The Grand Rapids-based firm was enjoying the fruits of integrated benefits: higher productivity, improved morale, increased administrative efficiency, and fewer legal hassles. Then the economy faltered, and Steelcase laid off more than 1,000 employees. Its benefit-integration program--which combines long- and short-term disability, workers’ compensation, medical case management, and Family and Medical Leave Act administration--helped keep the cost of layoffs in check. The program has enabled employees, laid off or not, to receive proper medical treatment and benefits for the appropriate amount of time, while ensuring that they do not simultaneously dip into different benefit streams. As other employers watch medical and disability costs skyrocket, costs at Steelcase are increasing at a much slower pace, Child says.

    So, what exactly is benefit integration? It coordinates any combination of benefits, including health, disability, time off, and workers’ compensation, to meet human resources objectives, says George R. Faulkner, a principal with New York-based Mercer Human Resource Consulting. "All we are talking about is being smarter about how benefits are delivered," notes William P. Molmen, general counsel of the San Francisco-based Integrated Benefits Institute (IBI).

    At Steelcase, it works like this: a disabled employee calls a toll-free phone number and, after following the prompts, connects with a representative who files the claim, collects necessary FMLA information, and directs the worker to a medical case manager if necessary. Employees at the $3.1 billion company get the same treatment regardless of whether the disability is work-related. Thanks to benefit integration, the combined cost of short-term disability, long-term disability, and workers’ compensation has dropped 13 percent, from $1.63 per $100 of payroll in 1998 to $1.42 in 2001. Restricted workdays have plunged 73 percent, from 63,000 in 1992 to 16,943 in 2000. Lost-time days have declined 70 percent, from 4,313 in 1992 to 1,313 in 2000. And the number of litigated disability-related cases fell from 15 in 1996 to 6 in 2000.

    Employee satisfaction also has improved under the integrated approach, Child says--from 1.2 on a 4.0 scale in 1997 to 3.5 in 2000, according to an in-house survey. "The employee satisfaction kept going up and up," she notes. Getting employees and managers to adapt to the new procedure was the biggest hurdle. It took six months to get them on board, despite a full-scale promotional campaign. "They weren’t sure who to call, when to call, and how to file a form," she says.

    But once that initial period had passed, managers and employees took to the convenience of calling just one number to report a lost-time injury or illness. Employees also appreciate the consistent return-to-work policy, whether they are on workers’ compensation or short-term or long-term disability.

    Comerica is another company that is reaping the rewards of benefit integration. The Detroit-based financial services provider saved millions of dollars in lost wages in its first five years of integrated benefits, also known as absence management, says David R. Groves, vice president of corporate health management.

    The company, which has 308 branches and posted net income of $710 million in 2001, saw the cost of disability-related lost wages drop from $8.7 million in 1995 to $5.3 million in 2000--a decline of 39 percent. During the same period, average lost-time claims shrank 42 percent, from 52 to 30 days, and total disability days dropped 49 percent, from 65,000 per year to 33,000.

    The savings can also be more immediate. Just 12 months after hiring a third-party administrator to manage and cover much of its integrated disability program, Owensboro Mercy Health System, in Owensboro, Kentucky, was able to convert 3,096 lost-time days to restricted-duty days. This saved the organization $282,815, says Pam Cox, manager of human resources development.

    Lured by such promising results, more and more employers are pursuing benefit integration, according to the 2001 Employers’ Time-Off and Disability Programs survey, released in May by Mercer Human Resource Consulting and Marsh Inc.

    Of the companies surveyed, half of those with 1,000 or more employees have already begun to integrate their short- and long-term disability plans with one carrier or administrator. This compares with 40 percent of same-size employers in the previous year. Another 19 percent are planning or considering the approach.

    Some employers are grouping more benefits in their plans. Nine percent of employers with more than 1,000 employees are integrating short-term disability, long-term disability, and workers’ compensation, and another 22 percent are planning or considering implementing such programs, according to the survey.

Impressive results
    Business results explain the trend toward benefit integration. Benefit coordination provides cost control, increases employee satisfaction, and eases administration, the survey reports. Employers that are integrating benefits cite cost control as the top reason. "Employers are looking more long-term because they are frustrated with short-term fixes" such as negotiating insurance rates, hiring new carriers, and designing plan cutbacks, says Faulkner, who co-authored the Mercer/Marsh report.

    A labor shortage and rising disability costs motivated Owensboro Mercy Health System to begin integrating benefits in 2001, Cox says. "We had experienced rising workers’ compensation costs and increased long-term and short-term disability premiums."

    Savings on benefits alone can amount to 40 or 50 percent, depending on the degree to which disability programs were already managed, according to "A Survey of Integrated Benefits Best Practices," conducted by IBI and released in January. Most employers can benefit by integrating, says Phil Bruen, vice president of group market and product development for UnumProvident Corporation, a disability insurance company in Chattanooga, Tennessee. However, companies with high turnover or few disability cases might not have the optimal culture for benefit integration, he says. Companies or firms composed primarily of self-motivated professionals, Faulkner adds, such as law firms, also may not have a great need to integrate benefits.

Making the case
    Despite the advantages of benefit integration, it can still be tough for the HR professional to convince the CFO that this is a strategy to pursue. Since implementation of an integrated benefits program will disrupt processes, culture, and departmental responsibilities, "you are going to have to prove it will provide value," Faulkner says. In fact, many respondents to the IBI survey said they would have put more effort into selling the program to top management.

    "CFOs want to know how better delivery of benefits will affect cash flow and the bottom line," IBI’s Molmen adds. He recommends explaining the full cost of lost productivity resulting from absence. IBI research of 60 employers shows that the full cost is generally twice the out-of-pocket benefit cost. Metrics to consider include the full cost of absence as a percentage of payroll, revenue, or income, he says.

    The cost of unscheduled absence per $100 of payroll is an underused benchmark, Faulkner says. The 476 employers in the Mercer/ Marsh survey spent an average of 4.4 percent of payroll on benefits related to unscheduled absences in 2000. That means for each employee earning $40,000 a year, companies spent about $1,760 on sick leave and time off for disability, according to survey data. The indirect costs of unscheduled absence--including hiring temporary staffing, paying overtime, poor customer service, and additional training--could easily double that figure, the report says.

    Human resources can sell integration to top management in different ways. At Comerica, good benchmarks helped get the CEO and executive management behind an integrated return-to-work program, Groves says. To get top management support, he told them that on any given day, the number of employees off on disability was equivalent to the number needed to work 16 to 18 branches. Also, Groves deliberately called the initiative a return-to-work program, as opposed to an integrated program, making it easier for decision-makers to grasp the concept.

    Vendor guarantees of a 10-to-1 return on investment really got executive attention, Cox says. And in Owensboro’s case, the returns exceeded projections. At Steelcase, Child used the success of the already-in-place workers’ compensation return-to-work program and an experimental integrated return-to-work effort to get management interested. She also emphasized the employee morale boost and the easier claim administration that integrated benefits would bring. Without the non-occupational disability piece, "we were losing opportunities," Child adds.

    Consensus-building is also critical, because operations and line managers will want to see the benefits of any new process that will affect their jobs, Faulkner says, "so it isn’t just looked upon as an idea from HR because they read it in an article."

    Groves assembled a committee of representatives from every business unit at Comerica to get their buy-in on integration before approaching the CEO. "That’s an absolutely necessary step," he says. The committee developed a philosophy statement that the CEO adopted, setting the tone for implementation.

    Bruen recommends an incremental integration, starting with returning injured employees to work regardless of whether their injury or illness is work-related. Molmen notes, "You can do it incrementally and still have good results."

    At Owensboro, the vendor began by developing an effective return-to-work program for workers’ compensation cases in August 2001. Then in January 2002, it added the same program for non-occupational disabilities, which begins after 15 lost workdays.

    Comerica also built its program incrementally. In 1995 it began a return-to-work program for non-occupational disabilities, Groves says. In 1997, the company formed the corporate health management department to oversee the workers’ compensation, short- and long-term disability, wellness/health, employee assistance, and violence-in-the-workplace programs. The department also oversees Family and Medical Leave Act administration and Americans with Disabilities Act compliance. In this way, he says, the continuum of employee health, from wellness to return-to-work, is better managed.

    Then in 1998 its workers’ compensation and non-occupational third-party administrators began managing disability in tandem. In 2001, the company’s non-occupational disability vendor began fielding calls from employees and supervisors to report disability--work-related or not--on a single toll-free number.

    At Comerica, short-term disability begins after a worker has been off the job for five workdays and lasts for 180 days, after which long-term disability kicks in. Any occupationally related incidents must be reported.

    Steelcase’s program is self-insured for the first six months of short-term disability because that is when the company can have the biggest impact, Child says. Long-term disability kicks in after six months and is fully insured. At the time of the program’s inception, all disability claims were managed in-house. Currently the company handles FMLA administration, workers’ compensation, medical and disability case management, and return-to-work, whether or not the disability is work-related. A vendor manages any cases in which an employee is off work entirely.

    Steelcase built its program from scratch in 1997. "There wasn’t anything out there on the shelf that was of interest to us," Child says. Few vendors were offering programs that truly combined workers’ compensation with non-occupational disability benefits. And it was difficult to get vendors to work in tandem.

    If Steelcase were just now beginning to integrate benefits, Child says, the company would take a harder look at what vendors have to offer. Otherwise, she has no regrets. Benefit integration enhances the company’s bottom line in good times and bad, while helping out employees. And that works for her.

Workforce, December 2002, pp. 46-50 -- Subscribe Now!