Brokers and advisers may need to play a more strategic role in helping their clients navigate an expected convergence of health care reform and absence management that will add another layer of complexity to regulatory compliance in these areas.

Preliminary results from Mercer’s 2010 Absence Management Survey, which won’t be released until May, suggest a looming impact on disability and absence management programs tied to the Patient Protection and Affordable Care Act. Employees with serious medical problems are thought to drive up not only health care costs, but also absenteeism and disability payments, as well as erode productivity.

The direct cost of providing incidental absence benefits averaged about 2% of payroll, while the indirect cost for replacement labor and loss of productivity may be as much as 4%, according to the findings. And while the direct costs of short-term disability and long-term disability programs amount to only about 1% of payroll on average, indirect costs were found to add another 2% for most employers for a total of about 9% of payroll. Given the scope of these costs, Mercer suggests that employers need to think holistically about total health care costs as well as integrate medical and disability care management interventions.

Few outsourcing FMLA

Richard J. Fuerstenberg, a partner in Mercer’s health and benefits business, and an expert in the area of life, accident and disability benefits, was surprised that only about 37% of large organizations with 5,000 or more employees polled are outsourcing Family and Medical Leave Act administration — the implication being that “there are probably a lot of employers out there that are not in full compliance.”

Fuerstenberg recently co-authored a “Mercer Health & Benefits Perspective” report on managing disability absences in a post-health care reform environment with colleague Denise Fleury, who’s a senior associate with the firm. The article offers a preview of the 2010 Absence Management Survey.

Many Mercer clients that are handling these issues internally have delegated absence-tracking responsibilities to a local level, which he says makes it difficult to comply with audits for federal, state and municipal leave laws.

“It’s getting very difficult for an employer to do it alone,” Fuerstenberg observes, expecting even more of an uphill battle after late 2012 when businesses become increasingly focused on complying with other parts of PPACA that are being phased in, such as state-run health insurance exchanges slated to take effect in 2014.

“HR resources are already constrained, and I am not expecting people to add staff to help with health reform,” Fuerstenberg explains. “There’s a fairly short runway between now and the end of 2012 when employers will be able to focus on it, and we are hearing rumblings that the Obama administration is looking to increase the oversight of FMLA compliance by increasing audits and penalties.”

Employers will need to comply with a requirement under PPACA that they offer health insurance to employees who work 30 hours or more a week or pay a shared-responsibility penalty. Fuerstenberg says retailers and hospitals could be hit the hardest given the staffing challenges in those industries.

“We have done surveys of employers on that issue and found that they’re not going to let their people work more than 30 hours a week, which sounds like a perfect plan unless they have an absence issue,” he notes.

For example, this could be a challenge in hospitals where there’s already a shortage of qualified nurses who must meet minimum staffing requirements. Problems may arise when too many of these critical staffers aren’t showing up for work. “Employers may be a little naïve in thinking that they’re going to be able to manage their workforce to stay under that 30 hour a week threshold and just ignore how they are managing absences,” he observes.

— Bruce Shutan is a freelance writer based in Los Angeles.

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