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By CAROL TAVELLA, senior manager at SMART Business Advisory and Consulting

Employee absence from the workplace can cost up to 15 percent of payroll dollars. Although many large employers have been successfully managing absences, midsize and smaller employers have lagged due to the various challenges managing employee absence presents. These challenges include:

--Root causes of absence that are interrelated and go beyond traditional thinking such as employee illness or injury to such things as a population's health risk factors, chronic illness burden, employee training, design of time-off programs, work-life balance, job satisfaction and employer trust.

--Difficulty in deciding which interventions are best for the organization and the need to layer multiple interventions to achieve success.

--Lack of data or fragmented or unusable data. Not all payroll systems collect absence data, even when wage payments are made. Often, data collected is difficult to link to episodes of absence, causes or durations.

--The need to prepare a business case for change and obtain senior management support.

--Decentralization of interaction with absent employees. First-line supervisors may feel the need to protect the employee at the expense of the company's assets. These same supervisors often lack training in the legal implications of employee privacy, FMLA and ADA requirements.

Despite these challenges, small and midsize employers can make strides toward managing absence.

To begin, inventory and collect whatever data is available to gauge the types, frequency and costs of absences. Consult with your payroll vendor or internal payroll department to determine what data is being collected, or can be collected in the future. Review current time-off procedures to determine if any logs or informal tracking is done at the company or department level. Use your own data whenever possible, however, market data can be used to fill in or lend credibility to your data.

Review current and historical health plan data to identify the cost major diagnostic categories. The top MDCs for short-term disability are commonly the same for healthcare costs. Often, the utilizers are also consistent between plans. Look at the top reasons for your population's health risks and chronic diseases. Also, collect the metrics and results around your company's key business goals and objectives. This will allow you to assess the impact of any future changes on key business metrics.

Analyze your data to identify the key drivers of absences. Compare durations between similar diagnoses and frequency and duration between positions and departments. Assess the relationship between the maternity short-term disability experience and maternity health plan claims data. Compare the top reasons for disability to risk factors identified in health risk assessments, as well as chronic illness prevalence identified in disease management reports. Look at average claim duration, claim incidence per 100 employees, cost per employee and cost per claim. Review the percentage of claimants who return to work, with and without the percentage who return with accommodations.

Next, benchmark your company data against peer companies and industries and those companies with best-in-class results. This helps to describe more accurately the present state within your organization. Compare your data against these benchmarks to evaluate differences. Lastly, map and define plan administration responsibilities, procedures and management relationships. By the end of this analysis you will see some actionable opportunities to improve program compliance.

A fairly simple and cost-effective way to consolidate and improve standardization and compliance is to outsource claims management of short-term disability/salary continuance to a professional administrator.

As of 2005, more than 50 percent of employers outsourced administration of these types of benefits, up from 25 percent in 2000, according to a 2006 Mercer--Marsh survey of health productivity and absence management.

This increase is primarily due to two things. Employers are recognizing that this is an area where they save money. Studies show that an average of 7 percent to 15 percent savings can result in moving from an employer-managed plan to professional claims management and two, there has been an increase in professional management providers that can efficiently manage claims for midsize and smaller employers at an attractive price.

The payback of implementing professional claims management is:

--Data capture/reporting on causes, incidence and durations of absences.

--Removing an employer from handling confidential medical information.

--Consistency in claims handling through the use of nationally accepted return to work guidelines.

--Shortened absence durations.

--The ability to implement cost-containment provisions in the STD/SC plan.

--Additional opportunities to consider modified return to work arrangements.

The use of a professional administrator can also simplify the STD/SC claims reporting process by using telephonic claim intake. This method captures the information needed from the employee to start the claims process during a short telephone interview. E-mails are then sent to the employer to certify benefit eligibility and information is gathered from attending physicians. Faster intake and assisting employees with obtaining medical data will lead to faster claims decisions.

When considering claims administrators, look for one with whom a strategic partnership can be developed.Review their claim intake process in detail. A key indicator is the administrator's willingness to customize their processes to allow the changes to be phased in and for their processes fit your business needs.

Professional administration can also improve communication within the organization and increase awareness of absence policies. The transition can be a catalyst for training of human resources and front-line management on absence issues, the new claims process, standard procedures and expectations.Communication will help employees understand expectations and help to combat feeling of entitlement.Absence data collected can be shared with front-line management and used initially as an educational tool and later on, to provide feedback.

A detailed review of the STD/SC plan provisions by a benefits consultant or a claims administrator will identify areas where language can be tightened, provisions can be added or removed and definitions clarified. The goal is to simplify claims adjudication by having clearly stated and well understood definitions, rules and plan provisions. Some of the provisions often reviewed are:

--Eligibility rules--what groups of employees are covered or excluded, what are the eligibility requirements, and when does coverage begin?

--Defining the compensation upon which benefits are calculated.

--Pre-Existing Condition exclusions--should your plan contain one, and how restrictive should it be?

--How "disability" is defined.

-Job modification--can duties be modified or the person transferred to other areas to encourage earlier return to work?

--Front-end and back-end coordination issues--coordinating sick time or PTO during and after the elimination period, as well as when LTD begins.

--Reasons that STD/SC benefits will terminate, such as termination of employment for cause, or confinement in a penal institution

--How will payroll deductions for other benefits (such as medical) be handled during the leave?

--How long will other benefits (such as medical or life insurance coverage) be continued during the absence?

--What benefits will continue to accrue during the leave (i.e. vacation, sick time)?

--What other sources of payments that employees may receive will be coordinated with or offset against the STD/SC plan payments?

For best results, treat the movement of claims administration to professionals as co-sourced, not outsourced.

The employer or their consultant must stay involved to monitor the claims administrator's performance and service levels, as well as the performance of the plan. Periodically, a cross-section of claims should be reviewed start to finish ensuring that plan provisions and durational guidelines are being adhered to and that service expectations are met or exceeded.

November 1, 2008

Copyright 2008© LRP Publications