Author: Jeremy Smerd

Fervor to address the rising cost of health care is spreading like a fever across the country. President Bush introduced tax deductions in his State of the Union address. Hillary-Care, circa 1994, is gone, but Sen. Clinton and rival for the Democratic nomination Sen. Barack Obama have both sounded off on universal health care (though with no details). Meanwhile, AARP and health insurers have their plans, as does Oregon Democratic Sen. Ron Wyden, whose idea to do away with employer-sponsored health care has drawn the support of Safeway chief executive Steven Burd. And we haven’t even gotten to Mitt, Arnold, Ed and Rod, who as governors ushered in the era of the individual mandate in an effort to insure the residents in their respective states of Massachusetts, California, Pennsylvania and Illinois.

    How to make sense of all the proposals and how they might affect employers?

    Just print out the table below and tape it to your fridge or filing cabinet. You can keep score. Health care is sure to feature prominently in the 2008 presidential election, and the race for the White House has only just begun.

Proposal Source: The President uProposal in a nutshell:Intended to encourage individuals to purchase health insurance. Though a major redesign of tax treatment of health benefits, it is not an attempt to provide universal coverage. The plan makes the cost of health care a part of taxable compensation. Creates a tax deduction of $7,500 for individuals and $15,000 for families who purchase health care. uAdvocates say:Will encourage employers to offer less-expensive health plans, bringing down their costs, while giving tax incentives to people who purchase health insurance, thereby insuring more people. Long overdue tax change to level playing field for individuals who need to purchase health insurance. uCritics say: Will erode employer-based coverage. Healthy workers will buy cheaper insurance on the individual market, pocket the deductible and leave sicker workers for the employer to cover. Also, a tax deductible may still not be enough for those with little discretionary income to purchase health insurance. uEmployer effect: Unions and highly compensated employees would lose. The Bush administration says only 20 percent of workers would be affected, but others suggest that proportion could be higher. Employers could see savings from payroll taxes if their plan costs fall under the deductible.

 

Proposal Source: The Senate uProposal in a nutshell: The plan would offer near universal coverage. Employers would terminate health coverage. Employers would take part of the cost of health care and put it toward wage increases. To offset increase in tax liability due to wage increase, a tax deduction is offered to those who purchase health insurance. Cost of coverage is subsidized on a sliding scale up to 400 percent of the poverty level. uAdvocates say:  By decoupling health insurance from employment, people retain access to health care even if they change jobs or are unemployed. A tax deduction will encourage the purchase of health insurance. Overall costs would slow through administrative efficiencies. Wildly enthusiastic supporter is Steven Burd, CEO of Safeway. uCritics say:  Employers would lose the ability to control their health care costs and to tailor their health care programs to the specific needs of their population. The plan does little to make consumers sensitive to the price of medical care. Overall, families would reduce spending by only $22 each. uEmployer effect: Employers would no longer be responsible for providing health insurance. An analysis by the Lewin Group shows that employers currently providing health benefits would save nearly $4,000 per employee. The plan would slow growth of health care costs, insure 99% of Americans and save $2 trillion in 10 years.

 

Proposal Source:  Private Sector (Health Coverage Coalition for the Uninsured–a broad mix of 16 organizations including AARP, FAmilies USA, health insurers, hospitals and doctor groups) uProposal in a nutshell: Group wants to expand health insurance coverage to those who have none. Would be done in two phases—first for children, with more reliance on state initiatives, and then for poor adults and families through an expansion of Medicaid and tax credits for families earning less than 300 percent of the federal poverty level. uAdvocates say: The plan focuses on those without insurance in hopes that by giving people access to medical care they will be less likely to use expensive, last-minute emergency care for ailments that are otherwise preventable. In the end this would bring down costs. uCritics say:The plan is not tethered to fiscal reality. The program is estimated to cost $45 billion in the first five years but does not estimate the cost of the tax credits. Nor does the plan explain where the money would come from. uEmployer effect: With the exception of the U.S. Chamber of Commerce, employer support for plan was tepid. At the last minute, the National Association of Manufacturers and a union withdrew their support. The plan, however, would preserve the employer-based system

 

Proposal Source:  States and their individual mandates: Mass., Vermont, Calif., Penn, Ill. uProposal in a nutshell: Attempts to provide universal coverage to state residents. Massachusetts led the charge among states in requiring residents to obtain health insurance. So far in 2007, eight states have introduced bills to provide universal health care, including California, which has one of the largest populations of uninsured. uAdvocates say: Through a state-run insurance pool, individuals could purchase coverage that would have otherwise been affordable. The plans do not penalize employers who already provide health insurance. The thinking goes that requiring individuals to obtain insurance will bring down premium costs for everyone. uCritics say: What works in Massachusetts may not work in California. Universal coverage won’t affect long-term trajectory of rising health care costs unless people become more sensitive to price. Also, there is little agreement on what constitutes an adequate level of coverage. Too many variations across states would make it hard for multi-state employers to comply. uEmployer effect: Though many state plans are similar, differences could potentially violate ERISA, legal experts say. While employers in Massachusetts that provide insurance would not have to pay any fees, in California any business with 10 or more employees would have to provide insurance or pay a 4 percent payroll tax, which will help pay for the $12 billion plan.

Dina Marie LaMarche, a certified nursing assistant in Massachusetts, dropped out of high school and found work preparing food in a nursing home. Now she is training to become a licensed practical nurse by 2008 and doesn’t plan to stop until she is a registered nurse.

    “I just want to keep climbing that ladder,” she says.

    With already severe shortages in nursing predicted to grow as baby boomers retire, LaMarche has found herself in the right industry at the right time. The Department of Health and Human Services says the country will be short 1 million nurses by 2020. That means workers with little expertise, experience or education—new Americans, recently laid-off workers looking for a second career or someone like LaMarche—are finding training opportunities and jobs in nursing. Most training is funded at the national and state level, but occurs locally though community groups and colleges. In one case, LaMarche found that her employer, Sun Healthcare, was willing to provide her training and pay for it in order to retain staff.

    LaMarche, 33, began her march up the pay scale 12 years ago. At that time, she was working at a nursing home preparing meals for residents when she decided to become a certified nursing assistant. She took classes through the American Red Cross, completed her general equivalency degree and became a certified nursing assistant in three months.

    For the past eight years, LaMarche has worked for SunBridge Care and Rehabilitation, a long-term rehabilitation facility in Lawrence, Massachusetts, owned by Irvine, California-based Sun Healthcare. Since 2004, she has taken night classes offered through her employer and taught by teachers from nearby Northern Essex Community College.

    Like most of her co-workers, LaMarche says she was not aware that local and national funding existed to develop workforces in industries, like nursing, where shortages are acute. It wasn’t until her employer posted a notice near the company’s time clocks that she learned she could take evening classes at work with her co-workers. A single mother with three children, LaMarche found that the schedule suited her needs.

    “I had wanted to go to school before, but going to school full time wasn’t in my schedule,” she says.

    Under discussion at Sun Healthcare is a plan to provide advanced nursing education in exchange for a commitment from employees to work for the company for approximately two years, says spokeswoman Bernadette Bell. LaMarche says she would be willing to make that commitment to pursue her goal of becoming a registered nurse.

    LaMarche works two jobs—both as nursing assistants—to make ends meet, but she hopes that will change as she advances in her career. She will become a licensed practical nurse, a job that entails caring for the sick, injured, convalescent and disabled under the direction of physicians and registered nurses, by 2008. Then she will take more classes to become a registered nurse.

    “Right now, what they’re doing for us is just a blessing,” she says, referring to Sun Healthcare’s efforts to train her. “Really, it’s an opportunity.”
 

The partnership between General Motors and Raytheon Professional Services that resulted in the GM Service Technical College and revamped training for dealership mechanics at GM has worked so well that some mechanics have been poached by competitors like the Ford Motor Co.

    Mark Hardman, a service technician with a Cadillac dealership 25 miles north of Detroit, says mechanics have used the automotive training skills they have developed with the help of Raytheon and GM’s training to leave their dealership for jobs with other companies in the auto industry, including as trainers for Raytheon and mechanics and engineers for Roush Fenway Racing and Ford.

    “The training is too good,” Hardman says. “Other guys are getting jobs elsewhere.”

    “Ford wants to take us and put us in their technical departments,” he adds, referring to engineering positions at Ford.

    Mechanics leave in part because the work is grueling, greasy and paid by commission, not by the hour.

    “You have to be trained and experienced to handle anything that comes in,” Hardman says. “Cars get towed in. They’re dead; they don’t run. There’s three feet of snow in the parking lot and you have to push the car in to get paid.”

    Hardman, 30, has worked on Cadillacs for the past 10 years, but he also does his share of oil changes. By the end of the week his knees hurt.

    Colleagues have used their training to get less physically demanding, though lower-paying, jobs as instructors, engineers and technical writers, he says.

    “You can see how it’s tempting to get a tech job or get an office job,” he says.

    Ten years ago, the career path of a shop mechanic—like the training program for service technicians and the line of cars Cadillac was producing—was narrow and limited.

    At that time, Cadillac built three car models: the Seville, DeVille and Eldorado. All were similar front-wheel-drive cars.

    Hardman, meanwhile, was a 20-year-old yard mechanic at a heavy truck repair facility in Roseville, Michigan, just outside Detroit. He worked on tractor-trailer steel haulers, doing light electrical work, oil changes and other grease jobs.

    Wanting to work as a diesel mechanic for Caterpillar, Hardman inquired about degree programs at nearby Macomb Community College. The college didn’t offer diesel mechanic training, but it did offer dealership apprentice programs for service technicians.

    Hardman began working at Crestview Cadillac in Rochester, Michigan, just north of Detroit, around the same time GM was expanding its Cadillac line. The new models combine elements from a variety of GM’s existing lines: a sports car based on a Corvette engine, and an SUV, the Escalade, built on the chassis of a GM truck.

    The new training for service technicians, provided by Raytheon at GM Service Technical College, is also something of a crossover, combining the know-how of all of GM’s product lines into one curriculum that’s as easy to access as typing a question into a search engine, Hardman says.

    “You can be continuously trained and fed information about all their products,” Hardman says. “It’s just amazing.”

    The key to making a good living as a mechanic is to “fix it right the first time” Hardman says, repeating what has become the mantra of the GM Service Technical College.

    “There is a direct relationship between my training and fixing it right the first time,” he says. “With Raytheon’s training I was able to understand the things I needed to test for.”

    That means following repair procedures outlined in online training manuals in order to diagnose a problem. It can also be as simple as typing the problem into a computer to get a list of possible causes. It has taken Hardman a couple years to master the computers, but the more he is able to navigate the training system, the easier it is for him to produce high-quality repairs, in turn putting money into his pocket and giving him a reason to stay where he is—as long as his knees remain strong.

    “The whole program has given me a life I never thought I could have had,” Hardman says. “It got me trained, and now I feel very valuable in the industry.”

    One of the most important lessons that Reindl has drawn from this experience is that workforce management initiatives never get off the ground unless there is significant support and commitment from executives at the top.

    He has also learned the value of looking beyond the technical capabilities and leadership potential that a job candidate has to offer. Reindl is a big believer in looking for intangible qualities in an individual—the things they either have or they don’t. Passion is one such trait.

    “You simply can’t teach somebody about passion,” Reindl says. “Our work involves putting a foreign object in somebody’s body, therefore we only hire those who are seriously passionate.”

    Reindl also values an individual who is self-confident, but not arrogant. “There is a big difference between being sure of one’s capabilities and being arrogant,” he says. “Thinking you know it all or trashing your former employers won’t get you in these doors.”

N early two years before Regence Blue Shield issued its first letter telling doctors they would not be included in Boeing Co.’s select network, another organization just a few miles away was working toward a similar goal of rating medical clinics, hospitals and doctors, but in a much different way.

    The Seattle-based Puget Sound Health Alliance started with “all the constituents at the table,” says Diane Giese, a spokeswoman for the group.

    The group’s board, composed of 11 purchasers of health care (including private and public employers), four health plans, four people representing doctors and two representing consumers, reflects a more conciliatory approach to a controversial subject, Giese says.

    Long before any data is made public, the group shares its results with the doctors it has reviewed. The doctors then have an opportunity to respond and improve. The approach is not new—a similar employer coalition in Bloomington, Minnesota, the Buyers Health Care Action Group, waited more than a decade between making its results available to doctors and releasing them to the public. It stands in sharp contrast to Regence, which moved quickly from rating its doctors to creating a network based on its results.

    “The lesson learned from Boeing is to include physicians,” Giese says.

Long before any data is made public, the group shares its results with the doctors it has reviewed. “The lesson learned from Boeing is to include physicians.” –Diane Giese, Puget Sound Health Alliance

    The alliance underscored that point in an opinion article published September 13 in the Seattle Post-

    Intelligencer announcing its intention to produce comparative data on the efficiency and costs of physicians in the area. But the group received a wake-up call two weeks later. Just five days after the Washington State Medical Association announced its lawsuit against Regence on September 21, it wrote an opinion piece of its own, in which it issued “a cautionary note” to the alliance based on the medical association’s experience with Regence.

    What the medical association called the “fatal flaws” of the Regence program were “inaccurate evaluation of outdated claims data” and “not giving physicians an opportunity to respond to the data.”

    The story was a shot across the bow of the Puget Sound Health Alliance.

    “Their response was a way to make sure we’re listening,” Giese says. “And we are.”

    Nonetheless, the opinion piece came as a surprise.

    “We were surprised they tied it so closely to the lawsuit against Regence, because we’re not creating tiered networks,” Giese says. “It potentially gives people the impression that the medical association is not supporting what the alliance is doing, which is far from the truth. That was the most shocking thing about seeing it.”

“We feel very good about the fact that we are going to see the data before it’s released so physicians can change their behavior” –W. Hugh Maloney, Washington State Medical Association

    W. Hugh Maloney, the medical association’s president, says he supports the alliance’s projects and believes the alliance has been working with the doctors in good faith.

    “We feel very good about the fact that we are going to see the data before it’s released so physicians can change their behavior,” he says. “Physicians resent being held up to public scrutiny when they have not had a chance to respond to the data.”

    Meanwhile, Regence’s crosstown rival Premera Blue Shield, which created a high-performance network in 2001, has offered a contrasting example for the Puget Sound Health Alliance.

    Premera realized after creating the select network that it did not produce huge savings that were worth the pushback it got from doctors and patients. So Premera instead focused on creating a quality scorecard to be used only by its medical groups as a tool to compare their practices with one another. By knowing where they stood, doctors made changes and improved.

    Eventually, Premera offered financial rewards for the best-performing doctors, says Rich Maturi, senior vice president for health care development systems. The lesson, he says, was clear: “The greatest potential for creating efficiency and improving quality is to focus on the whole network rather than getting rid of a portion that doesn’t perform well at a certain point in time.”

Workforce Management, February 26, 2007, p. 21 — Subscribe Now!

Linda Dillman knows how to execute the Wal-Mart playbook. When she was the company’s chief information officer, she used the retail giant’s size to force its supply chain to change. Change, in Wal-Mart’s case, means becoming more efficient. You don’t become the world’s largest retailer and largest employer, with 1.8 million employees in about 6,400 stores worldwide, unless you are able to move thousands of products globally with the precision of a Swiss watch (a watch you’re likely to find these days in a Wal-Mart store near you).

    As CIO, Dillman led Wal-Mart’s embrace of radio-frequency identification (RFID) tags, which use wireless bar-code technology to track products from factories in China to store shelves around the globe. Now, the use of RFID is standard in the industry—and just about everywhere else.

    In 2006, Dillman was named executive vice president of risk management, benefits and sustainability, succeeding Susan Chambers to manage the company’s health benefits as Chambers moved up to become the head of the company’s people division. Once again Dillman is trying to use technology to change the health care industry and, in the process, improve health care quality and drive down costs through greater efficiency.

    Before Dillman even took her new job, she met with other CIOs to ask how information technology could make health care more efficient and responsive to consumers. What Dillman learned was made clear on December 6, when Wal-Mart announced it would join Intel’s effort to offer employees personal, private digital health records. Joined by BP, Pitney Bowes and Applied Materials, the employer consortium called Dossia is the latest attempt by Wal-Mart and other large employers to use their clout as innovators and market movers to change the health care industry.

    Dossia is both a system to store the personal health records and a nonprofit organization that will be run independent of the employer-members who finance it, ensuring the privacy of the personal records. The records will be owned by employees regardless of whether they stay with one of the member companies.

    The decision to join Intel’s Dossia project was an act of faith in the power of technology, Dillman told Workforce Management. Dillman knows that technology can cut waste from an inefficient system, and that as much as $350 billion spent in the $2 trillion health care industry is considered wasteful. With that in mind, she and her company decided to support Dossia in hopes of taking costs, rather than benefits, out of the entire health care delivery system.

    “This was not something we did because we wanted to reduce our health care costs,” Dillman says. “What we wanted to do was impact the trajectory of both cost and quality of health care in the United States. It’s long term, which is going to impact all of us.”

    Dillman spoke to Workforce Management staff writer Jeremy Smerd shortly after the Dossia announcement to discuss how employers can think strategically about health care benefits.

Workforce Management: How did a former CIO become the chief administrator of health benefits for the world’s largest employer?

Linda Dillman: There are several factors. One that’s key is that Wal-Mart is notorious for moving us around to expand and grow us. And they had been in discussions with me for a long time about an upcoming change. I didn’t know what it was going to be.
And there are other aspects. One is, if you look at what you do in a technology role, you spend most of your career solving complex business problems, working across silos. That’s a lot of what I need to do in this space.

WM: And is Dossia a manifestation of your role to bring together IT and health benefits?

Dillman: The icing on the cake—Dossia—was not a consideration at that point. But what was a consideration was looking at our involvement in health care and taking Wal-Mart’s known strengths and apply them to the health care industry and try to drive change.

WM: Where do you see technology decreasing the costs of Wal-Mart’s health benefits?

Dillman: We are going to do things internally, but the biggest fact is, there’s only so much I can manage within the space of Wal-Mart and what we do internally. When you have an issue that looks like the health care issue looks for us, for all of the United States, when you have the disconnect on quality and payment, when you have limited use of technology in the industry itself, when you have costs escalating at the rate they are, I could change our plan forever and implement all kind of technology internally and it would not change the needle.
A lot of it is looking externally, which is why we like the Dossia announcement. It’s an initiative that is broader than what we hope we can do with our associates. We hope it will move the industry.

WM: Other than those involved with Dossia, which employers have you reached out to?

Dillman: Oh. I’m not sure I can share those with you. We’re having discussions with a lot of people who we would normally partner with to just get employers engaged in the health care situation.

WM: Any particular industry?

Dillman: In a lot of our supplier base—to a lot of consumer goods companies and tech companies.

WM: Any carrot-or-stick approach you can use?

Dillman: This will never impact, not today, the business we do with them. We’re really just speaking to them as, you know, “You are an employer as well and you’re facing the same issues we are in terms of being competitive in the global marketplace and trying to manage the costs while trying to provide the most you can for your associates.” And most are willing to have those discussions.

WM: Are they more interested in becoming more publicly involved about the need for employers to involve themselves in the health care debate?

Dillman: Yes. Everyone is trying to figure out what that means.

WM: Are you working with GM and other employers who have been vocal on a policy level in this issue?

Dillman: We have not talked to GM about this.

WM: You mentioned escalating growth of health care costs. What are they for Wal-Mart?

Dillman: That’s not something we talk about. We are double digit in our costs like everybody else. Our trend is not going to be all that different from the [rest of the] country.

WM: You recently introduced health plans with higher deductibles. Part of your reasoning was you felt employees would save money with the plans. There was also some mention of wanting to attract healthier workers.

Dillman: First of all, that’s not the reason we did that. So let me debunk that myth. You’ve been reading the wrong Web site.

WM: No, I’ve been reading the memo the head of Wal-Mart’s people division, Susan Chambers, wrote last year when she was in your position.

Dillman: Well, you might want to reread it. And read it in its entirety. I get to look at the facts. What we drove for with our value plan [is this], and I’ll explain it to you so you understand what it is.What we needed to do was to get something that was affordable and had broad reach for our associates. Our current plans are available to all of our associates for $23 a month. They can afford that. They can’t afford some of the plans that are in other spaces.We needed to be able to give them something that was affordable. So we did that. We wanted them to not forgo health care, so we included in it first-dollar coverage. And we are going to continue to work on how we do this. But for right now, it gives every participant three doctor visits and three generic prescriptions a year, pre-deductible. And it allows them to have catastrophic coverage. It’s very good coverage. It’s the same we have on the rest of the plan, after the $1,000 deductible.Most of the scenarios we ran—and we ran a lot of scenarios for our associate base—over 70 percent of them actually come out financially ahead. So the difference with plans most employers are offering, the difference … is that we are putting the money back into the pockets of our associates.We happen to believe that our associates are pretty smart, and can add value when they’re managing those costs. We believe that by putting the money in their hands they will end up getting more for those dollars than they do in large plans today.(Editor’s note: In more than 40 percent of the areas where Wal-Mart has stores, that $23 value plan is even less: $11 a month.)

WM: So, how does Dossia and this push for empowering the consumer fit into your overall benefits strategy?

Dillman: Dossia was not part of our benefits design. It was part of this external initiative to look at the health care system and see if we could make a difference there. We believe in the value of electronic health records. We see how both from a quality perspective and an efficiency perspective, technology has made improvements in virtually every other industry.

WM: Have you done any analysis of how it might improve the health of workers or save you money?

Dillman: No, none.

WM: It was just a leap of faith in the power of technology?

Dillman: I didn’t build this into my business plan. This was not something we did because we wanted to reduce our health care costs. What we wanted to do was impact the trajectory of both cost and quality of health care in the United States. It’s long term, which is going to impact all of us.Sometimes you have to take strategic initiatives. Anybody who innovates will tell you that if you can create a business plan and prove it, it’s probably not an innovation because it’s already being done.

WM: How soon after talking to Intel chairman Craig Barrett did you give the OK to join Dossia?

Dillman: We knew we were interested. You go through an initial interest level, which was actually pretty quick. And then work through all the logistics. So it was probably three or four months.

WM: What does Wal-Mart bring to Dossia?

Dillman: We’ve got a pretty good track record for being able to use technology. We’ve built large data warehouses. We’ve deployed to a large number of people, specifically. Our associate base uses a lot of technology every day, so we kind of know how to do that.

WM: Are you bringing any of your expertise to bear on the Dossia project?

Dillman: Absolutely. Our tech people will be involved. Our process people will be involved. Our security people will be involved. Our experience in implementing technology to a large group of people as diverse as this will be involved.

WM: Will Wal-Mart integrate this with its benefits?

Dillman: No. No. You really have to take this out of a P&L, traditional business kind of view. Not everything has to integrate back into your core business. We believe this will change the bigger picture. This will be given to our associates. It’s theirs to use, their choice to use it—they and their dependents. We believe it adds value. They will see that value. They will understand how their health care is working. They will begin to tell their health care providers and start to drive adoption across that space. We believe it is a benefit, by the way, that we offer to them. This is not going to tie back to our health care plan. We are not going to have any access to the data. We’re not going to have any access to the system. We are not going to monitor who does and who does not use it. We will not know that. This is intended for their benefit.

WM: Are these personal health records something a Wal-Mart customer could use?

Dillman: Dossia is meant to be the framework that personal health records, that are customer-facing, and electronic health records, that are provider-facing—they all can connect to this framework. Dossia is not trying to create the software that others are going to go use. But whatever anybody creates will have the ability to connect to this to get all the information.Having said that, all of our [health] clinic providers have their own information systems that they use to manage their clinics. Most are already using electronic health records. Of course, we’d like for their system to connect to Dossia so when [customers] come in they can have an entire record.

WM: Is that a decision the clinics will make for themselves?

Dillman: That is absolutely their decision. What we can do is make it easier for them. A parallel initiative is to make sure providers have the ability to access [the records stored in Dossia]. We started with our base [in Dossia] because 2.5 million people is a pretty good place to start. When we get past 2.5 million, the intention is really to start opening up access.

WM: When might that happen?

Dillman: The second half of 2007 is when we will start piloting to our associates. Then we will have a better sense of how fast we can go.

WM: What else can Wal-Mart do as a business leader to address this issue of rising health care costs? What is Wal-Mart’s role?

Dillman: Our vice president, John Menzer, was appointed to AHIC—the American Health Information Community. So again, getting involved at a higher level with how technology can get implemented in this space.

WM: Were you aware of the AHIP announcement saying health insurance companies representing 200 million Americans will create a health record that can be used at all carriers?

Dillman: Sure.

WM: Any sense of how that fits in with Dossia?

Dillman: In the long term, we’d like to be the backbone that everybody can connect through. So they still have the ability to offer the people on their plans the front end and the functionality that makes them competitive and then everybody shares data.

WM: They have 200 million members.

Dillman: We don’t want to compete.

WM: Is this a movement that should be employer-driven?

Dillman: What we wanted to do is to introduce something that would belong to the individual, that was in a nonprofit space, not a commercial space, and that an individual could have for their entire lifetime. So they go from being a child who is on their parents’ health insurance or wherever they get health care to their own careers through many insurance companies to retirement … to make sure all their information was cohesive through that entire lifetime.

WM: And lastly, getting back to the high-deductible plan, have you selected a high-deductible health plan for yourself?

Dillman: I absolutely have.

WM: You have a high deductible?

Dillman: Oh, you better believe it. In an instant. I actually have a health savings account. How about you?

WM: No, I don’t.

Dillman: And it was one of the smartest—I mean, it was a great choice.

WM: OK, so you’re doing better than CEO Lee Scott, because he has said that he couldn’t figure out how to sign up for one. Have you talked to him about how to do that?

Dillman: I think we’re probably done with the interview. I don’t know if I want to talk about how Lee manages his health care.

Pitney Bowes, the mailing equipment and services company known for printing the first metered mail in the United States, is looking to gain a foothold in the sprawling $2 trillion health care industry. And executives have turned to an unlikely source for help: Rather than enlist an outside consultant, the company looked to its own health care benefits team.

    The effort began to take shape in January 2006, when CEO Michael Critelli assembled several executives in his sixth-floor office suite at the company’s Stamford, Connecticut, headquarters.

    In attendance were Vincent De Palma, president of Pitney Bowes Management Services, and James Euchner, a vice president for the company’s Advanced Concepts and Technology group, the research and development arm of the company. Throw into this mix a more unusual addition: David Hom, vice president for employee benefits.

    While the health care industry might seem like an unusual business opportunity for a company that made its name selling postage meters, Pitney Bowes’ approach highlights how an innovative health benefits team can take a problem—managing the cost and quality of employee health care—and turn it into a solution that not only reduces costs but offers a potential source of company revenue.

    Hom and corporate medical officer Jack Mahoney have spent more than a decade reinventing the company’s health benefits. The company’s innovative benefit design, which focuses on getting employees the drugs and medical care they need to attain optimal health, has nearly halted the growth of its medical cost increases and has spawned a book, Total Value, Total Return, which had a print run of 30,000 copies and will soon have a sequel. Also, Hom has launched a nonprofit research institute financed by Pitney Bowes, the Initiative for Value-Based Health Benefits, to proselytize the company’s strategy on benefit design.

    Pitney Bowes’ methods are now being used by other employers as well as governments and health insurers. And most recently, Hom says, a large window manufacturer from Iowa has sought his expertise. 

    All of this has established Pitney Bowes, which has 34,000 employees worldwide and brought in $5.4 billion in revenue for 2005, as an innovator in health care benefits—not only for itself, but as a leader for other companies to follow.

Focus on prevention
    This multidisciplinary team, known as the Health Care Strategy Group, was given the goal of converting its expertise into a business opportunity for Pitney Bowes. Critelli gave the group four months to create a plan.

    “When you create a new frontier it allows you to see the marketplace from a much different vantage point, in terms of seeing emerging trends much earlier—two years earlier than anyone else does,” Hom says. “As a great new idea begins to cement, you begin to learn where there are opportunities for your employees, and if there are opportunities on the business side.”

    The seeds of the Health Care Strategy Group were planted, in part, years before Critelli was appointed CEO in 1996. Critelli’s tenure has been unusual in at least two respects. First, in an era of short-term executives, Critelli, 58, just celebrated his 10th year leading Pitney Bowes. He also is one of the few CEOs whose climb up the corporate ladder included a three-year term as the company’s chief human resources officer, from 1990 to 1993.

    Because of an interest in health care, spawned by a natural curiosity and having a mother who was a nurse’s aide, Critelli brought a fresh perspective to the company’s health benefits, focusing on preventive care. As head of HR, Critelli found that his ideas did not always jibe with the benefits department.

    “We got into a battle once about what was valid data, and here the benefits function couldn’t get over the hump,” he says. “They were looking totally at medical cost savings, and I said, ‘There’s got to be savings in absenteeism and presenteeism.’ And they said, ‘We can’t quantify that.’ And I said, ‘Well, it’s not zero.’ “

    Critelli adds, “I think the problem with a lot of benefit administrators is that they look at [health care] as an annual cost as opposed to a continuum of care with people.”

    Under the direction of Critelli, Hom and Mahoney, Pitney Bowes began analyzing and rating the performance of its doctors, eventually whittling its provider network to the most cost-efficient ones. Patients who saw doctors in this network had much lower premiums.

    The company introduced the controversial plan in 1996 and saved $12 million that year, Mahoney says. In analyzing the data, Hom and Mahoney noticed that 20 percent of the company’s employees had no claims in the health system. To them, that was a signal that employees with chronic illnesses were not seeking treatment until their symptoms had developed into long-term and costly problems.

    The next year, Pitney Bowes transformed its occupational health clinics into four primary care clinics. While clinics are commonplace today, 10 years ago they were considered a waste of money, Mahoney says. The idea was to reduce barriers to accessing medical services. By bringing in the “zero users” for minor ailments like a cold, nurses and doctors at the clinic could test them for more serious conditions.

    Seventy-five percent of employees who have access to the clinics visit them once a year. This gives the company valuable insight into its employees’ health and behavior.

    “We learned we could impact the health system in our own way,” Hom says. “We realized that investments upfront had long-term payoffs, and that you could actually impact quality of care through plan redesigns. It was all new ground for many folks.”

Benefit overhaul
    The company cruised into the new millennium in this manner, making adjustments along the way. It introduced healthier foods in the company cafeteria, improved its fitness centers and created a number of programs to engage employees in healthier living.

    In 2000, however, the company got a rude awakening. It had previously been able to keep its costs just below its benchmark, the Hewitt Health Value Index, but in 2000 its costs rose 13 percent over 1999, a number that pulled costs even with the benchmark. Mahoney, who was trained as an epidemiologist, says it was a wake-up call.

    “Are we going to chase our tails for the next 10 years with all of this stuff?” he recalls thinking. “We learned a little bit about changing the system, so is there something more we have to do to understand how to change?”

    Hom and Mahoney hired a company to pool Pitney Bowes’ medical, pharmacy, workers’ comp and disability claims data, as well as demographic data and information gleaned from employee visits to the company clinics. They wanted to be able to predict where costs would be and structure benefits so the company could encourage at-risk employees to get the preventive care they needed.

    The duo ran the data through different algorithms. The results confirmed what they already suspected: High-cost, poor-health populations included people with chronic diseases who were not taking their medicine, those who did not have easy access to a doctor, and employees who never set foot in a physician’s office. These were the employees most likely to be the source of higher costs.

    Hom and Mahoney used the information to build a business case for changing the benefit design, eventually investing $4.5 million on top of the approximately $135 million the company was already spending. Two years later the company introduced its value-based benefit design. The company lowered the cost of drugs employees needed to take. Gone were controls that forced people to take only generics, or to try generics before a brand-name drug. The goal was simply to lower the barriers that kept people from taking the drugs that, in the long run, would keep them healthy.

    The $4.5 million investment helped Pitney Bowes customize its benefit design and reduce costs. Since then, the company has steadily decreased its costs relative to its benchmark. Its cost increases have shrunk, until in 2006 there was practically no increase at all.

    “In the old days we were very generous in paying for people’s medical bills,” Critelli says. “Today we’d like to be very generous in helping people be healthy, but at a lower cost.”

    Critelli calls the company “an innovator in employee well-being,” and he has encouraged Hom and Mahoney to spread that image. In 2005, Hom took to the road during a 12-month sabbatical to focus exclusively on health care.

    Hom says that Critelli asked him: “Can you take what we’ve done at Pitney and try to influence the marketplace as a way to make health care more affordable at other companies? And if we can do so, we can then have a more competitive workforce.”

    Hom logged 93,000 miles that year, meeting with employers, business coalitions, health insurers, state and local governments, hospitals, doctors and academics. The year culminated in the creation of the Initiative for Value-Based Health Benefits, a part of the Institute for Health and Productivity Management in Scottsdale, Arizona.

    Critelli says the initiative and Hom’s sabbatical are examples of how Pitney Bowes is trying to create innovation outside the normal business streams. Critelli quotes Procter & Gamble chief executive A.G. Lafley, saying that half of all innovation at a company should come from outside its four walls.

    “In the same way we’re trying to do the same thing here,” Critelli says. “We’re trying to create mechanisms outside Pitney Bowes from which our employees and Pitney Bowes both can benefit.”

Entering the market
    The mandate of the Health Care Strategy Group was to find ways Pitney Bowes’ expertise could make its way into the health care industry. And the company had a model the group could work from: In 2005, Pitney Bowes acquired litigation document support company Compulit to bring its document management services to the legal industry. Hom says the question facing the company’s entry into health care was, “We think a lot of our products could play a major role, but at what point do you enter?”

    By the end of the four months Critelli had given the group, it had identified 10 opportunities. As is often the case in brainstorming new business opportunities, most of the ideas did not get the green light.

    One idea was to export the group’s benefit design. For a number of months, Hom and others had considered patenting its benefit-design process and then selling it as a consulting service. But, as Critelli says, “We don’t sell consulting services particularly well.” The company needed a “pull-through” product, something that it could sell along with the consulting services. But the idea was shelved in hopes of picking it up again in the future.

    That’s not a failure, but just part of the process, says Euchner, of the company’s Advanced Technology and Concepts division. Several years ago, he says, the concepts group helped develop a streamlined document management process for hospitals. The group brought its team of anthropologists, engineers and inventors into three hospitals to understand how patient records, in both digital and paper form, are created and used by different hospital employees—from administrators to doctors.

    The group spent a year on the project and came up with a solution. But Pitney Bowes couldn’t figure out how to make money on the project, so that idea too was set aside.

    “There are ideas that are kicked around in the ether for a while and then something comes around and coalesces them, and then an opportunity happens,” Euchner says.

    Such a coalescence was about to occur.

    Around the time the Health Care Strategy Group began gathering, Critelli met Intel chairman Craig Barrett at the World Economic Forum. Barrett spoke to Critelli about the idea of forming a consortium of employers that would support the creation of an electronic personal health record for employees. Critelli immediately said he would support the project. It would be good for his employees, he believed. Critelli also thought that Pitney Bowes could offer its expertise on security and privacy issues.

    The Health Care Strategy Group identified three ideas that were, Euchner says, “such close fits with our existing businesses, they could be pursued.”

    First, the group resurrected the hospital medical record component. Second, it began pursuing the personal health record project with Intel. In December, Pitney Bowes announced the formation of Dossia with Intel, Wal-Mart, BP and Applied Materials. Though the initial application will be for employees, a health record could be the pull-through product needed for Pitney Bowes to be able to sell health benefits consulting, Euchner says. It could also spawn other opportunities.

    The third idea from the Health Care Strategy Group is a service using both print and electronic “mail streams” to get people with chronic illness to follow their prescription medicine programs. It’s a notion that grew out of Hom’s experience.

    In 2006, the company began testing the idea that different demographic groups respond differently to communication about adhering to a drug regimen. Pitney Bowes worked with regional health plans and brought in its team of anthropologists.

    “I will say that adherence is probably the No. 1 issue with most regional health plans,” Hom says. “It goes back to economics. A lot of them now have seniors in the plan, and they have the risk. And so they’re saying, ‘I can make more profitability if I can manage the health of my population.’ “

    Critelli says promoting adherence “fits naturally into the mail stream, because you have to figure out how to communicate with people, including the mail, to get them to take their medications.”

    But, he adds, all of these ideas are still in the exploratory stage, and are not without risk. Pitney Bowes might be able to develop a system to communicate about drug adherence, but it may fail to translate that into profits. Likewise, individuals might not trust that their privacy can be ensured with electronic health records—or worse yet, patients may simply not use them.

    What is certain is that Pitney Bowes believes these ideas, especially health records, which Hom refers to as an Internet for health care, mesh with the company’s expertise. They also fit nicely with the company’s image of itself as an innovator in health care.

    “What we know today will change tomorrow,” Hom says. “This is a new adventure, a frontier. To create something and have it impact people’s health care is amazing.”

Workforce Management, January 29, 2007, p. 1, 12-17 — Subscribe Now!

Intel chairman Craig Barrett is the public face of his company’s effort to reduce health care costs—not just for the microprocessor manufacturer but throughout the health system. On December 6, Barrett announced the formation of Dossia, an employer-sponsored group aimed at creating a system of personal, portable electronic health records for member companies’ employees. Intel launched Dossia as a nonprofit organization founded with four other large employers—Wal-Mart, BP America, Pitney Bowes and Applied Materials—in order to give employees a way to manage their health care in a manner that would promote greater efficiency, lower costs and improved health. Though many details have not been worked out, the health records would be owned by employees regardless of whether they stay with the member companies. Barrett recently spoke with Workforce Management staff writer Jeremy Smerd.

Workforce Management: Why did Intel take the lead to get employers involved in creating personal health records?

Craig Barrett: Somebody had to! [Barrett laughs.] There are a number of industry organizations that have been focusing on this. The high-tech industry has looked at [rising] health care costs as a competitive issue. We bounced the idea around about doing something but somebody had to take the lead, so we picked up the project and ran with it.

WM: Have you been working on Dossia since you launched the digital health group last year?

Barrett: The thought came to us before that, while looking at health care costs. But the formation of the digital health group [launched in 2005 as part of an Intel reorganization] gave us some increased impetus. So it’s being managed out of that group but it’s really more of a corporate effort rather than a digital health group and Intel effort.

WM: Are you looking at any possible business opportunities to come out of this?

Barrett: We’re not looking for any business opportunities for Intel, per se, to come out of this. The business opportunities that the digital health group has are all involved in using IT in health care, providing either standard products to the health care industry or providing remote diagnostic-type capability. Those are not specifically related to Dossia. The point I’m trying to make is there is not a direct business relation between the digital health group and anything we’re trying to do with this program. It is a corporate effort driven to try to control health care costs on the one hand and to provide a benefit to employees on the other hand.

WM: How much has Intel spent on Dossia?

Barrett: Well, each one of the founding companies is committed to put in over a million bucks into the initial formulation of Dossia—the plumbing, the infrastructure—to make it happen. That’s just to get the program going. And the expectation is that once it’s going it will be supported by subscription basis, where companies will pay a nominal fee per employee to subscribe.

WM: How are you going to get your employees to use the personal health records?

Barrett: Well, we will put a sales program on fully explaining the program to them. But I think most employees recognize the benefit of having an electronic health record for themselves and their family members. I’m sure that every time you go to the doctor you recognize the benefit of having that health record, and all employees are in that same boat.

If the stock options backdating scandal was bad news for hundreds of executives, it was practically a ringing endorsement for Securities and Exchange Commission Chairman Christopher Cox and his efforts to make executive compensation more transparent. On July 26, the SEC adopted tougher disclosure standards for companies to report “total compensation,” including projected values for stock options, retirement payouts and other compensation, such as severance pay, for a company’s highest-paid executives.

    Though much of the backdating ended in 2002, when the Sarbanes-Oxley Act required executives to file with the SEC within two days of exercising stock options, news of it did not come to light until after the executive compensation rule was proposed in January. The final rule, therefore, included a last-minute addition: Companies must explain how they arrived at the exercise price of their stock options if the price is lower than the value of the options on the date of the grant.

    The new rule is the latest attempt by regulators to shine a light on the compensation agreements that take place behind boardroom doors. The average CEO pay, according to a University of Southern California study, was 369 times greater than the pay earned by the average worker last year. That compares with 131 times more in 1993 and 36 times more in 1976. The Business Roundtable, whose members include some of America’s largest companies, says pay for executives last year was 179 times that of a typical employee.

    As a former corporate finance lawyer, Cox brought with him an understanding of the SEC’s regulatory history and an appreciation for the unintended consequences of disclosure laws. A tax law introduced in 1993 said companies could not take deductions on compensation of more than $1 million unless it was pegged to performance. This spawned an era of stock options and the growth of less transparent means of compensating executives. The era may have ended when Cox established the new disclosure rules.

    To avoid unintended consequences of his latest proposal, Cox says the SEC “will soon issue further accounting guidance that will help honest companies to avoid any problems with the law.”

Background: Christopher Cox was a Republican congressman representing a district in California’s Orange County from 1989 until his swearing in as chairman of the Securities and Exchange Commission in 2005. A 1977 graduate of both the law and business schools at Harvard University, Cox developed his expertise in venture capital and corporate finance law. As a congressman, he sat on a number of committees with oversight of the U.S. capital markets.

Workforce Management, December 11, 2006, p. 23 — Subscribe Now!

Rep. John Boehner’s focus on pension reform did not begin when he persuaded 76 Democrats to vote July 28 for HR 4, a bill he sponsored. It began seven years earlier.

    As chairman of the House Subcommittee on Employer-Employee Relations in 1999, he developed expertise in pension minutiae and a vision for reform by holding a series of hearings on the issue.

    “It seems to me he has a good grasp of the intricacies and all the working pieces of what is an extremely complex issue,” says Martha Priddy Patterson, a director with Deloitte Consulting’s human capital practice.

    Boehner’s expertise helped him usher in the first significant changes to pension law in three decades, an effort that culminated August 17 when President Bush signed the Pension Protection Act into law. The bill was among the most sweeping pieces of legislation during the 109th Congress. Its passage marked a divergence from the partisanship that had sunk previous attempts to address issues central to the vitality of American business and the quality of life employees expect when they retire.

    Boehner, a Republican from Ohio and the majority leader, decided to focus on modernizing pension rules when he became chairman of the Education and the Workforce Committee.

    “He saw a huge need that was not being met by today’s laws, which were working against rank-and-file workers when it comes to their pensions,” says Kevin Smith, Boehner’s director of communications.

    But it wasn’t until U.S. airlines faced bankruptcies, raising the specter of a taxpayer bailout of the Pension Benefit Guaranty Corp., that the rest of Congress was willing to make the bipartisan effort to pass pension legislation.

    The law gives airlines more time to fund pension liabilities, allows the use of cash-balance plans and requires employers to fully fund pension plans, amortizing their deficits over seven years. The legislation also makes Roth 401(k) accounts and 401(k) catch-up contributions permanent retirement plan features. It encourages employers to automatically enroll employees in 401(k) plans.

    “Doing something big is never easy,” Smith says. “When you work on a bill for six years, you understand very quickly that things take time. Things take perseverance and a lot of commitment.”

Background: John Boehner was first elected to the House of Representatives in 1990. He helped close the House Bank, an effort that exposed corruption and led to the Republican takeover of Congress in 1994. Boehner became House majority leader in February, winning a three-way race to succeed former Rep. Tom DeLay. After the November elections, Boehner was voted to become House minority leader when the 110th Congress convenes in January.

Workforce Management, December 11, 2006, p. 22 — Subscribe Now!

Susan Chambers

Chicago’s mayor went 18 years without using his veto power—until September 12. Daley’s first veto quashed the city’s “big box” law, which would have required large employers to pay a minimum wage of at least $10 an hour plus $3 an hour in benefits by 2010. (Sponsors said big-box retailers were selected because, as corporations with more than $1 billion in profit in 2005, they were deemed best able to absorb increased labor costs. ) The veto paved the way for Wal-Mart’s entry into the city. It also became a sign of the tension regarding efforts to increase minimum wages. In remarks announcing his veto, Daley called on the U.S. government to increase the federal minimum wage so cities would not be compelled to act unilaterally on the issue and risk losing large employers. A few weeks later, the first Chicago Wal-Mart opened, attracting thousands of job applicants and customers alike. The Bentonville, Arkansas, company has since made plans to open five supercenter stores in the city. It so happens that the sites being considered for the new stores fall in the neighborhoods represented by the elected officials who promised Daley they would not override his veto.

Mitt Romney

The Massachusetts governor showed it was possible to pass a law this year mandating health insurance coverage with the support of large employers, not in spite of them. Romney, whose hopes as a Republican presidential candidate will rest largely on the bipartisan health care legislation he signed in April, did so by shifting the responsibility for coverage from employers to individuals. This appealed to the philosophical and fiscal sense of big business. Employers already struggling with high health care costs would not have to pay more if they already provided health insurance to their employees, and a mandate requiring individuals to obtain health insurance would have the added benefit of spreading risk and, theoretically, slowing the escalation of premiums. Companies and state legislators hope that universal coverage and higher Medicaid reimbursement rates for doctors and hospitals will lower insurance costs for everyone. But until the law takes effect in January, that hope remains a hypothesis. Romney, though, has ushered in a new paradigm in health care policy. With the blessing of large employers, it is now being looked at in Vermont, Maryland and elsewhere.

Andy Stern

The promise of a pay raise and health benefits won by Houston janitors after walking the picket lines for nearly four weeks this fall was a victory for workers. But it also was a crucial win for Stern, president of the Service Employees International Union and the leader behind the effort to reform the labor movement. Stern led a group of five insurgent unions that broke away from the AFL-CIO last year in the belief that a new coalition was needed to revitalize the labor movement. The new group said it would focus on immigrant workers in low-paying service industries rather than the high-paying manufacturing jobs of the Rust Belt. The coalition was named Change to Win, but critics said the group was more style than substance. The victory in Houston, however, was the largest in a string of contracts won this year by the 1.8 million-member SEIU. In addition to increasing the SEIU’s rank and file by as much as 5,300 people, the strike vindicated Stern’s ability to breathe new life into a labor movement whose membership as a percentage of American workers remains at an all-time low. “Employers need to ask not ‘How do we pay less?’ ” Stern has said, “but ‘How are workers going to be valued in the future?’ “

Workforce Management, December 11, 2006, p. 25 — Subscribe Now!