Casualty Actuarial Society

Disability Management
Strategies:
Lessons Learned from Workers Compensation
and Managed Health Care
Jeffery P. Jordt, J.D., L.L.M.

2002 Risk & Capital Management Seminar

July 8-9, 2002

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Agenda

I. Exploring Disability Management - Why?

II. Historical Perspective
- Workers Compensation
- Health Care
- Group Disability
III. Application of Lessons Learned to
Integrated Disability Management
IV. How to Implement a Successful Integrated
Disability Management Program 2
Disability Management

Definition:
The prevention of disability, the minimization of its
impact on and cost to employers and employees,
and the encouragement of rehabilitation and
return to work for employees with disabilities.

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Incidence of Disability
During the course of your career, you are 3 1/2
times more likely to be injured and need disability
income benefits than die and need life insurance
(Source: Public Opinion Strategies)

Risk of long-term disability vs. risk of death

Age 30 4.1 times more likely
Age 40 2.9 times more likely
Age 50 2.2 times more likely
(Source: Field Guide 1998)

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Incidence of Disability

Probability of Disability* Occurring Prior to Age 65

One Person
To Any Out of
Age One Person Any Two Persons

30 .467 .716
40 .430 .675

50 .360 .590

*Disability defined as long term (at least 90 days).

(Source: Field Guide 1998) 5

Employee Financial Consequences

Most people have savings to cover less than

six months of expenses. Ones savings could
be depleted before Social Security Disability
income begins to pay (Source: Business Almanac)
48% of all home foreclosures are the result of
disability, while only 3% of all foreclosures
result from death (Source: Housing and Home Finance
Agency of the U. S. Government)

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 Employer Financial Consequences

Average Direct Costs of Disability

2.5%
Workers' Compensation
Sick Pay 1.7%
STD 1.5%
LTD 0.06%
Total 6.3%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Percentage of Payroll

Source: Watson Wyatt, Staying@Work 1999/2000

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 Employer Financial Consequences
Average Indirect Costs of Disability

Overtime Costs
3.1%
Replacement Employees
3.8%
Workstattion/Job 1.0%
Accomodation
Total 7.9%

0.0% 1.5% 3.0% 4.5% 6.0% 7.5% 9.0%

Percentage of Payroll

Source: Watson Wyatt, Staying@Work 1999/2000

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A Historical Perspective

Workers Compensation
Health Care
Group Disability Insurance

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Workers Compensation
Industrial Revolution and social policy
Employers Liability Statutes
Workers compensation statutes

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Workers Compensation

Provide lost wages and medical care

Work related injuries and illnesses
Negligence and fault are not at issue
Employees surrender the right to sue
employer
Cost passed on to the consumer

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Health Care

Ancient Chinese
Early twentieth century
Managed care

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Group Disability Insurance

Presumptive Disability Plans

Key Executive Plans
All Employee Plans
Short Term Disability: Removes an employee
from the workforce for six months or less.
Long Term Disability: Removes an employee from
the workforce for at least six months, until
recovery, normal retirement age or death.

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Long Term Disability
External Factors
Moral hazard
Subjective diagnoses
Shift in employment paradigm

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Long Term Disability
External Factors
Moral Hazard - When the insured has a
compensable disability and chooses not to
work and receive a disability benefit.

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 Long Term Disability
Increase in Subjective Diagnoses*

300 273%

250

200

150 105%
100
28% 28%
50

0
Subs. Psych. Carpel Chronic
Abuse Disord. Tunnel Fatigue
Synd. Synd.

*1987 to 1993.
(Source: Peter A. Carroll, Implementing an Effective Disability Management Strategy, 16
Compensation & Benefit Management Autumn 1995)
Long Term Disability
External Factors
Shift in Employment Paradigm
Lack of job security
Reduction in force
Downsizing
Rightsizing
Outsourcing
Lack of career path

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Integrated Disability Management
Most Promising Models Include:
Disability prevention strategies
Single point of entry into the program
Aggressive case management
Early intervention
Return to work strategies

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Integrated Disability Management Model
Disability Prevention Strategies
Seek to eliminate causes of illness and injury
by correcting potential hazards.
Preventative Medicine - public health promotion
Traditional Medicine - treatment and cure

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Integrated Disability Management Model
Single Point of Entry
Employee advocate
Triage cases
Arrange for appropriate services
Contact coordinator
Being there

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Integrated Disability Management Model
Aggressive Case Management
Interfacewith disabled employee,
attending physician, supervisor and insurer
Treatment protocols
Duration guidelines

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Integrated Disability Management Model
Early Intervention
Proactive strategy
Preventsa short term illness or injury from
becoming a long term one
Facilitated
by aggressive case
management

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Integrated Disability Management Model
Early Intervention, Cont.
Targeted Diagnoses
Lower Back Pain Blindness or Near
Chronic Fatigue Blindness
Syndrome Progressive
Psychiatric or Conditions
Psychological Head Injuries
Disorders Spinal Cord Injuries
Early Pregnancy Partial Paralysis
Claims
Strokes
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Integrated Disability Management Model
Return to Work Strategy
Employer must adopt and maintain a
formal policy for alternative work
opportunities
Light duty assignments
Work site modifications
Phasedin progression to full-time, full duty
assignments

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Integrated Disability Management Model
Return to Work Strategy, Cont.
Coordinated by case manager in
conjunction with
Employee
Attending Physician
Supervisor

Creates sense of affinity

Promotes feeling of security
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Integrated Disability Management Model
Return to Work Strategy, Cont.
Critical success factors
Alignment of organizational goals
Integrated case management team

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Integrated Disability Management
Overcoming Barriers to Implementation
Organizational Culture
Aligned objectives
Caring attitude
Social policy
Administration
Integrated systems
Linked database
Low-tech solutions

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Integrated Disability Management
How To
Engage senior management support
Identify
the business issues driving the
need for change
Establish and articulate a mission and
vision
Identify affected plans and organizational
turf
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Integrated Disability Management
How To Cont.
Establish benchmarks
Draft concise request for proposal
Partner with selected vendor(s)
Communicate changes: up, down and
across

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Top Ten Tips
for Reducing Disability Costs
1. Review and modify the disability management
program regularly. This is not a one-time activity.
2. Include specific disability cost management goals in
each managers job description and performance
evaluation.
3. Align disability management strategies with
organizational strategies
4. Establish an attractive program.
5. Remember: early disability detection provides more cost
savings opportunities.
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Top Ten Tips
for Reducing Disability Costs
6. Coordinate all disability programs.
7. Make information accessible for tracking disability
costs.
8. Target specific problems for the best disability
management programs.
9. Develop benchmarks to measure disability
management programs for cost savings.
10. Know the costs that need reducing.

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Integrated Disability Management

Questions?

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