of plastic components for automotive, computer, and other applications, and Lawrence Livermore Laboratories, which conducts defense, energy and biomedical research in Livermore, Calif., have also adopted strategies to reduce the number of work days lost to illness and injury and to control costs. While the exact amount of savings is not known, these employers believe that their efforts are giving them control in area that previously had been overlooked.

When compared with the total cost per employee for health benefits, disability costs constitute a small portion of an employer's expenses, but disability costs are inching upward. The U.S. Bureau of Labor Statistics analyzes employers' costs for employee compensation per hour worked. In 1991, the bureau found that the average total compensation, which includes salary, bonuses, insurance, savings plans, and other legally required benefits, was $15.40 an hour. Of that amount, 92 cents went to health insurance and four cents to sickness and accident insurance, which includes disability. In 1992, the figures increased to $16.14 for total compensation, $1.02 for health insurance, and five cents for sickness and accident insurance. In 1993, the cost for sickness and accident insurance has remained at five cents, but the figures increased to $16.70 an hour for total compensation and to $1.10 for health insurance.

To a degree, employers can control their disability experience. The Michigan Disability Prevention Study, conducted by the W.E. Upjohn Institute for Employment Research at Michigan State University in Kalamazoo, concluded that disability in the workplace can be controlled most effectively through safety diligence and proactive return-to-work programs. In the study, the policies and practices of 220 companies were reviewed. Employers that made just modest improvements in those areas experienced a 25% decrease in the number of workdays lost to injury or illness.

Identifying problems

"Our [disability] experience was horrendous," said DeVry's Shereda. DeVry's plan covers 1,400 lives.

To determine how DeVry handled its disability cases, the LTD insurer interviewed employees, their managers, and other key personnel. The interviews among DeVry's three divisions--the DeVry Institutes, the keller Graduate School of Management, and Corporate Educational Services--found no uniform system of reporting disability incidence to the home office from 23 locations throughout the United States and Canada. Similarly, there was no coordination among short-term disability (STD), workers' compensation, long-term disability, and various state disability programs.

The interview process also revealed that when an employee took disability leave, there was little or no contact from the company. "When our people went out, they just floated," explains Shereda. "That's absolutely wrong." Such isolation, she explained, reinforces a disability mindset.

DeVry is implementing the insurer's recommendations, which included developing a disability mission statement and naming a disability coordinator to track cases throughout the company. Human resources personnel at all DeVry locations will be trained how to manage disability leaves throughout continued contact with the employee and close monitoring of the employee's progress.

This plan complements a program DeVry initiated two years ago to gain better control over STD cases by having all claims reviewed by an outside vendor. Medical personnel, working with the employee's doctor, recommend the length of the disability leave. DeVry pays the claim plus a $69 fee for each case.

Initial savings have come from the premium reduction for its LTD plan, Shereda says. DeVry's broker was able to negotiate with the insurer to rescind the remaining 15% increase. DeVry has also saved about $30,000 by self-administering its STD plan. However, those savings are offset by the vendor's fee plus the cost of the claims.