Cost of Benefits of High-Risk Claims Jump After Workforce Reduction
To examine this issue further, researchers from OCI, a data integration and software provider in Denver, conducted a study to understand the impact of a Fortune 500 firm's downsizing on the high-risk claims of its employees and the net cost impact to the company. OCI defined high risk as those claims that were difficult to assess and/or have the potential for long duration.
The study found that the cost of benefits from high-risk claims increased significantly for the employer after the company reduced its workforce by 10 percent.
Economy and costs. According to OCI, studies from California and Texas have shown that the number of comp claims rises with higher unemployment. In addition, a report by the Office of Personnel Management indicated that comp claims often increase during downsizing.
Researchers said there are several reasons why benefits costs may increase when a company has made or plans to make layoffs. For one, younger, less experienced, and lower tenured workers -- who are often the target of the first rounds of layoffs -- are more likely to suffer injuries on the job. However, accidents that occur to older employees, who are left picking up the slack during workforce shortages, are more severe and require a longer recovery period.
In addition, research from the National Council on Compensation Insurance has found that layoffs frequently breed opportunist behavior, where employees who are affected by the reduction in workforce look to workers' comp as a form of "wage continuation." OCI noted that employees who may have been suffering for years from accumulated body stress, fatigue, and recurring, chronic or progressive medical conditions may conclude that if they don't file a claim, they could miss the opportunity if they are laid off. Employees who fear they are about to be laid off, the study found, may also encourage family members to get all of their medical issues attended to prior to losing benefits.
About the study. For the report, OCI analyzed the company's costs per employee for short-term disability, long-term disability, workers' comp, health care, and prescription drugs over a 32-month period during the current recession, which included the 10 percent workforce reduction. Researchers found that in the 14 months after the company decreased its workforce, it realized an increase in benefits costs of $11.1 million. Prior to that time period, the company was realizing a steady decline in benefits costs.
The study noted that the percentage of employees who had complex or high-risk claims increased during those 14 months. To identify the increased risk of high-risk claims, OCI developed an algorithm to determine whether a positive relationship existed between a reduction in workforce and employees filing high-risk claims. OCI used its Risk Predictive Early Referral Application model, which incorporates a company's historical claims utilization data and adjusts for those claims where it is difficult to diagnose the underlying medical condition. The RPERA model can be used to proactively identify high-risk, lost time claims at the first report of injury and subsequently refer these high-risk claims/claimants for early and aggressive case management intervention.
OIC said the model helps to segment risk and focus management resources on appropriate areas. Results can be tabulated on a claim-by-claim status, with each claim being placed into one of two groups -- high risk or non-high risk. Researchers said the RPERA model was designed to identify those claims with the most to gain from case management, as opposed to simply predicting the highest-cost claims which may not have any case management opportunity.
Proactive management. Researchers said that had the employer identified these cases and managed them proactively, the increase in benefits costs could have been less drastic. Proactive management of the complex and high-risk claims, the study concluded, could have saved the company as much as $890,000 of the $11.1 million in increased medical cost.
"Companies should work closely with their insurers and plan administrators to anticipate and develop programs to mitigate increases in health care conditions, injuries and claims that may result from a workforce reduction," said Archie Anderson, president of OCI. "Proactively initiating programs on safety, early diagnosis of chronic conditions, effective disease management, and job rotation for repetitive movement prior to a workforce reduction, and case management and return-to-work programs following a reduction in force is a benefit to both employees and the company's bottom line."
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July 26, 2010
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