Solutions. to Manage Absenteeism and Impact Productivity. Prepared by Aon Hewitt. Tuesday, December 13, 2011

Transcription

1 Solutions to Manage Absenteeism and Impact Productivity Prepared by Aon Hewitt Tuesday, December 13, Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved.

2 Our Speakers Tom Gergely National Leader, Workers' Compensation and Disability Risk Management Eddie Wright Senior Consultant, Workers' Compensation and Disability Risk Management Mike Kennedy National Leader, Health Strategies, Health and Benefits Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 2

3 Agenda Absence Management Health Management Continuum The Absence Management Dilemma Workers Compensation & Disability Management Key Issues Facing Employers Best practices Aon s Methodology Analytics & Benchmarking Program Design Claims Management Core Competency Model Disability Benchmarking The Link To Organizational Health and Wellness Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 3

4 Health Management Framing Strategic Management Prevention Managing Risk Intervention Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 4

5 Aligning Strategy Defines: Defines: Defines: Defines: overarching corporate goals business requirements performance benchmarks organizational health and wellness objectives performance benchmarks as they align to business strategy program objectives operational requirements and performance benchmarks as they align to health & wellness strategy objectives & Required expertise operational requirements, and performance benchmarks as they align to absence management strategy Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 5

6 The Absence Management Dilemma Defining the Absence Universe Coordinated Absence Management Framework Current Realities Creating and Aligning a Strategy Building the Business Case Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 6

7 Absence Management: An Overview Defining Total Cost of Absence Includes direct costs such as: incidental leaves, short-term disability, long-term disability, total permanent disability workers compensation, And indirect costs linked to: lost productivity, temporary replacement & training Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 7

8 Coordinated Absence Management Framework Absence Management Strategy / Vision Guiding Principles (linked to Wellness Approach) Coordination Elements Program/Process Design RTW Facilitation Performance Measures Systems / Platform Governance / Oversight Health & Safety Note that pre claim preventative aspects of Health & Safety and Wellness Linked as part of overarching strategy WC (Risk) Synergy / Value Outcomes Process Vendor Cost Risk Engagement / Productivity Disability (HR) Wellness Note that coordination elements and value outcomes are cross functional (Risk/HR) Leave Administration / Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 8

9 Key Facts and Figures: Canadian Absence Figures Annual Per Capita Average Lost Work Days in Canada Public Private All Source: Statistics Canada Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 9

10 Integrated Absence Management: Tailoring A Solution Diagnose Diagnose Program Program Design Design Framework Framework Deploy Deploy Programs Programs Determine Determine Outcomes Outcomes Understanding systemic vs. ad hoc trends by analyzing metrics Obtain program risk, performance and opportunity baseline through comparator benchmarking Translate into business case Define measurable objectives Establish a plan for achieving objectives Identify measurement criteria Develop a statement of program policies and procedures Human capital and technical resource allocation (internal & external) Core Competency Model Financial, program and resource management Communication requirements Impact Points : Cost Performance Measures Engagement Health Compliance Cultural Risk Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 10

11 Workers' Compensation Key Issues Facing Employers Analytics Risk and Performance Causality Program Design Claims Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 11

12 Key Issues - WC and Disability (Self Insured) Lack of understanding as to financial risk and liability parameters (fixed vs variable costs). Total absence can account from 1% of payroll to 40%. Lack of understanding as to performance - what is good, bad, optimal? How best to drive cost out of system and mitigate risk? Insufficient goal setting, planning and alignment Lack of targeted expertise and role definition between what should (and should not be) core competencies Over reliance on a medical versus functional claims management model Practical claims management methodology that balances internal resources and external leverage and knowledge in a way that ensures best practice outcomes Inconsistency of process, awareness, accountability Lack of linkage to other disability programs Application of government policy and adjudication within and across provinces volatile (WC). Lack of targeted vendor/insurer management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 12

13 Best Practices - WC Raised level of awareness of what is at stake, what can be impacted and controlled. Approaching from a financial management perspective, as an investment with measurable ROI. All are undertaking some form of national risk and performance analysis. Applying formalized goal setting and performance management metrics that roll up to prescriptive financial planning. What is a best practice versus best in class outcome? Ensuring process consistency and determining core competencies and leveraging targeted expertise Mid to large entities are entering into partnered models in new ways ~ support core competencies with ROI and targeted metrics Applying greater accountability for behavior and performance throughout the organization Creating integrated risk management approach across human capital and organizational risk elements with functional model focus Some degree of collaboration beneficial between Finance / Risk and HR Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 13

14 Aon Hewitt s Solution Methodology Integrated Advice 2. Program Design and Alignment Objective Setting Correlation of goals to KPI's Gap Analysis Core Competency Model 3. Claims Management & Administration 1. Analysis and Benchmarking Financial Risk Parameters Performance Analysis Opportunity Cost Best Practice and Best in Class Benchmarking Causality Key Claims Correlations and KPI's Functional Approach Implementation Change Management Communication Engagement Transition protocols Process Flow Service Delivery Protocols Peer Review / Quality Assurance Statistical Tracking and Reports Correlation to Financial Management Program Management Compliance Performance Measurement Vendor /WCB/Insurer Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 14

15 Analysis & Benchmarking WC Risk & Cost Minimum Liability $33,912,995 Net Expenditure $52,153,930 Base Premiums $62,908,884 Maximum Liability $124,082,378 Best Practice Foregone Opportunity $18,240, % I +37,1% 0% -97.2% Rebate Potential $28,995,889 Surcharge Potential $61,173,494 Foregone Opportunity represents the unsecured incentives Manageable Risk $90,169,383 Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 15

16 Risk By Province Manageable Risk $25,000,000 $20,000,000 $19,720,642 $17,037,850 $15,000,000 $10,000,000 $9,584,888 $5,000,000 $0 $3,309,463 $1,762,569 $1,760,221 $981,368 $939,471 $747,617 $74,554 ON QC AB BC MB SK NB NS NF PE

17 Analysis & Benchmarking WC Performance Assessable Payroll $1,305,878,684 $1,445,223,510 $1,575,052,290 $1,643,406,640 $1,705,947,256 Base Premium $20,411,144 $23,938,757 $25,972,962 $27,721,578 $30,502,870 Risk Parameters Performance Indicators Maximum Incentive $10,650,571 $12,407,866 $13,109,273 $13,498,941 $15,160,959 Maximum Disincentive $26,788,156 $30,982,153 $33,993,236 $36,924,033 $40,757,684 Minimum Liability $9,760,573 $11,530,891 $12,863,689 $14,222,637 $15,341,911 Maximum Liability $47,199,300 $54,920,910 $59,966,198 $64,645,611 $71,260,554 Manageable Risk $37,438,727 $43,390,019 $47,102,509 $50,422,974 $55,918,643 Net Premium $20,952,519 $25,364,742 $30,053,788 $29,379,351 $28,466,460 Secured Incentive -$541,375 -$1,425,985 -$4,080,826 -$1,657,773 $2,036,410 % Incentives Secured -5.1% -11.5% -31.1% -12.3% 13.4% Unsecured Incentive $11,191,946 $13,833,851 $17,190,099 $15,156,714 $13,124,549 Risk Mitigated $26,246,781 $29,556,168 $29,912,410 $35,266,260 $42,794,094 Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 17

18 Analysis & Benchmarking WC Risk & Performance 2010 Rating Year Assessable Risk Payroll Base Risk Premium Maximum Risk Incentive Maximum Risk Disincentive Minimum Risk Liability Maximum Risk Liability Manageable Risk Risk Comparative KPI Benchmark Data 2010 ON QC BC AB SK MB NB NS PEI NFLD Total $736,129,000 $228,500,000 $184,023,456 $278,998,242 $67,700,800 $65,522,993 $40,735,349 $54,939,833 $6,697,583 $42,700,000 $1,705,947,256 $14,098,210 $6,730,100 $2,005,735 $3,194,963 $765,019 $674,887 $815,877 $1,043,857 $106,722 $1,067,500 $30,502,870 $4,930,161 $5,552,750 $1,303,728 $1,922,558 $230,183 $235,883 $327,070 $313,157 $24,852 $320,617 $15,160,959 $14,790,481 $11,485,100 $2,005,735 $7,662,330 $1,530,038 $1,526,686 $654,298 $626,314 $49,702 $427,000 $40,757,684 $9,168,049 $1,177,350 $702,007 $1,272,405 $534,836 $439,004 $488,807 $730,700 $81,870 $746,883 $15,341,911 $28,888,691 $18,215,200 $4,011,470 $10,857,293 $2,295,057 $2,201,573 $1,470,175 $1,670,171 $156,424 $1,494,500 $71,260,554 $19,720,642 $17,037,850 $3,309,463 $9,584,888 $1,760,221 $1,762,569 $981,368 $939,471 $74,554 $747,617 $55,918,643 Net Premium Perf $13,012,391 $4,736,700 $2,595,541 $3,725,187 $744,709 $537,289 $855,761 $1,082,315 $109,067 $1,067,500 $28,466,460 Incentives Perf Secured $1,085,819 $1,993,400 -$589,806 -$530,224 $20,310 $137,598 -$39,884 -$38,458 -$2,345 $0 $2,036,410 % Incentives Perf Secured 22.0% 35.9% -45.2% -27.6% 8.8% 58.3% -12.2% -12.3% -9.4% 0.0% 13.4% Unsecured Perf Incentive $3,844,342 $3,559,350 $1,893,534 $2,452,782 $209,873 $98,285 $366,954 $351,615 $27,197 $320,617 $13,124,549 Risk Mitigated $15,876,300 $13,478,500 $1,415,929 $7,132,106 $1,550,348 $1,664,284 $614,414 $587,856 $47,357 $427,000 $42,794,094 Perf Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 18

19 Analysis and Benchmarking Causality 2010 Total Frequency NLTI # LTI # LTI % Days Lost Avg. Days Per LTI Days Lost Per 100 FTE FTE No Lost Time Freq. Ontario 1, % 4, , Quebec % 9, , BC % 5, , Alberta % 3, , Alberta Saskatchewan % 2, , Manitoba Manitoba % , New Brunswick % , Nova Scotia % , PE PEI % Newfoundland % , Totals 4,268 2,813 1, % 27, , * LTI % & Avg Days Rates exclude Quebec % or less Best Practice 15 or less Best Practice Lost Time Freq. Industry Average Total Freq. Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 19

20 Linking Program Design with Outcomes The Objective Setting framework aligns quantitative program objectives to required claims metrics actioned through claims management program Projected / Desired Outcomes Cost Index x + 36% x + 29% x+40% x + 20% x = 0 x -20% Key Performance Claim Metrics 1) LTI Rate 44% 46% 42% 37% 33% 27% 2) LTI Frequency (Per 100 FTE) 1.06% 1.01% 1.37% 0.90% 0.80% 0.70% 3) Severity Rate (Days Lost per 100 FTE) ) Average Days Lost per LTI Correlated Net Cost Reduction from 2010 $3,200,800 $6,401,600 $9,602,400 x = Industry median Net cost reduction of program over 3 year term. Also used to calculate Net Cost ROI Reduction against investment of Program Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 20

21 Claims Management & Administration The following core competencies comprise a robust claims management process and separate the program into manageable elements of both process and resource consideration. 1. Claims Intake and Investigation 2. Employer's Initial Report of Injury Positioning and Submission 3. Return to Work Facilitation and Employee Relations 4. Complex Case Management & Appeals 5. Financial and Vendor Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 21

22 Aligning Your Resources Resource Management Options: Internal Competency Model Issues to Consider: Understanding your core competencies and strategic alignment with overall business objectives Internal requirements (skillsets: management and execution) Request for proposal exercise (business requirements align with service delivery model) Understanding of financial constraints and potential impacts Service agreement(s) External Competency Model Issues to Consider: Understanding your core competencies and strategic alignment with overall business objectives Internal requirements (skillsets: management only) Request for proposal exercise (business requirements align with service delivery model) Understanding of financial constraints and potential impacts Service agreement(s) Partnered Competency Model Issues to Consider: Understanding your core competencies and strategic alignment with overall business objectives Internal requirements (skill-sets: management and/or execution) Request for proposal exercise (business requirements to align with service delivery model) Understanding of financial constraints and potential impacts Service agreement(s) Performance Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 22

23 Disability Management Analytics & Benchmarking Causality Program Design Claims Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 23

24 Claim Duration Average business days lost business days lost business days lost with cases transitioning to LTD excluded Average Days Lost Finance and Insurance Communications and Business Services Manufacturing and Construction Retail and Wholesale Trades Chemical, Pharmaceutical, and Allied Products Transportation and Utilities / Energy Health Care and Education Mining and Oil / Gas Extraction Government Accommodation, Food, and Personal Services Professional, Scientific, and Technical Service Real Estate and Rental / Leasing Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 24

25 Cost Per Claim Average cost per closed-claim: $4, Average cost per closed-claim for unionized vs. non-unionized employees $4, $4, Unionized Employees Non-Unionized Employees Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 25

26 Incidence Rate Average Incidence Rate 7.20% 15.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% Unionized Employees Non-Unionized Employees Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 26

27 Outcome Percentage of Outcome by Outcome Description Remain on Reg Duty No Lost Time Leave of Absence Retired Deceased Termination STD Ineligible Alternative Reg RTW Non-Participation (Ongoing) Resignation Maternity Invalid Claim Non-Participation (Initial) Decline LTD Reg RTW 0.00% 0.10% 0.10% 0.20% 0.20% 0.30% 0.40% 0.80% 0.90% 1.00% 2.70% 2.80% 3.70% 9.30% 10.60% 67.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 27

28 Average Business Days Lost by Outcome LTD Termination Retired Resignation Deceased Alternative Reg RTW Leave of Absence Maternity Non-Participation (Ongoing) Reg RTW Decline Invalid Claim No Lost Time STD Ineligible Non-Participation (Initial) Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 28

29 Diagnostic Category 25.00% 22.70% 20.00% 15.00% 13.20% 12.50% 10.00% 5.00% 0.00% 8.00% 6.70% 5.60% 5.60% 5.40% 4.70% 4.10% 3.20% 1.80% 1.60% 1.40% 1.30% 1.30% 0.40% 0.30% 0.30% Percentage of Cases Mental Disorders ( ) Injuries and Poisoning ( ) Musculoskeletal System and Connective Tissue ( ) Respiratory System ( ) Digestive System ( ) Neoplasm ( ) Nervous System and Sense Organs ( ) Genitourinary System ( ) Complications of Pregnancy, Childbirth, and the Puerperium ( ) Circulatory System ( ) Symptoms, Signs, and III-Defined Conditions ( ) Infectious and Parasitic Disease ( ) Endocrine, Nutritional, Metabolic and Immunity Disorder ( ) Unavailable (x999) Skin and Subcutaneous Tissue ( ) Digestive System( ) Blood and Blood Forming Organs ( ) Congenitial Anomalies ( ) Conditions Originating in the Perinatal Period ( ) Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 29

30 Average Business Days Lost by ICD 9 Classification Neoplasm ( ) Circulatory System ( ) Mental Disorders ( ) Musculoskeletal System and Connective Tissue ( ) Blood and Blood Forming Organs ( ) Congenitial Anomalies ( ) Endocrine, Nutritional, Metabolic and Immunity Disorder ( ) Complications of Pregnancy, Childbirth, and the Puerperium Injuries and Poisoning ( ) Nervous System and Sense Organs ( ) Genitourinary System ( ) Symptoms, Signs, and III-Defined Conditions ( ) Skin and Subcutaneous Tissue ( ) Conditions Originating in the Perinatal Period ( ) Digestive System ( ) Infectious and Parasitic Disease ( ) Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 30

31 Employee Age Percentage of Cases by Age Grouping 30.00% 25.00% 28.50% 24.50% 22.60% 19.00% 20.00% 15.00% 10.00% 5.00% 3.10% 2.20% 0.10% 0.00% under 20 Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 31

32 The Link To Health and Wellness Mitigating Risk Through Prevention and Early Intervention Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 32

33 Susan manages sales representatives for a software company, a highstress job with long hours. She also has parents requiring care. She s absent from work almost two weeks every year because of stress and depression. Fact: Solution: Globe and Mail, Tuesday, Nov. 02, 2010 Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 33 Ensure that your program includes early identification and coordinated response. Disability Management may not be needed if the cause of absence is not disability.

34 Maria is in charge of strategic purchasing for a pharmaceutical company. Fact: While most people have an idea of what they should (and shouldn't) do, many are unsure of how to make change. Solution: Ensure programs evolve from awareness and education to include risk screening and behaviour change. She feels she needs to be more responsible for her health both for herself and for her Aon Hewitt young 2011 Aon daughter. Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 34

35 Alex directs the budget for health and benefits programs. Fact: 32% of employers do not know what their health cost drivers are. Solution: Assessing and quantifying health costs establishes the business case for investment in workplace health programs and a benchmark for evaluation and ROI. While he thinks that wellness programs are a good idea, they are more of a nice-tohave. He believes they are more focused on helping employees like where they work than aligned with the business objectives of the company. Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 35

36 Level of program integration 50% Percentage of response 40% 30% 20% Importance Current 10% 0% Integrated Integrated (Independent programs / communication silos) (Seamless experience for user) Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 36

37 Describing Integration Level Examples 5 Processes intertwined; data feeds cross functional evaluation and planning; process feels seamless 4 Programs referring to each other; communications aligned; evaluation of cross functional indicators 3 Programs aware of each other, vendors communicating; data shared; some alignment of evaluation 2 Policies aligned with strategy and complement each other; some alignement of communications 1 Some sharing of data; policies designed with some cross functional strategy Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 37

38 Integrated Health Management Absence Tracking Risk Screening Disability Management Occupational Claims Mgt Health Coaching Health Benefits EAP/EFAP Near Misses Incidents Training/Education Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 38

39 Expected outcomes of a wellness program Improve health status of workforce Reduce health cost Potential program outcomes Support a healthy workplace culture Improve productivity/performance Improve engagement Assist with recruiting and retention by differenciating us from our competitors Help in winning an award Employees' perspective Company's perspective Other 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% (n=116) Percentage of response Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 39

40 Highest cost reduction priority Disability Drug Cost reduction priority Absence Extended health Presenteeism (at work but not 100% productive) Other : sick time usage 0% 5% 10% 15% 20% 25% 30% 35% (n=63)* Percentage of response * Respondents that selected reduce costs as a desired outcome. Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 40

41 Level of workplace program Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 41

42 Level of workplace program: Current vs. Desired 70% 60% 50% Percentage of response 40% 30% 20% Current Desired 10% 0% Innovative Progressive Expected No program offered at the moment Program Level Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 42

43 How to Start? Diagnose Program Design Framework Deploy Programs Determine Determine Outcomes Outcomes Understanding cost drivers by analyzing metrics Assess interests and potential ROI Establish benchmark Translate into business case Define measurable objectives Establish a plan for achieving objectives Identify measurement criteria Develop program Align providers to achieve objectives Financial, program and resource management Comprehensive communication Cost Participation, risk, behaviour change Engagement, satisfaction, etc Key indicators of importance to stakeholders Health Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 43

44 Business Case Prepared by Aon Hewitt Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 44

45 Challenges in Assembling a Business Case Compensation, retention/attraction and cash flow are much more defined concepts than those of absence including: Work/life balance Enhanced/managed health and productivity Controlled absence A disconnect exists between the way corporate performance and absence/benefit program performance are measured, tracked and valuated Absence management and benefit program expenditures are still viewed in many organizations as the cost of doing business Even the concept of ROI for program expenditures is viewed in terms of cost control rather than human capital investment as the means to end of achieving business objectives Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 45

46 Linking Employee Health & Bottom Line In order for organizations to recognize the value of effective absence management, a linkage between the implications of absence and bottom-line results must be established and demonstrated in terms familiar to senior leadership Senior executives value workforce productivity as a means to financial success, however the success measures of an absence program are different from traditional financial performance measures (cash flow, revenue, ROI) Therefore, how best to demonstrate the link between the value of managed absence and bottom line results in terms that will support sustainable program investment? Cost, Risk & Productivity Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 46

47 CFOs Primary Metric to Gauge Productivity Other: 12% No measures: 14% Revenue per employee: 26% FTE per revenue unit: 27% Output per employee: 21% Source: On the Brink of Change, How CFOs View Investments in Health and Productivity, Research by the Integrated Benefits Institute, December 2009 Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 47

48 Business Case Modelling Year 2010 Metrics Results 2,929 FTE s $115,978,668 in payroll Average wage $39,600 Average per Average per Total Cost Employee $10,000 Payroll Direct Costs $18,544,989 $6,331 $1, Indirect Costs $11,577,989 $3,953 $ Total Costs $30,122,978 $10,284 $2, Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 48

49 Business Case Modelling Year 2010 Total Annual Absence Cost Direct Cost % of Payroll Indirect Cost % of Payroll Incidental Leave 1.75% 1.75% Salary Continuance 1.04% 1.04% Short-Term Disability 3.07% 3.07% Long-Term Disability 1.22% 1.22% Workers Compensation 2.91% 2.91% Group Benefits 6.01% 0.00% Total 15.99% 9.98% Total absence cost (direct + indirect) is $30,122,978 Total absence cost represents approximately 25.97% of annual payroll Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 49

50 Business Case Modelling Absence Cost Profiling Direct Costs Indirect Costs Total Costs Productivity Measures FTE Equivalent Units of Output Per Employee Revenue Output Per Employee Corporate Measures Cash Flow Revenue Growth Earnings Growth Gross Sales Equivalent Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 50

51 Business Case Modelling Absence Cost Profiling Productivity Measures Corporate $$ Measures Company A Direct Costs $18,544,979 Indirect Costs $11,577,989 Total Costs $30,122,978 Competitor Direct Costs $12,601,211 Indirect Costs $ 7,943,659 Total Costs $20,544,870 Direct Cost Difference = $5,943,778 Total Costs Difference = $9,578,108 Direct Costs (Difference) = 150 FTE s Revenue Per EE = $75, = $11,250,000 Cost Output Per EE = 10,000 units per year 150 = 1,500,000 forgone units of production Total Costs (Difference) = 242 FTE s Revenue Per EE = $75, = $18,150,000 Opportunity Cost Output Per EE = 10,000 units per year 242 FTE = 2,420,000 forgone units of production Direct Cost Gross Sales Equivalent (Assuming a 15% Profit Margin) = $75,000,000 Total Cost Gross Sales Equivalent (Assuming a 15% Profit Margin) = $121,000,000 Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 51

52 Business Case Modelling A 1% reduction in absence costs: = 1.5 FTE equivalent = $112,500 in foregone revenue = 15,000 units of output = $750,000 in gross sales equivalent 52

53 Summary Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 53

54 Key Considerations Understanding your organization's strategic approach to absence management is helpful in linking operational components and driving synergies Taking a holistic approach to managing both pre and post claim risks provides leverage in impacting the entire absence management and organizational health continuum Whether Wellness, WC or Disability, three critical aspects comprise an effective program management framework: Analysis and Benchmarking Program Design & Alignment Claims and Vendor Management Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 54

55 About Aon Hewitt and Absence Management We provide a full suite of absence, disability and wellness solutions to over 3000 employer clients in Canada, with specific focus on: Analytics & Benchmarking Program & Process Design, Implementation and Training Complete Claims and Prevention support We bring the collective expertise and perspectives of over 100 specialists located across Canada We form part of a global absence and disability practice that is a world leader in innovation and insight 55

56 Question & Answer Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 56

57 Part Two: Optimize workplace health and productivity Date: March 8, 2012 In part two, we'll examine how changes in behaviour lead to changes in benefits costs. Make the connection from a healthy workforce to high engagement, increased productivity and a positive impact on the bottom line. We'll cover: Benchmarking costs Designing programs to produce ROI Incenting behaviour change Integrating pre-claim (e.g., wellness) and post-claim (e.g., disability management) programs Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 57

58 Contact Information Tom Gergely Eddie Wright Mike Kennedy Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved. 58

59 Thank You Aon Hewitt 2011 Aon Consulting Inc./Hewitt Associates Corp. (Aon Hewitt). All Rights Reserved.