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Image of ArchitectsGROUP INCOME PROTECTION - helping employers manage health-related risk

Introduction

The purpose of Income Protection Insurance is to allow an employee, who is unable to work due to illness, injury or disability, to remain in employment and receive an income with little or no cost to the employer. Other related costs may be insured such as contributions to the pension scheme and the employer’s National Insurance contributions. Income benefits are paid to the employer after a specified (deferred) period and then passed on to the employee under PAYE rules, usually a tax neutral situation as far as the employer is concerned. The deferred period applied at present is most commonly 13 or 26 weeks but can be longer, however many employers will be considering reviewing this (and the design of their benefits generally) in the light of the changes to State Benefits under the Welfare Reform Act 2007.

At first glance, therefore, this type of insurance is a transactional risk management exercise, with a perceived risk being reduced or eliminated in return for the payment of an agreed premium. But, in fact, if managed well, a contract of this nature can deliver significant added value to both employers and their employees.

In recent years this basic model has developed into a much more sophisticated tool which employers can utilise to help reduce the range of risks associated with long term sickness absence. These valuable services are usually available from insurers at no extra cost and recent research into their importance and usefulness is cited later in this report.

What has happened, therefore, is that the ‘conventional’ insurer/insured relationship has developed into a more ‘partnership-based’ model with clients, advisers and insurers working collaboratively to solve employee health related issues in an environment of enlightened mutual interest. A major objective has become the desire to create a framework that will facilitate an employee’s’ early, safe and effective return to work.

This paper considers the aspects of health risk management that employers must consider and the ways in which Income Protection Insurance and related services may be of important assistance.

When an employee’s health raises cause for concern

It is always recommended to treat such employees fairly, consistently, sympathetically, and with full consultation wherever possible. These requirements must be balanced with the needs of the business (i.e. maintaining operational effectiveness) and various important legal duties such as compliance with the Disability Discrimination Act, Health & Safety law, common law duty of care and employment law generally. In cases of longer term absence the bond of trust and respect needs to be maintained in order to improve the likelihood of return to work.

Acting correctly and sympathetically reduces the possible reputational risk associated with the publicity that tribunal or court proceedings may bring. Also, how people are treated at times of personal difficulty such as a serious health problem sends a powerful message about the culture and attitude of an organisation and its management. If managed effectively there may also be benefits in terms of staff morale. By seeing that every effort is being made to retain such an employee their colleagues may be more confident that they could retain their job if they develop health problems. An open and non-threatening approach can also help avoid ‘presenteeism’, when employees attend work despite being unfit to do so and as a consequence work less effectively to the detriment of the business.

Human and financial costs associated with absence

Direct costs, such as salary and NI benefit contributions have already been mentioned but there are also indirect costs.

 Both the employer and the employee benefit from maintaining the employment relationship once an employee has developed job-specific skills. After investment in training has been made, for example, if an employee leaves or is absent long term due to sickness or disability the employer will lose this benefit. Other indirect costs include the cost of new recruitment, training, overtime, deterioration in customer service relationships and possible morale problems.

Assessing indirect costs can be difficult since these will vary from organisation to organisation and with the work status of the person who is absent. Costs will also, for example, depend somewhat on cultural variables such as how individuals and teams will respond to a co-worker’s absence. Broad conclusions can be drawn, however, and industry-wide estimates have been made in various research studies ranging from indirect costs of once to three times the absent employee’s salary

There are significant personal losses for people who are unable to get back into work, apart from the financial implications. It has long been accepted that work is important in many ways to a person’s psychological well being, bringing as it often does personal satisfaction, status, recognition and a supportive social network. Being deprived of these aspects of life can have a very serious impact on health and contributes to the recognised fact that likelihood of return to work diminishes with the length of absence. Research cited in Business in the Community’s ‘Employers’ perspectives on promoting health at work’ initiative suggests that 60% of employees off work due to illness for five weeks or more never return.

Professor Mansel Aylward writes about the important link between work, health and wellbeing, and the damage to individuals of worklessness, click here.

Reasons for long term absence

For nine years now important research has been conducted by the Chartered Institute for Personnel and Development into absence management policy and practice in the UK, eliciting for their 2008 report a response from 819 Human Resources professionals representing organisations employing a total of more than 2.3 million people.

The CIPD found that, with regard to long term absence among non-manual staff, stress is the top cause and mental ill health (e.g. clinical depression and anxiety) the third most significant cause. The second and fourth most significant were, respectively, acute medical conditions (e.g. stroke/heart attack and cancer) and musculo-skeletal injuries (e.g. neck strains and RSI) with back pain cited in fifth place. Among manual employees the top five causes, in order of significance, were acute medical conditions, back pain, musculo-skeletal injuries, stress and mental health. Overall, just under a third of organisations reported an increase in work-related stress.

The Survey defines long term absence as absence lasting more than four weeks, which is useful since this is the point at which most experts agree that some intervention should take place to assess an employee’s health status. Obviously another ‘trigger’ for investigation would be persistent short term absences.

Working with the insurer: complying with the law and getting people back into safe and suitable employment

Nearly one and three quarter million people have income protection insurance cover paid for by their employer and many of these organisations have worked with their insurer to manage potential long term absence cases. In the 2007 Watson Wyatt Risk Benefit survey 22% of respondents cited insurers’ ‘claims management capabilities’ as being very important with 71% reporting that the service was ‘good to excellent’. By far the most important and valuable part of the service was the interaction of the insurer with the employer’s own occupational health services (cited by 50% of respondents). Other popular services were nurse visits to claimants and rehabilitation services.

One of the probable reasons why these services are valued is the duty employers have under the Disability Discrimination Acts (DDA), legislation which is also unfortunately frequently misinterpreted by employers.

Under the DDA, disability is defined as a physical or mental impairment that has a long term and substantial adverse effect on the ability to carry out normal day- to-day activities. These activities include mobility, manual dexterity, ability to move everyday objects and a person’s mental capacity (for example memory or the ability to concentrate). So a person may still be able to do their job and at the same time be protected under the DDA. If they are protected under the Act employers have a duty to make such reasonable adjustments in the work environment as are necessary if the disabled employee is being put at a substantial disadvantage compared to a non-disabled person. Failure to make reasonable adjustments is one of the most common reasons why employers have lost their case at an Employment Tribunal – and there is no limit to the compensation that can be awarded to the claimant (which may include injury to feelings). The highest DDA award to date exceeded £500,000 and 9% of all disability awards exceed £100,000.

Someone who is absent from work long term, or even who has only had occasional sickness absence, may not at first appear to meet the definition of disability under the DDA. The definition, however, is very broad and employers must also remember that some disabilities (Multiple Sclerosis, HIV and cancer) are covered by the Act from the point of diagnosis even if the individual is not experiencing any adverse effects. Confidentiality must be observed – an employer has a right to know the impact of a medical condition but not necessarily the diagnosis.

A further point to remember is that treating everyone the same does not mean that a Tribunal or higher court will find that everyone has been treated fairly. The DDA requires that people be treated differently according to their needs by making reasonable adjustments for them. It is no defence to say, for example, ‘if a non-disabled employee had that level of absence we would have sacked them as well’.

More information on the Disability Discrimination Act and the employers’ responsibilities can be found on the Employers Forum on Disability website.

Early consideration of an individual’s situation can allow the assessment of a wide range of legal obligations apart from those relating to disability. Are there Health and Safety implications? Has there been a failure of the employer’s duty of care obligations? Is a claim under an Employer’s Liability policy likely?

Avoiding problems and litigation requires a combination of robust processes and the deployment of suitable expertise. The best opinion on prognosis, for example, will come from clinical specialists (who see many cases of the same condition being assessed) or from those with access to such data such as occupational health physicians or the insurer.

Important services offered by insurers include:

Helping put in place vocational rehabilitation plans.

Insurers can help in identifying the gaps between what someone can do and what their job requires them to do, along with identifying barriers (which may be medical, personal or workplace related) that may prevent someone from returning to work. This enables recommendations as to suitable job adjustments to enable an individual to return to the same work, or perhaps a different role, to be made.  Adjustments may include:

In this ‘case management’ approach, the key is to identify capacity rather than incapacity and to customise the services and professional help to each individual’s needs. There is strong evidence that returning to work as early as possible can aid recovery and prevent or reduce the likelihood of disability.

 Acting as a ‘bridge’ between employer and employee.

Insurers can perform a useful mediation function. Line managers are the group through which organisations usually devolve responsibility for addressing workplace issues such as absence management, but psychological illnesses have proved difficult for managers to deal with. For example, causes may be hard to identify and symptoms may make interactions and relationships difficult, but nonetheless keeping in regular contact is extremely important. Unfortunately, there is an associated risk in that the best-intentioned enquiry may often be misinterpreted as harassment by someone who is anxious, worried and depressed. Also, managers may feel nervous and apprehensive about contacting someone outside the work environment, or possibly feel that the absence is unjustified and this will come across in their demeanour.

The commitment to help someone to return to work has a very positive focus, and is centred on helping someone regain the benefits that employment brings. It is detached from the possible causes that led to the medical problem, and therefore usually is detached from questions of blame and threats of litigation. Sometimes a third party outside the organisation can bring a fresh and supportive approach that will be welcomed, but clearly much skill is needed to accomplish this and insurers have invested significantly in ensuring that their staff in this area have the most appropriate experience and qualifications.

Helping to address the biopsychosocial aspects of illness and disability

Generally speaking, after absence exceeds one month changes may be taking place in the employee’s lifestyle. For example, the need to get up at the same time is no longer required, the social support networks at work are no longer available and there are other new worries (finances perhaps, or relationships with family, or dealing with the limitations imposed by their condition). They may be worried that their job will no longer be there for them if they recover, and lose confidence and self esteem.

In fact it is often the case that the condition that prompts absence initially is no longer the condition that is keeping someone from going back to work. The biopsychosocial model recognises that the employee’s health condition is only one of the factors that must be taken into account in their rehabilitation. Equally important can be their attitudes and beliefs as well as the policies and practices of the organisation where they are employed, and there is strong evidence that symptoms and disability are shaped by psychological factors and the medical advice people have received.

Getting alongside the employee early when it first appears that they may be absent for a significant time (or have a serious condition that might eventually have that effect) is therefore of critical importance. Some insurers can also provide absence management/monitoring systems which will enable the need for early intervention to be identified quickly.

Keeping up to date with what treatment will help

Insurers are always happy to share information with advisers and their clients on developing trends that affect workforce health and also emerging treatments and their efficacy.

Cognitive behavioural therapy (CBT), for example, now has an established track record in terms of cost effectiveness. One insurer has found that CBT is particularly helpful in treating mental health problems, but NHS waiting lists are long. As part of their income protection insurance proposition they have fast tracked sessions for individuals and as a result some 58% of sufferers were able to return to work in a matter of months. CBT has also been to be helpful in controlled studies of disorders such as persistent widespread pain (fibromyalgia), chronic neck pain (for example, whiplash injuries) and fatigue (chronic fatigue syndrome). All these disorders are common causes of workplace absence.

Facilitating medical advice and second opinions

Insurers have considerable in-house medical expertise along with established networks of doctors and specialists. Help can be offered, for example, to people diagnosed or suffering from complex or serious conditions by reviewing their diagnosis and recommended treatment plans. Some insurers also offer access to stress counselling and useful help lines where appropriate.

Insurers often work collaboratively with the employers’ own Occupational Health advisers to formulate rehabilitation plans and ‘back to work’ strategies, and research has shown this to be a highly valued and valuable service.

And if all this fails …..

Some medical conditions are so serious that a return to any form of occupation is unlikely, in which case the claim will continue to be paid until the agreed termination date, or indeed commuted if appropriate. Sometimes it may be possible for payment to continue directly to the individual claimant (for example, if the employee/employer relationship ends). This will depend on the nature of the contract that has been agreed.

But treatments are developing all the time – and people with severe disabilities have often been able to return to work as a result of technological advances rather than clinical progress.

So it makes sense to keep the situation under review.

 The design or configuration of the Group Plan

The Plan design needs to take into account the individual needs of each employer. It should, for example, be compatible with:

Other decisions which need to be taken include:

The last ten years have seen developments in this type of insurance that have taken into account changes which have occurred in the benefits environment generally and also culturally with regard to employee/employer relationships.

For example, the gradual closure to new entrants of defined benefit pension schemes, and the move to defined contribution, has deprived some employers of the option of using enhanced ill-health early retirement pensions to look after employees who have become incapacitated. There are, as a result, now insured income protection plans which make available a lump sum after a specified absence period that may, in some cases, be used to enhance an employee’s defined contribution entitlement. As far as relationships are concerned, the idea that payment should continue until normal retirement age may appear over-generous given the higher turnover that is now experienced in some workforces – and so limited term payment plans have evolved to cater for this. Employers with smaller workforces will also find that some insurers have designed products specifically for them and their business.

So there is much on offer from insurers in terms of Group Plan design and employers will usually need to seek advice in order to obtain the maximum benefit from both the insurance and the risk management aspects of this product.

Conclusion

Used strategically as part of a health risk management approach, Group Income Protection Insurance can help organisations achieve a virtuous circle of practices which will help protect not only the financial well being of the business but also contribute to the morale and well being of the individual members of their workforce. This in turn impacts positively on the financial well being of the business.

The key to success lies in a working partnership, with clear shared objectives, between employer, their professional advisers and their insurer in an effort to manage health-related risk.

 

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