Demographics, Regulations Pose Challenge for Absence Management
2015 DMEC panel discussion on Amazon’s leave policy. Photo courtesy of DMEC.
Discussions at last week’s meeting of the Disability Management Employer Coalition in San Francisco focused on the impact of shifting workforce demographics amid current challenges and potential innovative solutions to disability management.
With people continuing to work later in life, four different generations now make up the American workforce, and each has different priorities when it comes to employer benefits and how they are delivered.
This, combined with changes in the regulatory and health care landscape, presents unique challenges for employers and absence management providers. Below are some of the major themes discussed at the annual conference:
The pace of regulatory change remains a constant hurdle for employers. Absences in accordance with the Family and Medical Leave Act, in particular, have left employers vulnerable to compliance risk.
Prior to June’s Supreme Court decision to legalize same-sex marriage nationwide, employers had to cope with a definition of “spouse” that fluctuated among the growing number of states that had legalized gay marriage.
Initially, couples that lived in states where same-sex marriages were recognized were viewed as spouses under FMLA. Now, there are no location restrictions on the definition of “spouse.”
That is just one example of how quickly regulations can change, challenging employers to keep their policies up-to-date and ensure there is no infringement of employees’ rights.
Employers also consistently struggle with FMLA compliance by miscategorizing leave under regular sick time, or by punishing employees for FMLA-protected absence by discontinuing health insurance coverage or failing to restore him or her to their former position when the leave ends. Some simply fail to educate employees about their rights under the FMLA.
Federal investigations are also intensifying, with the Department of Labor increasingly requesting information on leave use and conducting more on-site visits, according to Jeff Nowak, a partner at Franczek Radelet, PC, and author of the blog “FMLA Insights.”
Companies can strengthen FMLA compliance and reduce their exposure by conducting more self-audits of their policies and implementing internal protocols to make sure requests for leave are properly designated.
While the Department of Labor is working on an FMLA guide for employers, companies can strengthen compliance and reduce their exposure by conducting more self-audits of their FMLA policies and implementing internal protocols to make sure requests for leave are properly designated.
One upcoming regulatory changes to watch is an update to the Genetic Information Non-Discrimination Act and Section 501 of the Rehabilitation Act.
New legislation is also pending concerning accommodations for pregnant workers, following clashes between the Equal Employment Opportunity Commission and several companies over the treatment of pregnancy and related conditions as disabilities.
Managing Chronic Conditions
Addressing chronic conditions was a topic touched upon in several sessions. Studies from Liberty Mutual’s Research Institute for Safety show that chronic conditions affect 40 percent of the U.S. workforce.
An aging workforce and high rates of obesity and diabetes will only make chronic conditions more prevalent.
Chronic conditions pose problems because few surefire methods have emerged to manage them. Pre-placement exams can’t predict how a condition will develop over time, and the provision of wellness programs and behavioral therapy has shown no real impact in decreasing absence related to chronic conditions.
Sutter Health was able to cut lost days down by 8,632 in one year using a system that integrated leave management and return-to-work accommodations. The estimated savings impact was $2.75 million.
Training supervisors to facilitate return-to-work and oversee ergonomics improvements was one method that did make a material difference in decreasing lost time days due to chronic issues.
Research from Liberty Mutual showed that a supervisor training program resulted in a 27 percent decrease in lost time.
Providing on-site peer support to arrange care and accommodations for minor complaints also led to a 25 percent decrease in lost time.
Several speakers advocated seeking out methods of care that would address a worker’s injury or condition within the scope of their work environment.
Overall, hastening employees’ return-to-work by focusing more on “whole person care” emerged as a big shift for employers.
Zoning in on a specific injury without considering a worker as a whole ignores the unique interactions between the worker’s personal and occupational health risks, and his or her relationship with the workplace in general.
PG&E presented results from a new health plan built around the concept of treating the whole person, and found that focusing on preventive and primary care over specialty care reduced the number of ER visits and lost work days — saving about $1,918 in medical costs per employee in 2014.
Integrated Disability and Absence Management
While integrating disability and absence management, health and safety initiatives, and return-to-work programs remains a hot topic, most experts concede that widespread integration of those programs remains far off.
The complexity of the different pieces — FMLA, the Americans with Disabilities Act and workers’ comp — make coordination difficult.
Those who succeed at streamlining these resources, though, stand to significantly reduce absences and reap savings.
Sutter Health, a nonprofit health system in Northern California, for example, was able to cut lost days down by 8,632 in one year using a system that integrated leave management and return-to-work accommodations. Over the course of that year, the savings impact was estimated at $2.75 million.
Future DMEC conferences will surely feature more employer success stories and pave the way for best practices for marshaling the data, resources and executive support to create integrated programs.
To Clean Up a Dirty Fight
When explosions shook the Chernobyl nuclear power station in 1986, they released enough radioactive material into the environment to kill 30 workers within a few weeks of the incident due to acute radiation poisoning, and sicken at least 100 others.
Large areas of Belarus, Ukraine and Russia had to be evacuated due to high levels of contamination, displacing roughly 335,000 people. A 30-kilometer area around the reactor was completely closed off, and a square mile of contaminated pine forest was cut down and buried.
The explosion in this case was an accident, triggered primarily by the poor training of plant workers, but it demonstrated what kind of long-term damage can result from improper use of radioactive materials.
Before the reactor explosion, 14,000 people called Chernobyl home. The surrounding villages were erected mostly to house plant workers. The City of New York, by comparison, boasts 8.4 million residents and nearly 700 skyscrapers.
The Federation of American Scientists (FAS) took a map of the radiological damage from Chernobyl and laid it over a map of New York City to demonstrate just how many properties, businesses and lives would be impacted by an explosion of radioactive material.
But the FAS scenario isn’t based on a nuclear power plant explosion; it’s based on the possibility of a terrorist “dirty bomb” attack. Dirty bombs, or radiological dispersion devices (RDDs), combine a conventional explosive with radioactive material, and concern is growing that they could be the next terrorist threat.
Research laboratories, food irradiation plants, oil drilling facilities and medical centers are just some examples of facilities that house radioactive elements like cobalt, cesium, plutonium and Americium. The small quantities that these facilities work with are protected as a commercially valuable asset, according to the FAS, but “once radioactive materials are no longer needed and costs of appropriate disposal are high, security measures become lax, and the likelihood of theft or abandonment increases.”
The FAS focused its scenario on a dirty bomb built with cobalt-60, a radioactive material used in cancer treatment, industrial radiography, sterilization and food preservation. Facilities keep cobalt-60 in the form of small metal rods that are perfectly safe when encased inside therapy units or other machinery, but emit dangerous levels of radiation if the casings and rods are broken and particles of the cobalt-60 are dispersed.
The explosion of an RDD with cobalt-60 would send a cloud of radiation over a radius of at least several miles from the blast site.
“Based on the type, size and location of the device, we predict that in an urban environment, one building will need to be demolished, eight others will need repair, and about 75 more will need cleanup or decontamination,” said Hart Brown, vice president, organizational resilience, at HUB International.
“The physical nature of the damage will be localized, and small in comparison to the contamination aspect.”
A highly radioactive and powerful bomb could reasonably result in “180 to 200 fatalities, 250 to 300 injured, 20,000 possibly contaminated, and as many as 100,000 to 200,000 that think they could be contaminated,” Brown said.
Mark Lynch, head of terrorism model development on the impact forecasting team at Aon Benfield, estimated that radiation could spread over a 32-block radius from the blast site, which would cover roughly 49 square miles.
A 2003 report titled “Radiological Weapons: How Great is the Danger?” foresaw an even larger impact. This analysis, written for the U.S Department of Energy by George Malcom Moore, a former senior analyst in the Office of Nuclear Security at the International Atomic Energy Agency (IAEA), concluded that even a very small amount of cobalt-60, if dispersed evenly, has the capacity to contaminate 137 square miles.
That would cause millions of dollars’ worth of damage, so imagine what contamination of 621 square miles could do. That’s just what the FAS predicted in its scenario. The simulation surmised that if a tube of cobalt-60, about one inch in diameter and one foot long, were detonated and the particles dispersed from a bomb in lower Manhattan, it would contaminate an area of 621 square miles, or about 300 city blocks.
By EPA standards, lingering radiation from a source of this strength could increase the risk of dying from cancer to one-in-100 for anyone living in the borough of Manhattan.
Within 30 miles of the blast site, the risk remains high at one-in-1,000. Within 75 miles, the risk reduces to one-in-10,000.
In a presentation of these risks made to the Senate Foreign Relations Committee in 2002, the FAS reported that EPA recommendations dictate decontamination or destruction within that 75-mile zone.
“Everybody agrees that not a lot of people will be killed, but not everybody agrees on the amount of property damage,” said Moore, the scientist in residence at the James Martin Center for Nonproliferation Studies. “The big hazard from a dispersion device or a dirty bomb is not killing people, but contamination of property, which is an expensive proposition. You can create an extensive amount of economic loss by doing that.”
Decontamination is no easy task. Removing the radioactive material would involve sandblasting the top layer off of everything, and repeating the process until radiation levels meet the EPA’s emergency standard, which is twice the normal background level.
(According to the EPA, low levels of radiation exist naturally in the environment at all times. Sources include cosmic radiation from space, radioactive minerals in the ground and radioactive gases like radon and thoron.)
“We’re talking taking the top layer off of sidewalks, off the outer side of buildings, off of all the furnishings inside those buildings,” HUB International’s Brown said. “It could be months to years to get everything cleaned up.”
“Most people who deal with radiation are surprised we haven’t yet had an incident of this type.” — George Malcom Moore, former senior analyst, Office of Nuclear Security at the International Atomic Energy Agency
The FAS suggested that decontamination alone may not be enough. In cases where the risk of cancer could not be reduced to one-in-10,000, total demolition may be necessary.
If all of the buildings within a 1.2 mile area in New York City had to be demolished and rebuilt, the cost could top $50 billion, according the organization’s report, “Dirty Bombs: Response to a Threat.”
Overall, “if such an event were to take place in a city like New York, it would result in losses of potentially trillions of dollars,” the report said.
Even greater than the costs of repair and cleanup, though, is the loss from business interruption.
It’s possible that an exclusionary zone would have to be established until radiation levels fell low enough. Businesses in that zone would be unable to function.
Even companies in the surrounding area would lose a major portion of their customer base; when buildings are able to reopen, it’s likely that former residents and employees will not return, fearing the long-term health effects of any lingering radiation.
Brown referred to this as “radio-phobia,” where people treat radiation exposure as a type of virus they can catch and transmit.
“The fear,” said Aon Benfield’s Lynch, “is usually significantly higher than the actual damage.”
While very high doses can cause acute radiation poisoning and even death, most people will not be physically affected, though fear among the general public persists.
Brown estimates that BI losses could fall anywhere in the range of tens to hundreds of billions.
The likelihood of a radiological attack using a small amount of radiation occurring within the next decade “is probably greater than 50 percent,” Moore said. “Most people who deal with radiation are surprised we haven’t yet had an incident of this type.”
Many medical facilities have rods of cobalt-60 on site, and they are not always well-guarded.
Video: Authorities in Mexico recovered a stolen truck that has been transporting radioactive material, in this report from ITN News.
That leads to many of what the U.S. Nuclear Regulatory Commission (NRC) calls “orphaned sources,” or small volumes of radioactive material that are uncontrolled, lost, or in the possession of someone not licensed to own it.
The NRC reports that U.S. companies have lost track of nearly 1,500 radioactive sources within the country since 1996, and more than half were never recovered.
Incidents outside of the country have demonstrated how easily the wrong people can get their hands on a radiological device.
In 2013, in the Mexican town of Cardenas, for example, a couple of thieves stole a truck carrying iridium-192, which is used for cancer treatment, to a waste storage facility.
That source was eventually found, but not before six people were hospitalized for radiation exposure.
In the city of Goiania, Brazil, in 1985, a private radiotherapy institute relocated, but left behind some cesium-137.
Part of the institute was later demolished, which destroyed the protective casing around the cesium and led to contamination of the surrounding environment.
Ultimately, about 112,000 people were medically monitored, 249 were contaminated either internally or externally, and four died. It took three years to totally restore contaminated areas to livable conditions.
Response and Recovery
Coverage for any losses stemming from a dirty bomb attack could be difficult to find. In order for TRIA to kick in, the incident would have to be clearly defined as an act of terrorism, but “crime scene contamination makes it more difficult to collect and examine evidence,” Lynch said.
Without a declaration of terrorism by the Secretary of the Treasury and the Secretary of Homeland Security, the losses could be insurmountable for affected businesses to handle on their own.
“When you get into nuclear terrorism, there’s really no ability to predict that loss. It gets complex based on the coverage, and there are a lot of exclusions,” Brown said.
“The federal government would have to provide some economic stimulus, some funds, to prop up the city throughout this timeframe, which again could be years.”
It’s not known whether extremist groups such as ISIS are actively building RDDs, but mishaps like those in Mexico and Brazil and the growing list of orphaned sources make a dirty bomb a very real threat.
In 2012, 160 incidents of lost radioactive materials were reported to the IAEA, 17 of which involved some type of criminal activity.
The NRC and Department of Energy have since made more aggressive efforts to document and locate orphaned sources; here’s hoping they pay off.
Additional 2015 Black Swan coverage:
A 45-day superstorm floods California and dishes out economic catastrophe.
A fast-moving geomagnetic storm blasts the North American power grid, leaving a large swath of the Northeastern U.S. temporarily uninhabitable.
Cyber Insurance Uptake Still Lagging
“It is chronic that organizations are not analyzing the total cost of risk on a relative, comparative basis between tangible and intangible assets,” said Kevin Kalinich, global practice leader of network risk and cyber insurance at Aon Risk Solutions, summarizing the main takeaway from the 2015 Global Cyber Impact report, conducted by the Ponemon Institute and sponsored by Aon Risk Services.
Ponemon surveyed over 2,000 professionals involved with their companies’ cyber risk management and enterprise risk management, working in finance, risk management, compliance or general management roles.
The results revealed a stark contrast between what these professionals say and do about their organizations’ cyber insurance programs.
More than half of survey respondents said they expected their companies’ cyber exposure to increase over the next two years, but fewer than one in five were carrying coverage with an average limit of $13 million.
For example, 52 percent of respondents said they expected their companies’ cyber exposure to increase over the next two years, and 72 percent feel their current cyber coverage is sufficient.
Despite this confidence, only 19 percent of respondents were carrying coverage with an average limit of $13 million; meanwhile, the Ponemon Institute estimated that the probable maximum loss (PML) from stolen or destroyed information assets could reach as high as $617 million.
“Organizations seem to have a different operating philosophy on assets they insure,” said Larry Ponemon, chairman and founder of the Ponemon Institute. “Both [tangible and information assets] are viewed as very valuable, but insurance for tangible assets was at 51 percent of replacement value, versus just 12 percent for information assets.”
Kalinich said the discrepancy comes from senior management’s lack of understanding of their information assets’ impact on financial statements.
Companies are investing more and more in technology to streamline their processes and improve the way they do business, which helps to reduce their PML for tangible assets.
But they fail to take into account the total value that the new technology offers and how that changes their cyber exposure.
“They aren’t comparing the relative value of the assets, the relative exposures, and relative insurance spend of tangible and intangible assets,” Kalinich said. “If they do that, I think they’ll come to the conclusion that they are under-insuring on a relative basis.”
Many respondents also do not disclose material losses to uninsured information assets in financial statements (32 percent) or do so only as a footnote disclosure (36 percent). Not viewing technology as a “balance sheet asset” could contribute to management’s tendency to overlook its value, Ponemon said.
According to the report, only 26 percent of respondents said their company had conducted a formal, third-party assessment of cyber risk. Most had either no assessment (20 percent), or a very informal one (39 percent).
However, part of the problem lies on the insurance provider side as well. Many respondents said they chose not to purchase cyber insurance because coverage was insufficient, came with too many exclusions or restrictions, or executive management did not see the value, among other reasons.
They have a point.
According to Kalinich, broad and comprehensive coverage with large limits does exist for PII exposure, but not for non-PII cyber exposures such as supply chain or manufacturing disruption, or “tangible damage resulting from an intangible peril.” Those solutions will continue to evolve as the industry gathers more actuarial benchmarking data, he said.