In support of STD

Non-occupational disabilities represent about 75% of all costs related to absence, according to a survey by Toronto-based William M. Mercer Ltd. released in March. More telling, these costs have been rapidly rising. In fact they have more than doubled in the past three years and now account for 4.2% of payroll, according to research by Watson Wyatt Canada of Toronto.

Some steps have been introduced to remedy this situation. Group disability insurers have become more selective in approving disability claims--particularly in the LTD stage--in part because of client pressure. In fact, this approach has become standard adjudicating practice throughout the industry. In the past, insurers would pursue information in support of a disability claim, but today the onus is on the employee to prove that a condition of total disability satisfactory to the insurer does, indeed, exist. While these cost-saving measures may be effective in stemming expenses, it is questionable whether they are in the best interests of plan members or even sustainable over the long term.

An industry of consumer advocates is emerging, eager to champion the case of the denied claimant. For less than altruistic reasons, these firms see a bonanza in the sheer volume of denied claims. With courts frequently leaning towards the claimant--especially when the case has been well researched and presented--the gains made to date in stiffer adjudication practices will largely be lost.

Legal fees incurred by insurers will have to be absorbed somehow, possibly in hikes to LTD premium rates. As well, many family physicians, empathizing with patients who have been denied disability income, are being conservative in their assessments of work capabilities. Employers have not been exempt from the wrath of employees and their union representatives. They have found themselves trying to explain their insurance carrier's actions, while being kept in the dark because of the insurer's reticence to divulge confidential details surrounding the assessment of a medical condition.

The use of government Employment Insurance plans as a substitute for STD payments has been proposed (Simon Sabat, "Is it time to scrap STD?" benefits canada, June 2001) as a solution to the disability dilemma. While this approach has merit, it is devoid of any early intervention.

A landmark report by Sun Life of Canada's group disability department in the U.S. studying the impact of early intervention in the adjudication process illustrates that this step is crucial in reducing the length of absence and costs associated with disability.

Over a two-year period, Sun Life examined 1,000 STD claimants from various age groups and occupations with all types of illnesses and accidental injuries. The company randomly divided claimants into two groups of 500. In the first group, claims were adjudicated without early intervention, but in the second group, elements of early intervention were used. Sun Life is careful to point out that the interventions were not extensive and claimants were not obligated to participate in these initiatives, which included vocational rehabilitation and job re-entry.

The outcomes of the study are impressive nonetheless. In the group that received early intervention, the average STD claim duration was reduced by 2.7 weeks or 20% compared to the other group, and the return-to-work rate during the actual STD period was 47% higher. What is most telling, however, is that LTD claim incurrals were 33% lower for the group with intervention.

Given the positive impact of early intervention, it is important to understand the concept of disability and just how early intervention can help employees. "Disabled individuals fall into three general categories," explains Dr. Joseph Regan, a clinical psychologist at St. Michael's Hospital in Toronto and an active practitioner in early intervention. "There are those who have fairly good resilience and tend to respond well and relatively quickly to routine medical care after a stress or trauma-based crisis. There are those who are more vulnerable and prone to a longer-lasting depressive or other emotional disorder, secondary to the initial stressor and/or being away from work on medical leave. Finally, there are individuals who are psychologically even more fragile and may barely be coping up until the point when a workplace or other stressor throws them into a protracted, even chronic, period of disability."

The challenge for employers, consultants and insurers is to accurately determine the category in which a new claim is likely to fall. One of the best approaches--and surprisingly one not used frequently by insurers--is for a physician or psychologist experienced in disability management to talk early and directly, usually by phone, with the claimant's treating physician. When a treating physician is able to speak directly with a practitioner or medical consultant representing the plan sponsor, he or she can be reassured that the objective is to give the employee timely and appropriate treatment.

"The collaborative relationship leads the [treating] physician to be more forthcoming in sharing information, including current response to treatment and frank concerns and expectations regarding clinical outcome," says Dr. Regan. He adds that the medical consultant is frequently in a position to recommend different or additional treatment, which is more likely to be acted on when the relationship is collaborative as opposed to adversarial.

Information gathered in this phase can be used to develop a plan of re-entry into the working world, either at the current place of employment or elsewhere, if medical restrictions cannot be accommodated at the current workplace. Re-entry to the workplace often requires the help of a rehabilitation specialist. If such a professional is needed, the selection should be made with care and diligence.

While the STD phase can last as long as six months, this period is often not sufficient to ensure that a successful return to work is achieved. A permanent return to work often requires follow-up and intervention efforts after the STD time period has ended to prevent the claim from evolving into an LTD case. This type of diligence is often not applied, though. One of the reasons is the level of change sweeping through the insurance industry.

The insurance industry has been on the ride of its life over the past decade. Some companies have been acquired by competitors and demutualization has played itself out in ways that have not always been kind to plan sponsors. For example, continuity is essential to disability management, yet it is increasingly difficult to find in the industry. In addition, many plan sponsors who have left an acrimonious relationship with one carrier, have found themselves partnered with that firm yet again on account of a merger. This scenario is aggravated by money tied up in LTD claim reserves.

The government of Alberta has introduced legislation that should help ensure that claimants are attended to beyond the traditional STD period. According to Bill 25, Proposed Insurance Rules for LTD Benefits, plan sponsors with a non-occupational disability plan must fully insure disabilities exceeding 24 months to the maximum benefit period of the LTD plan, which may be age 65 or a specified number of years. The legislation applies to all employees who reside in Alberta, even if they work outside of the province.

This concept makes sense, particularly in light of the Eaton's debacle where employees on LTD were left high and dry because of an unfunded plan. It also appears to slam the door shut on long-term administrative-services-only agreements, which have found favour among plan sponsors looking to reduce capital tied up in LTD reserves.

It is believed that the Alberta legislation will be adopted by other provinces. Bracing for such a move, plan sponsors across Canada have an opportunity to introduce a disability management strategy that embraces early intervention, meets legislative requirements, such as those about to be passed in Alberta, and allows employers to free up capital that is tied up in LTD claim reserves.

Instead of having an STD benefit period of six months, employers can extend it to as long as 24 months and fully fund LTD benefits for only those disability payments exceeding the two-year period. Extending the STD period allows plan sponsors to adopt a more pervasive intervention approach to disability management during the time frame in which they have to reduce claim payments. Employers can be much more proactive in determining the course of disability management using this method.

As an additional benefit, employers are not obliged to incur the heavy cost of setting up an LTD claim reserve until it has been established that a recovery is not possible, even with intervention. Employers end up being on the hook for a lot less money held in reserves because they commit to only those reserves for the claims where recovery is not possible.

Employers can work with disability management professionals for non-occupational disabilities over the two-year period to ensure that early and intensive intervention is taking place. This partnership can reduce the number of claims that extend beyond the 24-month STD period, leaving the fully-insured LTD plan to contend with only catastrophic and generally unresolvable claims. This, in turn, would dramatically reduce liability.

Employers should not be deterred by parties, be they insurers or benefits consultants, that are reticent to underwrite a plan on these terms. There are insurers interested in underwriting such plans and they are espousing the virtues of the concept today. Their numbers will grow as the demand for these plans increases. The prospects for cost recovery in the area of disability management are not entirely bleak. These alternatives can make a positive difference, for all parties concerned. BC