Comparing disability management services can be challenging.
Insurers offer a range of insurance and self-insurance options, typically bundled with various levels of service.
Third-party administrators provide service for self-insured employers, and some have the ability to help with insurance placement.
In some cases, employers’ own captive insurance companies provide disability insurance coverage, and administration is viewed as a separate issue.
How can a benefits advisor help employers choose the right disability management arrangements for their disability plans?
The decision to insure, self-insure or use a captive is largely a numbers game. It is also affected by an organization’s culture and by the level of risk or unpredictability the organization is willing and able to absorb within any given year and over time.
The bigger decision is how to administer the program.
A recent benchmarking study by Spring Consulting Group shows that about 43% of group disability provider business is based on an administrative services only approach for managing short-term disability programs. Another 24% involves use of ASO programs for both STD and long-term disability programs. Meanwhile, 82% of disability providers have noticed employer interest in captives, which are generally used to finance the LTD portion of employers’ risk. Most employers with captives use an ASO approach to manage their disability programs.
To handle all this ASO work, employers can insource, outsource or take a combination approach.
Pure insourcing requires an organization to handle (and coordinate) all program administration internally. The employer will need staff people in a call center to take information about events and claims; nurses, physicians, vocational rehabilitation specialists and others to handle case management; claim administrators to handle tasks such as paying claims and coordinating return-to-work efforts; and an objective party, such as a disability or absence manager, to oversee the operation and ensure that it is meeting service needs.
The operation also needs a database to verify employee eligibility for disability coverage, manage day-to-day claimant status and capture information for management reporting. Strict compliance with confidentiality, federal and state laws is essential. Taking a professional approach to administration is important, because employees can take on an “entitlement” perception when they realize services are provided “in-house.”
When an employer outsources program management, the vendor may handle all services or contract with specialty firms to provide some services. The vendor, or vendors, will hire the nurses, physicians and vocational rehab specialists. But the employer will still need to hire benefits specialists, managers, supervisors and other internal advocates to help claimants and other plan members.
The employer also may need a disability or absence manager to oversee the outside efforts and ensure that they are meeting service requirements. The employer can choose between keeping fiduciary responsibility or transferring it to the vendor. An outside vendor typically agrees to performance guarantees, so that the employer can make sure that it and the vendor are working toward the same goals.
When an employer uses a combination approach, it splits disability management duties between its own staff and outside vendors. The employer must be careful to define which services will be provided internally and which will be outsourced. The employer also must give the right amount of decision-making authority to internal and external service providers. Confidentiality terms must be specific, and fiduciary responsibility can fall on either party. With this type of approach, the employer should set performance guarantees for both internal and external partners.
Determining whether an insourced, outsourced or combination approach is best really depends on the employer. For some organizations, insourcing works to their advantage because it helps the organizations capitalize on their own experience and their own health and wellness programs. For other organizations, outsourcing is best because it helps them draw on outside vendors’ staff, technology and expertise. Still other organizations believe that a combination approach helps them offer the best possible service in all areas of disability management.
There are some key questions employers and advisors need to ask about whether to insource or outsource (see chart).
Once these questions have been answered, employers and their advisors need to turn back to the overall program goals and objectives, carefully consider the true drivers for their organizations, and weigh their options against differences in quality, control, cost and risk.