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Absence Management: Work Comp’s Future?

American employers will dispatch hundreds of staff members to an April gathering in Washington, DC, on corporate compliance issues. In all likelihood, hardly any CEOs in the workers’ comp industry are fluent in these issues, even though by the end of this decade they may change the direction of the workers’ comp businesses, separating the successful from the laggards.

A change for workers’ comp leaders hides in plain sight.  Claims have been declining in frequency by about 3.5% a year. It’s prudent to expect continued decline, as jobs become safer every year. Average claims costs, which used to bump up by more than 5% a year, aren’t growing beyond a few percent.

Meanwhile, the typical employer’s agendas of employee leave, disability management and wellness have been surging in scope and complexity. A few workers’ comp companies have already repositioned themselves to provide a broad array of solutions for these agendas.

Most workers’ comp CEOs appear to think these burgeoning workplace concerns have little to do with their company’s future. They may be right. Or they may be whistling past the graveyard.

Since the beginning of the Great Recession, demographic, technology and legal trends visible in recent decades began to accelerate in the direction of smaller work injury risk and larger non-occupational employee risks. Frank Neuhauser of the University of California at Berkeley estimated that for most workers it is more dangerous to drive to work than to be at work.

And notice the rise in employee leave benefits and the greater emphasis on wellness (despite deserved criticism of overselling that concept). Perhaps this is how Occupy Wall Street ends: not in a revolutionary bang, but a paid parental leave benefit and a worksite yoga studio.

The Disability Management Employer Coalition puts on the April conference as its annual problem-solving exercise for the Family and Medical Leave Act and Americans with Disabilities Act. In addition to these federal mandates, states and localities have been promulgating leave-related mandates by the dozens. In January, for instance, Tacoma, WA, enacted a law requiring employers to offer at least three days of paid sick leave come January 2015.

ClaimVantage, which sells absence management software, reports there are about 140 federal and state family leaves across the nation. When adding ancillary leaves like jury duty and blood donor leaves, the numbers rise to about 400. Paid family leave is gaining momentum to become a mandated benefit. The U.S. is the only high-earning country that does not offer paid leave after the birth of a child and only one of eight countries in the world that doesn’t mandate paid leave for new mothers.

According to the Integrated Benefits Institute, workers’ comp accounts for a mere 11% of all work absences involving a medical condition.

Legally mandated and voluntary benefits, disability accommodation, wellness and other employee-centric programs have by intertwining themselves raised their visibility in corporate C-Suites. No single, memorable descriptor today captures them successfully. Phrases such as “health and productivity management” and “total health” are bandied about. I suggest a simple term, “absence management,” in a report I wrote called “Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers’ Comp,” which WorkCompCentral published in February.

The absence business beckons

Although the labels will evolve, the need of employers for expert outside assistance to address their agendas is bound to grow. Will workers’ comp companies deliver solutions?

The employers most ready to ask for help include those with relatively large workers’ comp costs to begin with: middle- to large-sized employers. Workers’ comp claims payers today will process about $65 billion in workers’ comp benefits this year. Perhaps 15% of these benefits involve very large employers. A further 25% involve employers that are not that large yet incur workers’ comp losses of about $200,000 a year or more. Combined, these employers account for 45% of workers’ comp benefits. In other words, about half of the workers’ comp business today is with employers big enough to know they have a complicated absence management problem on their hands.

Their human resource executives and legal counsel have been telling CEOs that the compliance risks of government mandates can’t be ignored. The mandates have grown into an elephantine mass so thick that without expert outside assistance an employer has a high probability – say, 100% — of violating some law or other.

The more alert and early-adapting segment of employers tends to affiliate with the San Francisco-based Integrate Benefits Institute. Their individual staff members join the San Diego-based Disability Management Employer Coalition. These membership organizations feed the demand for training, resource networking and applied research.

Broadspire, ESIS, Sedgwick, York and perhaps other third-party administrators already market services to manage at least some aspect of non-occupational absences.

Workers’ comp claims payers can manage non-occupational absences because they already possess the needed core competencies. Pared down to the essentials, the workers’ comp claims payer does six things:

  • It processes claims.
  • It assists at some level of intensity in reducing the rate of incidents that end in claims.
  • It coordinates medical treatment and vocational recovery
  • It understands return to work.
  • It prices its product.
  • It complies with pertinent laws.

Absence management does basically the same things.

Further tying together workers’ comp and non-occupational absences in a workforce is the vital role of health behaviors of employees. The workers’ comp claims executive is acutely aware that health behaviors of injured workers often drive up claims costs. It is increasingly clear that smoking can be a more costly unsafe act than, say, distraction. Not that smoking precipitates an occupational or non-occupational injury (there’s scanty evidence of that), but that smokers are at more sharply higher risk to heal slowly and to become dependent on opioids in treatment.

The Integrated Benefits Institute has for years carefully analyzed patterns in non-occupational absences. It says that employers can and should use a coherent master plan for absences of all kinds, wellness initiatives and claims management.

In a phone and email exchange, IBI President Tom Parry suggests that workers’ comp claims payers think through their strengths in medical care, disability management and return to work. “These all are key parts to an employer’s strategy in taking a comprehensive approach to lost work time management,” he says.

Also, he advises, be prepared to benchmark and compare. Get hold of industry-specific benchmarking data across lost time programs, workers’ comp, FMLA and short and long-term disability. Become fluent in plan design terminology on the non-occupational side. Review the research literature on the cross-program impacts of health and a total absence management approach. IBI just published research on claims migration across programs, “Crossing Over — Do Benefits and Risk Managers Have Anything to Talk About?”

Why companies may hold back

A workers’ comp claims payer might enter the absence business because it does not believe that the workers’ comp industry is shrinking. For instance, the average cost of claims may, as it has in the past, grow faster than the reduction in injuries, leaving claims payers with an ever-larger pie. But in recent years average indemnity and medical costs have greatly slowed their growth and in some jurisdictions declined. And the incidence of lost time compensable claims continues to decline, the one clear exception being the island of all exceptions, Southern California.

Also, workers’ comp executives might say there is no apparent demand from their clients for non-occupational services. This sort of flies in the face of the experience of TPAs that have launched non-occupational service units. (True, they focus on the higher end of the employer market.) But the observation also doesn’t jibe with the workers’ comp industry’s experience with emerging services in the past. In instances of innovation, from medical bill review to pharmacy management to Medicare set-asides, large-scale and profitable services emerged after initial years of puzzlement. The fog banks eventually lift.

Then there are impediments in the broker community. It’s almost inevitable that absence management involves insurance products sold through benefits brokers and products sold through property and casualty brokers. They don’t talk a lot, even when working under the same roof. This complicates the work of product design and marketing.

Another reason to say no to opportunity is the challenging learning curve that absence management brings. But look at how the TPAs handled that. Those that have expanded their service offerings beyond workers’ comp claims all appear to forge alliances with, or acquire, servicing partners already steeped in some aspect of absence management.

It may be too harsh to equate workers’ comp claims payers with the railroad industry, which 60 years ago asserted that it was in the railroad, not the transportation, business. Perhaps too harsh, but there may be a lesson in that story.

The decline of work injuries

Injuries requiring at least 31 days away from work

year 1993 2015 2022 (projected)
injuries 450,000 250,000 175,000
Total employment 110 million 133 million 148 million

 

 

Responding to Needs of the Aging Workforce

Understanding the Issue

According to the U.S. Department of Labor, over the past decade, workers in the 45 year-old and over category have increased 49% and now make up 44% of the workforce. The age group over 55 has grown to 21% of the workforce. As a glimpse into the future, a 2013 Gallup poll revealed that 37% of working age respondents indicated they expect to work beyond age 65. Gallup reported that only 22% responded the same way in 2003 and only 16% in 1995. Given this projected “aging” of America’s workforce, are America’s employers prepared to effectively address the associated increase workers compensation claims?

As the population pyramids below illustrate, the aging of America is not a short-term issue. Note the diminishing dependency ratio of young to old, from 1980 to 2030 as shown in Figure 1.

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The Future is Now

The time to discuss these trends as a “having potential impact in the future” has actually passed. We need to re-orient our thinking of the aging workforce as a new constant and as “today’s reality”. The medium age of some industries is as high as 55 (agriculture) indicating a need to act.

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Table 1: Percent of workforce over 45 years of age, by industry.

At Aon, we have been studying and quantifying the impact of the aging of America on our clients. Based on our market insight, we have developed prescriptive solutions to support our clients’ needs. As you can see from the table below, the age of the workforce and population within each age band varies significantly and is in part why all employers may not experience a direct impact of this issue. Based on our client research, we believe it is imperative to quantify the impact of this issue, which in turn provides key input and metrics for helping mitigate the problem. As one client put it when shown the injury trend related to an age band of workers and type of injury driving a considerable portion of their loss time injuries, “Are you saying that by prioritizing the identification and potential for shoulder injuries I could get more return on investment from my ergonomics efforts?” The response was a simple but definitive, “yes”.

The Impact on Work-Related Injuries

Over the past three years, Aon casualty specialists have been monitoring the impact of work-related injuries to aging workers by examining workers compensation claim costs of our clients. From this research, we have identified some rather compelling trends.

One of the most concerning trends is the “current” impact on the cost of workers’ compensation. We studied $2.5 billion in workers’ compensation claims from 2007 through 2012 and found a consistently higher average cost for workers’ compensation claims for older claimants across all industry groups. For example, the 45- to 55-year-old claimants in the manufacturing industry group’s average claim cost was 52% higher than 25- to 35-year-old claimants. This trend varied in degree by industry, but only by the pitch of the slope, leaving us to look deeper into the issue and attempt to identify what was driving this cost. This issue has been under study for quite some time.

Heather Grob, Ph.D. and senior economist with Washington State Department of Labor and Industries, published materials on the concern in 2005, stating “that a random sample of Washington workers’ compensation claims from 1987-89 found that workers over age 45 were at risk of longer term disability” (Cheadle et al 1994). The study concluded that older age is the most important and consistent influence on duration of disability. While we are not breaking new ground on identifying the issue, what seems to be missing is the socialization and acceptance of the impact as well as an understanding of what we should be doing about it.

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The Birth of Ageonomics in Workers’ Compensation

In 2011, we at Aon coined the term Ageonomics to address the phenomenon of the aging workforce and the strategies that can help address increased costs and worker safety. Vicki Missar, Aon board-certified ergonomist, defines Ageonomics as the scientific discipline concerned with the interaction among aging humans and other elements of the system within which they work.

Ultimately, Ageonomics is Aon’s professional service that applies theoretical principles to designing age-specific systems to optimize the wellbeing of the aging worker while improving overall system performance. Aon’s Ageonomics practice leverages the differentiated expertise of professionals spanning such disciplines as ergonomics, wellness, benefits and safety to deliver comprehensive and very powerful solutions to the aging workforce challenges most employers are facing.

Ageonomics calibrates the absenteeism trends for the aging workforce, regardless of the bucket within which they fall. Aon analyzes the trends, from short-term disability (STD), long-term disability (LTD), workers’ compensation (WC), casual absences (CA) and Family Medical Leave Act (FMLA) absences to understand claim volume, average claim duration, average cost per lost day, average cost per claim, total costs and the ultimate cost projections. In addition to the financial output, Aon calibrates the leading absence causes by program type to understand what is driving the aging employee absenteeism. This insight provides clearer diagnosis on which programs are affecting the organization the greatest and which absenteeism causes are being reported with the most frequency. Aon also reviews the internal programs to understand how the framework is aligned with the organization’s aging worker initiatives. Organizations can then develop a targeted, age-specific strategy to help not only prevent or reduce the duration associated with the respective absences, but implement preemptive programs to help keep aging workers healthy and optimize their individual productivity.

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Changes Associated with Aging

The physiological changes associated with aging occur from the moment we are born. Fast forward to age 45 and older, and the body begins to change more significantly. Depending on primary factors such as health, fitness and genetics, all of us age differently. Researchers in Finland (Ilmarinen, et. al. 1997) found a decline in what they called “workability,” with 51 years of age being the most critical point at which workability started to decrease. In addition, researchers noted that workability was shown to have a high predictive value for work disability (e.g. lower workability equals higher disability days). This means that we must now focus on the individual to understand age-related risk factors, modifiable and non-modifiable, to really address the challenges facing the aging workforce.

Physiological Changes That Can Affect Work Performance

With age comes decreased muscle strength, lower dexterity, reduced fitness level and aerobic capacity, poorer visual and auditory acuity and slower cognitive speed and function, to name a few. All of these changes can have a dramatic impact on the aging worker. For example, aging is related to the loss of muscle mass beginning at the age of 50 but becomes more dramatic at the age of 60 (Deschenes 2004). In addition to physical changes, older workers are at increased risk of disease and other ailments. These include the increased risk of obesity associated with aging, diabetes, heart disease, cancer and reduced fitness level, among others. Thus, prevention initiatives are needed to support the aging worker so that an effective, comprehensive strategy is developed. For example, if we know that muscle strength declines with age, organizations need to consider implementing safety, ergonomics and wellness programs to help build individual strength while working to reduce manual lifting, which could potentially result in injury or absence.

In the course of Aon’s Ageonomics diagnostic research, the two leading loss causes of injuries to knees and shoulders stem from strain/sprains and slip/trip/falls that can directly be attributed to reduced mobility and reduced strength, both of which can be related to an older physiology. By understanding the physical changes of an aging human and linking these changes to loss-producing trends in the data, we can develop a thoughtful strategy for increasing workability and reducing age-specific exposures in the workplace.

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Rethinking the Work Environment

After some research and discussions with other benchmarking groups (NCCI and IBI), we can begin to make some educated assumptions surrounding drivers of these increased costs. What is of interest to Aon’s Ageonomics practice is how physical changes can influence solutions to reduce injury risk and prevent absenteeism. With onset of saropenia — loss of muscle mass — comes decreased strength. Many physically demanding jobs do not factor this into the equation when developing production standards or production demands for the workforce. By age-adjusting the demands by a specified factor, for example, we can not only reduce the risk of injury but improve the long-term workability and productivity of the workforce in general.

As part of Aon’s Ageonomics methodology, each safety, ergonomics, benefits, wellness, human-resource program aligns strategies and their resulting activities around the needs of the aging worker. The ultimate objective is to develop strategies geared toward optimizing the performance of the aging worker. This can only be done when each program is assessed and refined for the aging workforce (Table 2). For example, a recent study (Ruahala, et. al. 2007) found a linear trend between increasing workload and increasing sick time among nurses. First, we know that in health care and social assistance, musculoskeletal disorders (MSDs) make up 42% of cases and have a rate of 55 cases per 10,000 full-time workers. According to the Bureau of Labor Statistics, this rate was 56% higher than the rate for all private industries and second only to the transportation and warehousing industry. Second, given that 55% of the USA nursing workforce is age 50 or older (NCSBN &The Forum of State Nursing Workforce), conducting an Ageonomics assessment may be an important part of a strategic program to reduce sick leave, workers’ compensation injuries and overall absenteeism. Third, solutions cannot be one-dimensional, i.e., simply purchasing patient-handling equipment and hoping that will remedy the situation. Strategies must encompass the total health and wellbeing of the worker for optimal success, including a thorough review of the programs outlined in Table 2.

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Rethinking Wellness As the U.S. workplace continues to age, it is critical to rethink wellness programs. Berry et. al. (2010)5 state in the Harvard Business Review:

“Wellness programs have often been viewed as a nice extra, not a strategic imperative. Newer evidence tells a different story. With tax incentives and grants available under recent federal health care legislation, U.S. companies can use wellness programs to chip away at their enormous health care costs, which are only rising with an aging workforce.”

The article points out six pillars of an effective wellness program that can help significantly lower healthcare costs. As part of Aon’s Ageonomics practice, we analyze these pillars, including leadership, program quality, accessibility and communication of not only wellness but safety, ergonomics and other programs, to understand gaps for aging workers. By reviewing age-specific data and wellness program statistics, we can probe deeper and ultimately develop strategies to better align these programs for the aging worker. Researchers at Harvard found that participants in wellness programs are absent less often and perform better at work than their nonparticipant counterparts. Thus, structuring a wellness program around aging workers can become a way for organizations to not only retain aging workers but ensure their workability does not decline to levels that result in disabilities and workers’ compensation claims.

Conclusions

As with any workplace program, measuring success includes not only healthcare costs, but workers’ compensation costs, safety program incident rates, absenteeism and turnover rates, among other indicators. It becomes essential to align traditional silo programs and produce a synergistic, thoughtful approach to optimize any program touching an aging worker. For a copy of the full Aon white paper on which this article is based, click here.