Benefit Integration Boost Productivity and Profits

To Libby Child, it just made sense. If her company, Steelcase Inc., couldsave money and help its employees on workers’ compensation by bringing themback to work, then the same results would occur for employees on long-term andshort-term disability. Even better, says Child, the integrated disabilitymanager for the Michigan manufacturer of custom office furniture, the company’sdecision to change the way it administered benefits before the economydeteriorated has made a significant difference in raising productivity andcontrolling costs.

The Grand Rapids-based firm was enjoying the fruits of integrated benefits:higher productivity, improved morale, increased administrative efficiency, andfewer legal hassles. Then the economy faltered, and Steelcase laid off more than1,000 employees. Its benefit-integration program–which combines long- andshort-term disability, workers’ compensation, medical case management, andFamily and Medical Leave Act administration–helped keep the cost of layoffs incheck. The program has enabled employees, laid off or not, to receive propermedical treatment and benefits for the appropriate amount of time, whileensuring that they do not simultaneously dip into different benefit streams. Asother employers watch medical and disability costs skyrocket, costs at Steelcaseare increasing at a much slower pace, Child says.

So, what exactly is benefit integration? It coordinates any combination ofbenefits, including health, disability, time off, and workers’ compensation,to meet human resources objectives, says George R. Faulkner, a principal withNew York-based Mercer Human Resource Consulting. “All we are talking about isbeing smarter about how benefits are delivered,” notes William P. Molmen,general counsel of the San Francisco-based Integrated Benefits Institute (IBI).

At Steelcase, it works like this: a disabled employee calls a toll-free phonenumber and, after following the prompts, connects with a representative whofiles the claim, collects necessary FMLA information, and directs the worker toa medical case manager if necessary. Employees at the $3.1 billion company getthe same treatment regardless of whether the disability is work-related. Thanksto benefit integration, the combined cost of short-term disability, long-termdisability, and workers’ compensation has dropped 13 percent, from $1.63 per$100 of payroll in 1998 to $1.42 in 2001. Restricted workdays have plunged 73percent, from 63,000 in 1992 to 16,943 in 2000. Lost-time days have declined 70percent, from 4,313 in 1992 to 1,313 in 2000. And the number of litigateddisability-related cases fell from 15 in 1996 to 6 in 2000.

Employee satisfaction also has improved under the integrated approach, Childsays–from 1.2 on a 4.0 scale in 1997 to 3.5 in 2000, according to an in-housesurvey. “The employee satisfaction kept going up and up,” she notes. Gettingemployees and managers to adapt to the new procedure was the biggest hurdle. Ittook six months to get them on board, despite a full-scale promotional campaign.”They weren’t sure who to call, when to call, and how to file a form,” shesays.

But once that initial period had passed, managers and employees took to theconvenience of calling just one number to report a lost-time injury or illness.Employees also appreciate the consistent return-to-work policy, whether they areon workers’ compensation or short-term or long-term disability.

Comerica is another company that is reaping the rewards of benefitintegration. The Detroit-based financial services provider saved millions ofdollars in lost wages in its first five years of integrated benefits, also known as absencemanagement, says David R. Groves, vice president of corporate health management.

The company, which has 308 branches and posted net income of $710 million in2001, saw the cost of disability-related lost wages drop from $8.7 million in1995 to $5.3 million in 2000–a decline of 39 percent. During the same period,average lost-time claims shrank 42 percent, from 52 to 30 days, and totaldisability days dropped 49 percent, from 65,000 per year to 33,000.

The savings can also be more immediate. Just 12 months after hiring athird-party administrator to manage and cover much of its integrated disabilityprogram, Owensboro Mercy Health System, in Owensboro, Kentucky, was able toconvert 3,096 lost-time days to restricted-duty days. This saved theorganization $282,815, says Pam Cox, manager of human resources development.

Lured by such promising results, more and more employers are pursuing benefitintegration, according to the 2001 Employers’ Time-Off and Disability Programssurvey, released in May by Mercer Human Resource Consulting and Marsh Inc.

Of the companies surveyed, half of those with 1,000 or more employees havealready begun to integrate their short- and long-term disability plans with onecarrier or administrator. This compares with 40 percent of same-size employersin the previous year. Another 19 percent are planning or considering theapproach.

Some employers are grouping more benefits in their plans. Nine percent ofemployers with more than 1,000 employees are integrating short-term disability,long-term disability, and workers’ compensation, and another 22 percent areplanning or considering implementing such programs, according to the survey.

Impressive results
    Business results explain the trend toward benefit integration. Benefitcoordination provides cost control, increases employee satisfaction, and easesadministration, the survey reports. Employers that are integrating benefits citecost control as the top reason. “Employers are looking more long-term becausethey are frustrated with short-term fixes” such as negotiating insurancerates, hiring new carriers, and designing plan cutbacks, says Faulkner, whoco-authored the Mercer/Marsh report.

A labor shortage and rising disability costs motivated Owensboro Mercy HealthSystem to begin integrating benefits in 2001, Cox says. “We had experiencedrising workers’ compensation costs and increased long-term and short-termdisability premiums.”

Savings on benefits alone can amount to 40 or 50 percent, depending on thedegree to which disability programs were already managed, according to “ASurvey of Integrated Benefits Best Practices,” conducted by IBI and releasedin January. Most employers can benefit by integrating, says Phil Bruen, vicepresident of group market and product development for UnumProvident Corporation,a disability insurance company in Chattanooga, Tennessee. However, companieswith high turnover or few disability cases might not have the optimal culturefor benefit integration, he says. Companies or firms composed primarily ofself-motivated professionals, Faulkner adds, such as law firms, also may nothave a great need to integrate benefits.

Making the case
    Despite the advantages of benefit integration, it can still be tough for theHR professional to convince the CFO that this is a strategy to pursue. Sinceimplementation of an integrated benefits program will disrupt processes,culture, and departmental responsibilities, “you are going to have to prove itwill provide value,” Faulkner says. In fact, many respondents to the IBIsurvey said they would have put more effort into selling the program to topmanagement.

“CFOs want to know how better delivery of benefits will affect cash flowand the bottom line,” IBI’s Molmen adds. He recommends explaining the fullcost of lost productivity resulting from absence. IBI research of 60 employersshows that the full cost is generally twice the out-of-pocket benefit cost.Metrics to consider include the full cost of absence as a percentage of payroll,revenue, or income, he says.

The cost of unscheduled absence per $100 of payroll is an underusedbenchmark, Faulkner says. The 476 employers in the Mercer/ Marsh survey spent anaverage of 4.4 percent of payroll on benefits related to unscheduled absences in2000. That means for each employee earning $40,000 a year, companies spent about$1,760 on sick leave and time off for disability, according to survey data. Theindirect costs of unscheduled absence–including hiring temporary staffing,paying overtime, poor customer service, and additional training–could easilydouble that figure, the report says.

Human resources can sell integration to top management in different ways. AtComerica, good benchmarks helped get the CEO and executive management behind anintegrated return-to-work program, Groves says. To get top management support,he told them that on any given day, the number of employees off on disabilitywas equivalent to the number needed to work 16 to 18 branches. Also, Grovesdeliberately called the initiative a return-to-work program, as opposed to anintegrated program, making it easier for decision-makers to grasp the concept.

Vendor guarantees of a 10-to-1 return on investment really got executiveattention, Cox says. And in Owensboro’s case, the returns exceededprojections. At Steelcase, Child used the success of the already-in-placeworkers’ compensation return-to-work program and an experimental integratedreturn-to-work effort to get management interested. She also emphasized theemployee morale boost and the easier claim administration that integratedbenefits would bring. Without the non-occupational disability piece, “we werelosing opportunities,” Child adds.

Consensus-building is also critical, because operations and line managerswill want to see the benefits of any new process that will affect their jobs,Faulkner says, “so it isn’t just looked upon as an idea from HR because theyread it in an article.”

Groves assembled a committee of representatives from every business unit atComerica to get their buy-in on integration before approaching the CEO. “That’san absolutely necessary step,” he says. The committee developed a philosophystatement that the CEO adopted, setting the tone for implementation.

Incremental integration
    Integrated programs do not all look alike, Molmen says. Employers willapproach integration differently, depending on corporate culture, vendors, andbenefit design flexibility. Owensboro and its vendor, for example, havedifferent roles in the integrated program. The vendor covers short-term andlong-term disability and manages those programs along with the workers’compensation program, which is self-insured. The vendor medically managesnon-occupational claims, whereas an in-house nurse handles workers’compensation medical case management. Coordination of FMLA administration isalso handled in-house, Cox says.

Bruen recommends an incremental integration, starting with returning injuredemployees to work regardless of whether their injury or illness is work-related.Molmen notes, “You can do it incrementally and still have good results.”

At Owensboro, the vendor began by developing an effective return-to-workprogram for workers’ compensation cases in August 2001. Then in January 2002,it added the same program for non-occupational disabilities, which begins after15 lost workdays.

Comerica also built its program incrementally. In 1995 it began areturn-to-work program for non-occupational disabilities, Groves says. In 1997,the company formed the corporate health management department to oversee theworkers’ compensation, short- and long-term disability, wellness/health,employee assistance, and violence-in-the-workplace programs. The department alsooversees Family and Medical Leave Act administration and Americans withDisabilities Act compliance. In this way, he says, the continuum of employeehealth, from wellness to return-to-work, is better managed.

Then in 1998 its workers’ compensation and non-occupational third-partyadministrators began managing disability in tandem. In 2001, the company’snon-occupational disability vendor began fielding calls from employees andsupervisors to report disability–work-related or not–on a single toll-freenumber.

At Comerica, short-term disability begins after a worker has been off the jobfor five workdays and lasts for 180 days, after which long-term disability kicksin. Any occupationally related incidents must be reported.

Steelcase’s program is self-insured for the first six months of short-termdisability because that is when the company can have the biggest impact, Childsays. Long-term disability kicks in after six months and is fully insured. Atthe time of the program’s inception, all disability claims were managedin-house. Currently the company handles FMLA administration, workers’compensation, medical and disability case management, and return-to-work,whether or not the disability is work-related. A vendor manages any cases inwhich an employee is off work entirely.

Steelcase built its program from scratch in 1997. “There wasn’t anythingout there on the shelf that was of interest to us,” Child says. Few vendorswere offering programs that truly combined workers’ compensation withnon-occupational disability benefits. And it was difficult to get vendors towork in tandem.

If Steelcase were just now beginning to integrate benefits, Child says, thecompany would take a harder look at what vendors have to offer. Otherwise, shehas no regrets. Benefit integration enhances the company’s bottom line in goodtimes and bad, while helping out employees. And that works for her.

Workforce, December 2002, pp. 46-50 — Subscribe Now!