Corporate Disability Costs Continue on the Upswing

February 24, 2003 ( - Employers continue to ante up more money to pay for employee absence and disability programs, according to a new survey.

According to a survey by Mercer Human Resource Consulting and Marsh Inc., the cost of time off and disability programs averaged 15% of payroll in 2001, up from 14.6% the year before.

An employee earning $40,000 annually got $6,000 for time away from work. This cost translates into 39 days of absence per employee per year – 27 scheduled days and 12 unscheduled days – up from 38 days the previous year. Unscheduled absences, including incidental absence/sick days, salary continuation, short- and long-term disability, and workers’ compensation costs, also rose to 4.7% of payroll in 2001, up from 4.4% in 2000 and 3.9% in 1999, according to the survey.

The survey found that average workers’ compensation costs increased by 20% during 2001, rising to $1.80 per $100 of payroll from $1.50 a year earlier. However, the findings understate the increase in workers’ compensation expenses because they do not fully reflect the sharp rise in insurance costs that began at the end of 2000 and was made worse by the September 11, 2001, terrorist attacks.

Disabillity Costs

Many employers have experienced significant increases in the incidence of long- and short-term disability. During a two-year period, long-term disability incidence rates increased among 26% of the employers that measured it, and decreased among just 9%. Short-term disability incidence rates increased for 33% of employers during the same period, while only 10% reported a decrease in incidence rates.

The survey found that disability costs (excluding those related to maternity) appear to be driven by four types of conditions – musculoskeletal problems, cancer, stress and depression, and cardiovascular diseases.

Employers responding to the survey also cited certain disability conditions as increasing in cost or frequency (ranked from high to low):

  • stress or depression (70%)
  • cancer (60%)
  • low back pain (57%)
  • upper extremity repetitive trauma, such as carpal tunnel syndrome (55%)
  • other musculoskeletal issues (52%)
  • respiratory conditions (37%).

Ways to Save Money

Not surprisingly, controlling the direct cost of worker absences was a top priority of many respondents (49%), followed by reducing the cost of absence on operations (47%). Companies are using a variety of cost-control measures to deal with the worker absence and disability cost problem:

  • more than eight in ten respondents (82%) use telephonic case management to address workers’ compensation costs
  • roughly the same percentage (81%) have return-to-work programs
  • nearly three in four (73%) use field case management
  • 67% provide utilization management
  • about half of the survey respondents (49%) have customized physician panels
  • 37% use pre-established physician panels
  • more than one-third (37%) use onsite medical clinics for treatment and 36% use them for medical case management.

The survey covered 723 US employers.