In last month’s blog post, I wrote about how the non-occupational disabilities covered under salary continuation or disability insurance plans are more common than the occupational disabilities covered under workers’ compensation. I suggested that your benefits team should be as focused on managing the costs of non-occ disabilities as your risk management team is on keeping WC costs in line.
That means looking not just at the direct costs of disability (how much you’re paying in wage replacement benefits, either directly or through premiums for an insured plan) but also those indirect costs that, like the invisible parts of an iceberg below the waterline, can sink your ship if you’re not steering carefully.
Opportunity Costs of Employee Absence
When your employees can’t work because an illness or injury, your business takes a hit in ways that don’t immediately show up on the financial statements: Products and services don’t get delivered and sales don’t get made. Temporary replacements have to be brought in, and they may not be as skilled as the absent workers, or they may cost more—or possibly even both! Maybe other employees will be asked to take on absentees’ duties in addition to their own, in which case they could wind up doing two jobs at sub-par productivity (not to mention increasing their risk of burnout).
The Integrated Benefits Institute estimates these opportunity costs of disability amount to an additional 38% of absent workers’ wages for the U.S. workforce as a whole. And IBI notes this percentage (the “absence multiplier”) will be higher for jobs where:
- It’s not easy to find an equivalent substitute to replace an absent worker
- Work is highly time sensitive
- People work in tightly-connected teams
Ease of Substitution
In one of my previous jobs, I consulted with employee benefit plan sponsors on what was driving their short-term disability claims experience and what they could do about it. One of my clients was a retail chain that also had a significant pharmacy operation. While their STD incidence was higher for the retail operation, they were more concerned about their pharmacists’ claims experience. Why? Because at the time the demand for trained pharmacists was extremely high, while the supply was low. For this job, ease of substitution was very low.
Time-Sensitivity of Output
In that same job, I also helped out a colleague who was consulting with a mid-size regional airline. They were especially focused on pilots’ and flight attendants’ disability claims, even though other jobs such as baggage handlers or aircraft mechanics might have had higher incidence rates or longer average claim durations. Why? Because an aircraft couldn’t take off without the required number of pilots and crew members, and if the aircraft couldn’t take off the flight would have to be cancelled. For these jobs (pilots and flight attendants), time-sensitivity of output was very high.
Another client I worked with was an academic health system that had a keen interest in reducing incidence and duration of disabilities for its nurses, especially those in the emergency department, intensive care unit, and operating room. Why? Because they worked as part of a closely-knit team, and in their absence the effectiveness of their physician and surgeon co-workers could be seriously diminished. For this particular hospital, the specialty nursing jobs required higher than average teamwork.
Putting It All Together
So, are you ready to take a look at what non-occupational disabilities are costing you, both directly and indirectly? If you are, consider starting with IBI’s Absence Cost Estimator, a tool that models your overall absence costs (wage replacement plus lost productivity), lost workdays (in total and per full-time employee), and potential health-related absence reduction savings.
The ACE draws on IBI’s benchmarking database as well as research on the opportunity-cost factors we’ve looked at in this blog post. You need to be an IBI member to access it—but the good news is, if you’re an employer, membership is free (see here for details).
Next month, we’ll look at the question that most employers ask once they’ve taken a look at their cost of absence: “What can I do about it?”