With rising health care benefit costs putting such pressure on human resource department budgets, it’s not surprising that a majority of Marsh Mercer Employers’ Time-Off & Disability Programs survey respondents — 61 percent — indicated that cost control is a top priority for their time-off and disability programs. But nearly as many — 58 percent — cited the need to reduce the impact of absences on business operations.

Increasingly viewed as strategic business partners, HR departments are recognizing the need to be responsive to their counterparts in operations. In fact, many have begun to adopt management tools and processes from the operations side. Two-fifths of respondents say that a top priority is implementing more effective disability tracking and reporting systems, so they can evaluate program performance and document the results of absence management initiatives.

Another impetus for more aggressive efforts to manage absences is the rising incidence of disability claims. Despite successes for some employers, 32 percent of survey respondents report that their short-term disability incidence rates have risen over the past two years; 22 percent report increases in long-term disability incidence rates. For each type of program, only 8 percent of respondents saw a decrease. A confluence of factors — increasing stress, an aging workforce, lifestyle-related health risks — has created a strong headwind through which employers must navigate their programs.

Nevertheless, as survey results show, the resources exist to help employers make headway. There are a number of management techniques — some that are employer responsibilities and others that are primarily vendor functions — which can be relied upon to generate disability program savings. Occupational and nonoccupational disability management initiatives have evolved in stages, focused first on identifying and handling potential problem claims, then on maximizing the productivity of all recuperating employees. More recently, employers have begun implementing programs with the longer-term goal of improving the health of their entire employee population—especially those with diagnosed conditions.

Following are key findings from the 2003 survey:

• The total cost of time-off and disability programs for survey respondents in 2002 averaged 14.9 percent of payroll. The cost of scheduled time-off benefits (vacations, paid-time-off banks, fixed holidays, and personal days/floating holidays) averaged 10.5 percent of payroll in 2002 and has increased from 10.3 in 2001 and 10.2 percent in 2000. The costs of unscheduled absence plans (sick leave, STD, salary continuation, LTD, and workers’ compensation) add up to 4.4 percent of payroll.
• The most common method of covering unplanned absences is overtime work, used by 69 percent of respondents. About two-thirds of respondents say that workflow disruption (an indirect cost of unscheduled absence) is an important consideration for their organization.
• “Stress and depression” have become the conditions contributing most to disability cost for many respondents. Nearly two-thirds (63 percent) say they are seeing an increase in the frequency and cost of these conditions in their disability programs.
• Respondents continue to integrate certain elements of their disability programs. In 2003, 62 percent use consistent occupational and non-occupational return-to-work programs (up from 32 percent in 2000); 51 percent have integrated STD and LTD coverage with one TPA or carrier (up from 39 percent in 2000), and 42 percent use a single, centralized occupational and non-occupational claim intake approach (up from 32 percent in 2001).
• Nearly a third of respondents (32 percent) combine vacation with additional paid leave in a PTO plan. While this figure is unchanged from 2002, 27 percent of respondents without PTO plans are considering adopting them.
• When personal days/floating holidays are offered as a separate benefit, the average number of days provided is 3.7, up from 2.6 last year. The number of fixed holidays dropped to 8.6 days from 9.1 in 2001. These results are in keeping with a trend toward giving employees greater flexibility in their time-off programs.
• Utilization of disability benefits and leave is apparently on the rise. 16 percent of respondents say utilization of incidental absence/sick days over the past two years has increased, while only 2 percent indicate it has dropped. About a third (32 percent) report that their short-term disability incidence rate has risen over the past two years, and 22 percent report an increase in LTD incidence rate.
• Nearly half of respondents (46 percent) report that FML utilization is increasing; only 1 percent reports a decrease. Over a fourth believe they are experiencing an excessive number of intermittent occurrences. The average incidence rate was 9.6 percent in 2002.
• 40 percent of respondents report that their incurred workers’ compensation costs increased from 2001 to 2002, with an average increase of 24 percent. However, for 12 percent of respondents, cost reduction strategies apparently paid off: incurred costs decreased by an average of 25 percent.