The prognostications of how long this economic downturn will last are as varied as the number of economists who have dared to venture a guess, but popular opinion suggests that it is going to get worse before it gets better. The Canadian economy from coast to coast has been battening down the hatches—planning for the worse and hoping for the best.
Experience from previous economic slowdowns tells us that disability costs tend to increase during periods of uncertainty. The stress of an uncertain future is real and can contribute to the manifestation or exacerbation of both physical and mental illnesses. The loss of focus or “doing more with less” can translate into a higher incidence of workplace injuries. And the unthinkable: both employers and employees alike can view the disability program as a convenient replacement to severance and the prospects of being unemployed. Disability programs—or at least the intent of these programs—can be abused during periods of economic recession.
So what is the big deal? It’s just insurance, right? Well, as most benefit managers know, claim costs directly impact the cost of disability coverage regardless of the organization size or how the benefit program is handled by the insurer. Higher claims costs often translate into exponential increases in disability premium costs and it does not take many additional claims.
The cost of disability programs is primarily in the policy reserves set aside to fund future plan liabilities and these reserves tend to be, among other things, highly interest sensitive. In today’s relatively low interest rate climate, the news is not good. Disability premium costs will be increasing not only because of higher claims but also due to lower rates of return on policy reserves.
Historically, the elephant in the room has been the notion of employers taking an active role in the management of disability claims. This reluctance has stemmed from the number of factors ranging from privacy concerns of getting too close to the specifics of individual claim situations, to a view that it is the insurer’s sole responsibility for the management of these claims. Privacy issues are real and need to be respected but disability plan sponsors have a definite role in the management of these programs. This responsibility should not be born by the insurer alone.
So what should plan sponsors do to manage their disability programs?
Establish Roles and Responsibilities: First and foremost, acknowledge the fact that you do have a responsibility for the management of your disability programs and that even if you use an insurer your responsibility does not end. These are your employees, your co-workers, and you have a responsibility to ensure that they are being treated appropriately.
This does not mean that plan sponsors need to take an active role in the managing of specific claims; however it does mean that plan sponsors together with their insurers and vendors should establish a collaborative partnership to manage these claims. It is also important to engage other relevant stakeholders, such as unions, to ensure a common understanding of everyone’s roles and responsibilities and the underlying objectives of the disability programs.
Supervisor Training: These are challenging times and line managers/supervisors are right at the heart of the action. They are in a unique position to identify early warning signs of a co-worker needing future assistance. For most supervisors, this is a difficult and uncomfortable position, particularly for stress-related situations. Supervisors can play an important role in diffusing potentially stressful situations, but also in the referral of individuals to important resources such as the company EAP program.
And supervisors and senior management alike need to be reminded that disability programs are not the answer to performance management problems nor are they an adequate replacement for severance. The cost of using a disability program in this fashion will, over time, greatly exceed the cost of dealing with these situations in a more appropriate way.
Active Claims Management: The objective of any disability program should be to ensure that the individual receives appropriate, timely treatment. The longer you wait to manage the claim, the greater the likelihood that the claim will last longer than it should. Many plan sponsors do not actively manage claims in the short-term period of a disability program, particularly if it is a salary continuance or sick leave program.
Given the likelihood of higher claim costs in the future, that may be the appropriate time to spend some money on active claims management in the short-term to save money in the future. A number of firms provide this service including insurers, EAP firms and specialty claims management organizations.
Managing disability programs does not need to be the elephant in the room. No one wins if the disability programs are not used as they should be or if appropriate treatment is not delivered to those who most need it. Disability costs will likely increase and plan sponsors can manage future cost of these programs by understanding their responsibilities in the process and acting appropriately. During challenging economic times it is never more important to establish a collaborative relationship with everyone in the process. We are all in this together.