The Hidden Profit Drain: Managing the Cost of Employee Absence

1
The Hidden Profit DrainManaging the Cost of
Employee Absence

• Phil Lacy
• Integrated Benefits
• Practice Leader
• Royal SunAlliance

2
Introduction

• Occupational and non-occupational lost time costs
  employers over 200 billion annually.
• Most employers spend between 8 and 10 of
  payroll on employee lost time.

3
Lost Time Defined

• Any absence from work due to injury or sickness
  whether on or off the job.

4
Case Study

• National Employer
• 80 - 90 Thousand Employees
• Service Industry
• 70 professional, administrative, technical and
  clerical
• 30 operations
• Payroll 3.5 Billion

5
Case Study Expectations

• Determine total lost time costs
• Create a baseline
• Identify individual cost drivers
• Educate senior management on the problem

6
Income Replacement Benefit Costs

• Short Duration Absence Costs
• Sick Leave
• Salary Continuation
• State Mandated Disability
• Short Term Disability
• Long Term Disability
• Pension Disability
• Workers Compensation(indemnity)

7
Other Related Benefit Plan Costs

• Group Health Plans
• Group Life Insurance Plans
• Workers Compensation (medical)
• Retirement Plans
• Pension
• Post Retirement Medical
• 401(k)

8
Other Non-Benefit Costs

• Disability Portion of FICA
• Internal Administrative Costs
• External Vendor Costs
• Lost Productivity

9
Total Cost Analysis
Short Duration Absence
LTD
Work Comp
TOTAL
(figures expressed in 000)
Income Replacement
51.2
74.8
11.4
12.2
15.1
Medical Claims Cost
87.5
16.0
118.6
Administrative Cost
3.5
Inc. in STD
4.3
.8
Other Costs
22.2
30.5
54.9
2.2
Lost Productivity Cost
Inc. in STD
129.3
129.3
Inc. in STD
Subtotal Costs which can be directly impacted
293.7
381.9
29.5
58.7
10
Royal SunAlliance
Short Duration Absence
LTD
Work Comp
TOTAL
(figures expressed in dollars)
Income Replacement
1,938,247
2,838,734
143,567
756,920
259,457
Medical Claims Cost
3,275,454
1,146,600
4,681,511
Administrative Cost
107,016
84,852
226,266
34,398
Other Costs
531,820
331,941
1,338,450
474,689
Lost Productivity Cost
1,384,462
614,100
2,427,012
428,450
Subtotal Costs which can be directly impacted
7,236,999
11,511,973
1,397,647
2,934,413
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Case Study Summary

• 77 Attributable to Short Duration Absence
• 31 Attributable to medical costs while on
  disability
• 15 Attributable to Long Term Disability and
  Pension Disability
• 8 Workers Compensation Costs
• 34 Lost Productivity Costs

12
Lost Productivity Costs

• Temporary Workers
• Replacement Workers
• Overtime
• Recruiting of Replacement Employees
• Extra Management Time
• Employee Burnout/morale
• Decreased Revenue

13
Cost Study Summary

• 7.2 of Total Payroll Excluding Lost Productivity
  Costs
• 10.9 of Total Payroll Including Lost
  Productivity Costs
• Lost Time Cost Per Employee Per Year 4,243.

14
Cost Analysis

• 24 of Medical costs incurred during paid time
  away from work
• 80 of Medical costs incurred annually by same
  disabled (Pareto) group
• 60 of income replacement costs are for 5 days or
  less

15
Current Environment

• Current Problem
• Lost time costs represent almost 400 million
  annually due to multiple administrative
  processes, lack of coordination between health
  care and income replacement delivery systems and
  lost productivity.

16
Proposed Environment

• Opportunities
• Implement a total absence management program that
  utilizes best practices in disability and absence
  management.

17
Proposed Environment

• Implementation Requirements
• Re-engineer internal administration of lost time
  programs
• Consistent administrative approach to Occ and
  Non-occ lost time
• Coordinate the delivery of health and disability
  plans
• Identify better methods for tracking and
  utilizing data
• Make the reduction of incidence and duration of
  disability a corporate priority

18
Proposed Outcomes

• Estimated annual savings of 8 to 22 million
  from non-occ absences
• Estimated annual savings of .5 to 2 million
  from occupational absences
• Implementation costs estimated between 2.5 and
  5.8 million
• Ultimate ROI of 31

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Summary

• Lost Time Costs 10 of Payroll
• Created by Fragmented Occupational and
  Non-Occupational Programs
• Benchmarking Creates Awareness and Understanding
  of the Drivers of Cost
• Integrated Benefits is a Tool to Drive Down the
  Cost of Lost Time