Tag Archives: short-term disability

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.

Built For Reform: Third Party Administrators And The Affordable Care Act

The Affordable Care Act (ACA) is considered the most significant, albeit poorly written, law that Congress has passed in the last 50 years. As regulators devise the details needed for the law to be fully implemented, unprecedented new administrative and compliance burdens are looming for employers. Independent Third Party Administrators (TPAs) have decades of experience guiding employers through the pitfalls of government rules and requirements. This expertise makes independent Third Party Administrators invaluable to employers trying to mitigate the impact of health care reform.

A Brief History Of The Third Party Administrator Industry
Most employee benefit plans are highly technical and difficult to administer. Those complexities gave birth to the Third Party Administrator industry.

While there are reports of a Third Party Administrator operating as early as 1933, the modern Third Party Administrator concept is rooted in servicing mostly pension plans codified in the 1946 Federal Taft-Hartley Act. Such plans are typically comprised of several employers whose employees belong to a single union.

By the late 1950s, there were also a few Third Party Administrators specializing in servicing medical plans sponsored by single employers. The industry boomed after the enactment of the Employee Retirement Income Security Act of 1974, as employers began exploring the option of self-funding when traditional insurance coverage failed to meet their cost expectations. Today, the administration of self-funded medical plans is the primary line of business for many independent Third Party Administrators.

Employers that self-fund assume the financial risk of paying claims for expenses incurred under the plan. Medical, dental, vision, and short-term disability plans, as well as Health Reimbursement Arrangements (HRAs), can all be part of a self-funded program.

Most employers sponsoring self-funded medical plans purchase stop loss coverage to limit their risk. An insurance carrier becomes liable for the claims that exceed certain pre-determined dollar limits.

The Value Of A Third Party Administrator-Administered Self-Funded Program
Employers can choose to administer their self-funded plans in-house. However, few have the experience to do it well. Considering the heavy penalties for regulatory non-compliance, self-administration is generally ill-advised.

Some insurance carriers offer Administrative Services Only (ASO) contracts to employers that wish to self-fund but rely on the carrier to do the paperwork. Unfortunately, most insurance carriers have benefit administration systems that are too inflexible to accommodate the unique plan designs that are the hallmark of self-funding. In addition, they are more attuned to the legal requirements applicable to fully insured products, which differ dramatically from those for self-funded plans.

Insurance carriers may assume financial risk under an Administrative Services Only contract by providing the stop loss coverage. Conversely, Third Party Administrators are not risk-taking entities so they are clearly in a position to act in the best interest of the plan and its members.

The independent Third Party Administrator industry was built on change. Never having settled for the “one-size-fits-all” approach of the fully insured model, independent Third Party Administrators maintain sophisticated information technologies that adapt easily to new demands, as well as professional staff accustomed to responding to regulations that continually reshape employee benefits in profound ways.

Independent Third Party Administrators usually provide a broad range of à la carte services to self-funded employers: plan design, claims processing, placement of stop loss coverage, case management, access to networks and disease management, wellness, and utilization review vendors, eligibility management and enrollment, subrogation, coordination of benefits, plan document and summary plan description preparation, billing, customer service, compliance assistance, ancillary benefits and add-ons such as Section 125 plans, consulting, and COBRA and HIPPA administration. Independent Third Party Administrators are best at customizing their services and plans to suit a client’s specific needs including benefit philosophies, demographics, risk tolerance, and compliance requirements.

A fully insured arrangement cannot compete with a thoughtfully designed, Third Party Administrator-administered self-funded program. Employers that self-fund enjoy increased financial control, lower operating costs, flexibility with plan design, a choice of networks, detailed reporting of plan usage and claims data, and effective cost management.

The Challenges Of The Affordable Care Act
When small employers (those with fewer than 50 full-time equivalent employees) offer health benefits, the coverage is usually fully insured. However, self-funding has gained momentum among small employers.

In 2014, large employers (those with 50 or more full-time equivalent employees) will be subject to the Affordable Care Act’s “pay or play” requirements. A large employer must offer its full-time employees (working at least 30 hours per week or 130 hours total in any given month) and their children minimum essential coverage that is affordable and provides minimum value. Otherwise, the employer will be subject to a penalty if any of its full-time employees obtains health coverage through a Health Insurance Exchange (now called a Health Insurance Marketplace) and is certified as eligible for a premium tax credit.

The premiums for fully insured coverage are expected to rise significantly due to the Affordable Care Act imposing an annual fee on most insurers, modified community rating in the individual and small group markets, and expensive mandates for essential health benefits. Self-funded plans are exempt from these requirements. In addition, while Affordable Care Act requirements will likely inflate insured premiums, stop loss premiums remain competitive (even for small employers).

Self-Funding As A Strategy For Overcoming The Affordable Care Act’s Challenges
Depending on size, employers must make important decisions about managing the costs associated with health care reform. They can provide coverage or not provide coverage (and possibly pay a penalty), reduce hours, eliminate jobs, or find a way to offer a cost-effective and compliant plan.

Independent Third Party Administrators are the experts at self-funding. A Third Party Administrator can custom design a high quality, Affordable Care Act-compliant, self-funded program that a small or large employer can offer at a controlled cost. For employers looking for flexible solutions to manage costs while continuing to recruit and retain talented employees, a Third Party Administrator-administered self-funded program with medical stop loss coverage is a viable solution.