Transcript Handout 2

Integrated Benefits/Absence
Management
Operational Risk Management and Measurement
from the Buyer’s Perspective
CAS/SOA: Enterprise Risk Management Symposium
July 30, 2003
Washington, D.C
Claus S. Metzner, FSA, FCAS, MAAA, Aktuar-SAV
EPIC Actuaries, LLC
Risk Management/Measurement
 Base Line
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Define and Measure the total cost of
unplanned absences: Base Line
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Direct benefit cost (retained by employer)
Cost of replacement workers/additional staff
Productivity cost
Insurance cost
Regulatory costs (OSHA)
Legal costs
Risk Management/Measurement
 Develop the Risk Tolerance Function
 What level of unplanned absence cost is
acceptable
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Function of revenue
Function of earnings
Function of capital
Function of payroll
If current cost is not within acceptable range,
what improvement is necessary
Benchmarking is relevant
Risk Management/Measurement
 Project Cost into the Future
 Base Line: no change in current practices
 Alternatives: change method of benefit
delivery – integrate various delivery systems
 Develop appropriate metrics
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What are the expectations for reductions in the
frequency/severity of unplanned absences
What are the implications on productivity
What are the expected insurance cost savings
relative to the base line
Risk Management/Measurement
 ROI:
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Assess ROI on the basis of
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Marginal Cost of implementing an Integrated
Absence Management Program
Marginal Reduction of Direct and Indirect Costs of
Unplanned Absences
Alternative Risk Financing Programs
(captives, self insurance, higher Self Insured
Retentions) may lead to additional cost saving
Risk Management/Measurement
 Monitoring
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Develop metrics to differentiate normal
statistical fluctuation from “real” change
relative to the baseline
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Frequency may be a “better” measure than
severity
Severity should be by type of absence
Role of Demographic Analysis
 Previous discussion focused on a macro
oriented review
 Consider: what do we “know” regarding
employees to refine the analysis
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Employers may not be collecting all the data or
may not know, yet, how powerful their data base
is
Role of Demographic Analysis
 Comparisons/Benchmarking
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With other companies
Over time within a company
Between locations/business units within a
company
 Comparisons shed light on potential
competitive advantage from optimizing costs
of absences
Role of Demographic Analysis
 Sources of information
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Insurance costs (may be retained by
company)
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Short term disability
Medical costs (including group health)
Long term disability
Workers Compensation
The above provide a “framework”
Role of Demographic Analysis
 Need to “normalize” the data to a comparable
distribution for each entity for which a
benchmarking is undertaken
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Age
Gender
Type of employment
Geographic cost differences
Etc.
Role of Demographic Analysis
 Need to work from individual employee
characteristics to a “portfolio” of employees
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Obtain “claim” data per employee
 Employment/payroll records
 Medical claims
 Wellness and disease management information
 Workers compensation claims
 Short term disability claims
 Other unplanned absences
 Maintain appropriate mechanisms to assure privacy is
maintained
Role of Demographic Analysis
 Obtain census data
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Age
Sex
Marital status
Children in household
Location
 Consider other data
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Insurance credit score may be relevant
Role of Demographic Analysis
 Use Multi-Variate Analysis
 Develop a “score” for potential risk/risk profile (similar
to Auto Liability)
 Statistical relevancy is the key
 “Score” measures relative frequency/severity
 Focus on employees exhibiting “high” scores
 Develop targeted absence management programs
 Use the individual scores to develop a company wide
average score for monitoring
 Changes in score can be used to disaggregate
changes in cost between changes in score (internal)
versus changes in external costs
Summary
 Integrated Benefits/Absence Management Is an
Operational Risk Management Issue
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Historical “Silo” view is not optimal for assessing
overall costs/benefits
Can optimize the expenditure if we take an integrated
view
 ROI Analysis is needed
 Framework as for other investment decisions
 Detailed Demographic Analysis is Necessary to
Obtain Relevant Insights
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Multi-Variate Analysis is the key
Can view this as a data mining exercise