While logic typically dictates that the fewer employees a company has, the lower the number of medical claims filed, just because a statement is logical doesn’t mean it always comes true.
In the aftermath of the financial crisis, many employers scrambled to save money, and turned to layoffs as an unfortunate means of doing so, with the expectation that eliminating—in many cases—younger, less-experienced workers would save both on salary and medical claims. While this strategy certainly worked for some employers, OCI, a data integration and software services provider, found that the reduction of staff had the opposite effect on the number of high-risk claims at an alarming number of companies.
According to a study, “Company Downsizing and the Impact on Complex/High Risk Medical Claims,” released today, the inverse recently seems to be affecting a number of companies. OCI posits a number of reasons for why this might be the case. While poor employee morale and higher levels of mental stress following downsizing both factor into OCI’s assertion, there also is the possibility that the remaining workers may have been suffering from long-term accumulated body stress, fatigue, recurring, chronic or progressive medical conditions for years and either didn’t know they could file a claim, or concluded that if they didn’t file a claim, they could miss the opportunity if they were laid off.
Research last summer from the National Council on Compensation Insurance (NCCI) echoes these sentiments.
“In recessions, the acceleration of job destruction increases the growth rate of workplace injury and illness incidence rate (which is indicative of moral hazard), while the slowdown in job creation depresses this growth rate by reducing the proportion of workers of short job tenure,” NCCI wrote, adding that “the effect of job destruction originates in opportunistic behavior, as employees affected by layoffs look to workers’ compensation for wage continuation.”
OCI conducted a case study on one Fortune 500 company in particular that incurred more than $890,000 in increased benefits cost from high-risk claims (i.e. claims that are difficult to assess and/or have the potential for long duration) that were filed by employees after a 10% reduction in force. In doing so, OCI analyzed the company's costs per employee for short-term disability, long-term disability, workers' compensation, health care and prescription drugs over a 32-month period during the recent recession.
In the 14 months after the company decreased its workforce by 10%, it realized an increase in benefits cost of $11.1 million. Prior to the 14 months of increase, the company was seeing a steady decline in benefits costs.
To identify the increased risk of high-risk claims, OCI developed a proprietary algorithm to determine if a positive relationship existed between a reduction in workforce and employees filing high-risk claims. Had the employer identified these cases and managed them proactively, OCI surmised, the increase in benefits costs could have been less drastic: proactive management of the complex and high-risk claims could have saved the company as much as $890,000 of the $11.1 million in increased medical costs.
"Companies should work closely with their insurers and plan administrators to anticipate and develop programs to mitigate increases in health care conditions, injuries and claims that may result from a workforce reduction," said OCI President Archie Anderson. "Proactively initiating programs on safety, early diagnosis of chronic conditions, effective disease management and job rotation for repetitive movement prior to a workforce reduction, and case management and return to work programs following a reduction in force, is a benefit to both employees, and the company's bottom line."
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