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Disability Management Outsourcing

By Joanne Sammer  10/1/2006
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The HR outsourcing trend marches on into the realm of disability management, as employers look for new ways to reduce their workforce-related costs. In some cases, companies are outsourcing disability management as part of a broader integrated leave management effort.

From a cost standpoint, improving disability management through outsourcing is one way companies can save money without inconveniencing their workforce. A large company that must rely on direct replacements for employees on disability can see significant cost savings and productivity improvements by shortening the length of disability leave. “There is growing interest in enhancing disability management,” says Susan King, a principal with Buck Consultants in Chicago. “There can be savings for companies that have exhausted cost-saving possibilities in health care benefits.”

Deciding What To Outsource

But what parts of disability management can be outsourced? There are several components to disability management, so outsourcing is unlikely to mean the same thing to every company. “Most companies take pieces of the process and outsource it,” says Erin O’Connor, vice president with Charles W. Cammack Associates Inc. in New York. “Their choices depend on how well they manage the process internally and what they want to accomplish.”

O’Connor notes that intake and disability claims management are the easiest parts of the process to outsource because these administrative tasks are relatively similar for every company. “The real savings involve reducing administration time and improving claims management,” she says. “This means speeding up the process on front end when the initial claim is made and managing care on back end.”

A goal: To reduce administration time and
improve claims management.

For example, if a disability claim is handled quickly at the outset, the disabled employee can be more quickly funneled into a process with the goal of helping the employee return to work as soon as possible, rather than allowing the employee to languish in uncertainty while waiting for their claim to be handled.

Other areas, including follow-up, clinical case management and return-to-work programs are more complex. These programs include assessing an employee’s condition to determine whether they can return to work and when, then developing a return-to-work program that will make that happen.

“This way, the employee knows he can’t expect to stay out too long,” says O’Connor. By reducing disability leave time, companies can significantly reduce the costs associated with finding replacement employees, hiring temporary help or paying overtime to pick up the slack from absent employees.

Who Is Responsible?
In many companies, disability programs are handled by a number of people in the organization. Although primary responsibility usually resides with the employee benefits area, others in HR, employee or labor relations, and even the legal department can also get involved. Moreover, if a company wants to integrate disability management with its workers compensation management and return-to-work programs, individuals from risk management, occupational health and safety, and finance may also be onboard.

This scattered nature of disability management is another reason why companies look to outsource this activity. After all, outsourcing can help a company to gather all disability-related information for perhaps the first time. Only with that type of robust information and data can companies make appropriate decisions for managing the costs and effectiveness of disability management.

By using outsourcing in this way, companies can cut down on the administration involved in disability management by introducing self-service online or over the phone, and providing more timely feedback and information to managers about absences and disability cases so that they can do better workforce planning. “Disability management tends to be a high-touch process with a lot of people involved,” says King. “Outsourcing can help companies to get some of the fat out of the process and save money.”

Cut admin 'fat' with self-service (online or phone)
and more timely feedback to managers.

A Broader Effort

King sees the trend toward outsourcing disability management taking a new turn as companies look for more effective ways to improve absence management. “Absence management involves tracking all absences, including those related to short- and long-term disability, the federal Family and Medical Leave Act (FMLA), sick time, vacation, and so on,” she says. Outsourcing these activities can help companies improve process flow, improve data gathering and reporting and, ultimately, gain control over those absences.

Outsourcing disability management as part of a broader absence management effort can also create common reporting systems for all absences, including those related to workers’ compensation. By tracking overall absence costs, trends, and activity, a company can begin to take steps to better coordinate disability management activities with workers’ compensation management. “With common reporting in these two areas, companies can see the bigger picture, analyze plan design and see where any problems exist, such as in disease management efforts or specific locations,” says King.

In addition, a company may find opportunities to coordinate disability programs with the leave allowed under the FMLA. Many FMLA absences are closely related to or become short-term disability leaves and employees tend to use their paid time off in these situations before applying for either FMLA or disability leave. In other cases, employees may be using sick days here and there to deal with an illness or disability without taking a formal disability leave.

Yet, these situations still cost the company money. By tracking all of the paid and unpaid leave programs, companies can get a true picture of what these absences are costing the company. “Many companies allow employees to bank paid leave time, which is itself a liability,” says King. By looking at the complete package, companies can tweak their benefits to manage these costs more effectively. At the same time, as companies gather data and information about disability and other absences, they can identify trouble spots and take steps to reduce overall absenteeism. “When you track something, you tend to manage it,” she notes.

Managing the Relationship

To measure the effectiveness of the disability outsourcing relationship:

• Establish a set of metrics for determining the company’s current state of disability management and measure progress going forward. The vendor should be able to provide continuing and timely reporting with information on the status of every employee on disability leave, who is waiting for a return-to-work clearance, what is needed to get employees’ final clearance so that steps can be taken to deal with those issues, and so on.

• Look for a vendor with enough industry experience and data to help the company see where it stands in comparison to industry, geographic and other peers. “It makes no sense to compare a workforce that is primarily made up of women of child-bearing age to a workforce that is primarily made up of men in their fifties,” says O’Connor. “The benchmark would be meaningless. They need enough information in their database to provide meaningful comparisons so that the company can see what they need to do to improve their ROI in disability management.”

Joanne Sammer is a New Jersey-based business and financial writer. Her articles have appeared in a number of publications, including Business Finance , Consulting , Compliance Week and Treasury & Risk Management.

Quick Links:

SHRM Online Benefits page

SHRM Online Outsourcing Resource Page

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