REDUCING THE COST OF DISABILITY BENEFITS

Buck Consultants, Inc. the employee benefits consulting firm, devoted its March newsletter For Your Benefit exclusively to the issue of reducing the cost of providing disability benefits to employees. Major factors that Buck sees as driving the costs of employee disability upward are increasing levels of absenteeism (estimated by some employers at 10% to 20% of payroll costs) and some of the regulatory aspects of two recent pieces of Federal legislation--the Americans with Disabilities Act (ADA) and the Family and Medical Leave Act (FMLA). These laws, according to Buck, "increase employers' administrative responsibilities and establish new rights and benefits for employees involved with disability."

Companies, in becoming more aware of the costs of disability--both out-of-pocket and hidden--are devising programs to control and minimize them. Topping the list would be programs to bring those out because of illness or injury back to the workplace as quickly as possible.

Return-to-Work Programs

In Buck's view, "strong management commitment, expressed through policy, financial support, active management involvement, and a demonstrated concern for the employees, are necessary for a
successful return-to-work program. Effective return-to-work initiatives need a business culture that encourages employees who become disabled to return to performing at their full potential as soon as possible."

Early Intervention. Employees out of work due to illness or injury tend to fall into a pattern whereby the longer they are out, the less likely they are to return to work or fully recover. Early intervention, in Buck's view, by a rehabilitation professional can be useful in breaking this pattern. Intervention would include an assessment of the employees' functional capabilities, goals, and attitudes. In order to adequately assess an employee's medical condition, limitations, and state of mind, Buck suggests the employment of various techniques such as functional capacity assessments, vocational testing, job modification, job placement assistance, transferable skills analysis, retraining and labor market surveys.

Personal Interviews. Employers should communicate with disabled employees during the first week of disability, before the employee develops a disability attitude. Disabled employees need to be continually reminded of their value to the company. This reassurance is best achieved through early and frequent contacts by the employer. This will require that the person making contact with the employee be trained in making such communications.

Duration Guidelines. The appropriate length of time for recuperation from various illnesses and disabilities varies among physicians. According to Buck, there are sophisticated online duration guidelines based on medical protocols and outcomes that can be used as tools in disability
management. Buck believes these guidelines are useful--not to determine benefits, but rather to establish points for intervention review.

Vocational Rehabilitation. The last step in Buck's suggested program to get
the employee back to work involves vocational rehabilitation and medical case-management services. They play a critical role in encouraging an employee to return to gainful employment.

To be successful, a rehabilitation program should--

* identify employees who are good candidates for the program,

* encourage early intervention in employees' disabilities, and

* utilize high quality providers and other resources.

Other Techniques to Save Costs

Buck suggests that integrating workers' compensation, short-term disability benefits, and long-term disability benefits under one disability-management program can result in a more cost-effective and efficient program. There is an increasing interest in merging employee medical plans and workers' compensation and disability coverages into a "24-hour" program. This is a very sophisticated approach that should only be undertaken by the most knowledgeable and sophisticated professionals.

Another cost-saving approach is to integrate Social Security disability benefits with the company's own program, similar to what many firms do with retirement benefits. Buck offers a word of caution here, however, because disability is defined more strictly in Social Security than it is in most employer plans, and the Social Security approval practices usually are strict.

A final procedure to control costs suggested by Buck involves preemployment physicals to determine if prospective employees are suitable to engage in specific work activities. "However," says Buck, "under the ADA, preemployment physicals must be job related and have a business necessity if the prescreening examination results in the withdrawal of a job offer."

Americans with Disabilities Act

Regulations under ADA provide definite rules that employers should comply
with when they have prospective or current employees with disabilities covered under the Act. Buck cites the example of an employer asking prospective employees about previous workers' compensation claims. Such an inquiry cannot be made until a conditional job offer is made. Once made, the job offer can only be withdrawn in limited circumstances. According to Buck, "the offer may be withdrawn under current rules only if the injury that was the basis for the workers' compensation claim would keep the applicant from performing basic duties of the job offered, the injury would affect performance so as to pose a threat to others, or the claim was fraudulent."

Family and Medical Leave Act

The FMLA generally requires employers of 50 or more employees to provide for employees in covered locations up to 12 weeks of unpaid, job-protected leave for reasons such as the care of a child following birth; the care of an employee's spouse, child, or parent with a serious health condition; or the self-care of an employee unable to do his or her job because of a serious health condition.

Buck points out that the FMLA adds a new layer of complexity in administering disability programs for employees:

Although FMLA leave is unpaid, FMLA rules permit an eligible employee to choose or an employer to require the substitution of accrued paid vacation, personal or medical/sick leave for the employee's (or a covered family member's) serious health condition. However, the employer is not required to allow substitution of paid
medical/sick leave for unpaid FMLA leave if the employer's "uniform" policy does not allow it.

Buck goes on to say that the employer is ultimately responsible for designating whether a leave will in fact be counted against the FMLA leave allotment. *

Editors:Sheldon M. Geller, Esq., Geller & Wind, Ltd.

Avery E. Neumark, Rosen Seymour Shapss Martin & Company

AUGUST 1995 / THE CPA JOURNAL