Insurers are now working with employers to rehabilitate and maintain the health of their employees. But good communication will be vital if this new integrated approach is to succeed, believes Stav O'Doherty
Let's fast-forward to the year 2050. Genetic engineering has advanced in leaps and bounds, and everyone - not just the wealthy - can now have designer babies. There are cures for most illnesses, including cancer, and disease has almost been eradicated in the western world. Employees live longer and healthier lives. Employers' profits continue to increase; the stock markets reach stratospheric levels, with the FT index hitting 10,000.
In 2050, with a much healthier workforce, there is little need for an employer to buy protection such as private medical insurance (PMI) to reimburse the costs of treatment, or income protection (IP) to protect employees' income from the effects of long-term illness.
If we turn the clock back to the present, we see a somewhat different picture. Stock markets are in a depressed state throughout the western world and show little sign of returning to the levels of the year 2000. Employers continue to lose millions of working days to sickness every year. Stress-related conditions are on the increase, catching up with musculo-skeletal conditions as the main cause of long-term illness.
Even if they do not have accurate records of the number of employees sick at any time or the duration of each spell of sickness, employers are well aware that sickness absence is expensive for their business. For labour-intensive businesses, salaries and wages are the biggest costs - over 65% of total direct costs, according to the Saratoga Institute. Employers also face the associated costs of the benefit packages they provide in order to attract and retain employees.
Protecting assets
With the seemingly inexorable rise in the costs of employing staff, managing these costs and maximising this investment has never been more important for employers. Employees are the "intellectual capital" of any business, and therefore represent the employer's most valuable asset.
As well as training programmes to keep employees' skills up to date - which increases their productivity - employers are becoming more pro-active in encouraging employees to look after their own health. They provide incentives for doing more exercise, such as financial assistance to join a local gym; education on a healthy diet; and encouragement for employees to attend regular health screenings. More employers are implementing employee assistance programmes (EAPs), which provide confidential helplines for employees and their families, and some are extending membership of company PMI schemes to members of an employee's family. And most employers have formalised a ban on smoking at work to ensure a clean working environment and reduce the chances of passive smoking.
These and other initiatives contribute to the non-cash element of employees' reward packages. Known as 'value drivers', they are increasingly being regarded by employers and employees as a vital element of total reward.
Although employers are taking steps to ensure a healthy workforce, there still remains an important role for employers in providing for the needs of those employees who suffer long-term ill health.
According to UnumProvident, the incidence of ill health lasting more than six months is, on average, around two in 1,000 employees. Nevertheless, the employer's liability to continue to pay a salary to the incapacitated employee can be very high. An employer can insure against this liability by taking out a group IP policy.
If the employer offers a range of other health-related benefits such as PMI, EAPs, a ban on smoking at work or occupational nurses or physicians onsite, the insurer will offer a discount in the pricing of the insured IP contract. This reduces the annual premium to the IP insurer. For example, an employer that has an employer-funded PMI scheme in place for all its employees can typically get a 2.5%-5% discount off annual IP premiums. If an employer is prepared to complete a full occupational health questionnaire, some IP insurers, such as Norwich Union Healthcare, may offer an additional discount of up to 15%.
The rationale behind these discounts in IP pricing is that early intervention in getting the incapacitated employee treated and back to work reduces the duration of the IP claim. And if the duration of absence is within the deferment period of the IP policy, a claim may be avoided altogether.
The price for large IP schemes is mainly experience-rated. Active management of claims will result in a steady premium, which will be affordable for the employer in the long term.
A decade ago, once an IP insurer had sufficient medical evidence to admit a claim, they would continue to make payouts without finding out whether the individual was actually able to get back to work, albeit with increased support. This resulted in IP claims lasting sometimes right through to the incapacitated employee's normal retirement age. But with the introduction of the Disability Discrimination Act in 1995 and new obligations being placed on the employer, a group IP scheme is now seen as a means of assisting the employer in getting the employee well enough to return to work - and so keep him or her productive. The overall aim of IP now is to find the ability within the disability of incapacitated employees.
Claims procedure
Early notification of an IP claim (typically after six to eight weeks of absence for a scheme with a 26-week deferment period) is of paramount importance. This sets expectations both for the employee - in terms of the underlying reason for the absence - and for the employer, in terms of maintaining contact with the employee.
IP insurers are now seeking advice from specialists for different medical conditions in assessing the validity of a claim, rather than just relying on the claimant's own medical practitioner's, or an independent, medical report. Insurers do not now rely on identifying the underlying medical condition for a decision on an IP claim, but look to establish exactly how the medical condition prevents the incapacitated individual from performing the material and substantial duties of his or her insured occupation.
It has become almost universal practice for IP insurers to use disability counsellors in the early stages of the assessment of a claim. A disability counsellor is a specially trained nurse who visits incapacitated individuals in their own homes to discuss the particulars of their cases, their current treatment and generally how they feel about returning to work. From the incapacitated employee's point of view, an insurer's early intervention can help them get the right treatment, which can shorten recovery time.
Increasingly, IP insurers are thinking out of the box. For example, they may provide funding for the retraining of individuals who are no longer able to perform their former occupation but are capable of undertaking a different role. They may pay for specialist treatment such as psychiatric care, which often are not covered under a PMI policy. Insurers are also sometimes willing to offer a lump sum commutation payment for an IP claim.
The pro-active management of absence and the handling of IP claims require a sensitive approach, so as not to upset the incapacitated employee. Good communication between all parties is vital to ensure a satisfactory outcome for everyone.
Progress
In theory, this new integrated approach to IP by employers and insurers should result in a much better situation for employees with long-term health problems. In practice, though, with the new climate of increasing litigation and human rights legislation, an employer needs to tread with care in the implementation of this new approach. And we are not yet at the stage where ill-health has been eradicated through advances in medicine. For the time being, we have to accept that long-term ill health can have adverse consequences for both employer and employee.
This integrated approach to health is a step in the right direction, minimising the financial consequences for the employer and the affected employee. But the IP insurer, the employer and the incapacitated employee must all work in partnership, with good communication between all parties, if it is to succeed.
Stav O'Doherty is a senior benefit consultant at Mellon (previously known as Buck Consultants Ltd)
Cover notes
oOo-#149; Employers are becoming more pro-active in encouraging employees to look after their own health in the workplace.
oOo-#149; IP insurers now use disability counsellors to help assess claims, encouraging early intervention.
oOo-#149; Good communication between employers, staff and insurers is vital to minimise sickness absence costs.
