Author: Jeremy Smerd

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!

Carl Garrett signed up to have his employer, Blue Ridge Paper Products, send him to India in September for a gallbladder operation that would have saved the company money while putting some in Garrett’s pocket as well. But the trip was canceled after Garrett’s union threatened to file an injunction. And rather than become a pioneer in a burgeoning industry, Garrett and Blue Ridge Paper became its first victims—a symbol of the challenges facing employers who are looking to save money on health care.

    In a scathing letter to Congress, United Steelworkers president Leo Gerard listed a number of reasons why traveling overseas for health care is a benefit with an image problem.

    “No U.S. citizen should be exposed to the risks involved in international travel, possible exposure to less than sanitary conditions, lack of oversight, forfeiture of legal rights and little, if any, recourse in the event of problems. These are all unwarranted risks to which Americans should not be subjected,” Gerard wrote. “The willingness of employers to offer incentives for assuming these risks is frightening. The right to safe, secure and dependable health care in one’s own country should not be surrendered for any reason.”

    While thousands of Americans annually travel abroad to India, Thailand and Mexico for elective surgeries that meet or exceed U.S. standards but are performed for a fraction of the cost, large self-funded employers, facing increasing health care costs, have been hesitant to use this option to save money. One reason is that large companies fear being vilified like Blue Ridge Paper.

    But concerns regarding image are just one part of the puzzle. Employers wanting to offer this new benefit to employees must also consider health and legal risks. Employers need to decide whether doing so violates ERISA; whether the employer will be held liable if something goes wrong in the operating room; how an out-of-country network is to be administered; and whether the employee or employer will pay taxes on items not traditionally exempt, such as airline travel and hotels.

    While savings are hard to quantify, they could be substantial. Mercer Human Resource Consulting has estimated that the surgeries most likely to be “offshored”—a term of art for the industry also known as medical tourism—in the fields of orthopedics, cardiology, neurology and urology represent at most 2 percent of total U.S. health care spending, or about $40 billion. (According to the Centers for Medicare and Medicaid Services, national health care expenditures totaled $1.9 trillion in 2004 and are projected to reach $2.16 trillion for 2006.)

    Reducing its share of those costs is what prompted Blue Ridge to consider sending Garrett to India.

    Garrett, a machinist at the Canton, North Carolina, company, is the kind of employee who takes every opportunity to save on medical care. In 1999, with the company’s health care costs increasing 18 percent a year, Blue Ridge was bought and spun off by a venture capital firm. As part of the company’s transition to a 45 percent employee stock ownership program, the union agreed to a 15 percent wage cut and seven-year wage freeze.

    Blue Ridge then launched a diabetes management program that waived co-pays on medicine in hopes of reducing overall health care costs. Garrett, his job intact but with less money, saved hundreds of dollars on diabetes prescriptions he got for free.

    The company’s annual health care cost increases had slowed to 3.5 percent by 2005. That’s when Garrett heard his employer was considering sending employees to India for elective surgeries. Part of the company’s savings would go back to employees. Garrett volunteered to have his gallstones removed and, while he was at it, have his rotator cuff fixed. The company would save about $80,000 on the two surgeries, and Garrett, for his trouble, would receive $10,000 of the savings.

    Then the union got word of the deal.

    “We said fine,” says Bob Williams, a spokesman for Blue Ridge Paper, of the company’s decision to acquiesce to the union’s concerns. “We were trying to work from a collaborative approach.”

Assuaging fears
    Not consulting with the union was a mistake, but the pitfalls probably wouldn’t have ended there. David Frazzini, a principal at Mercer Health and Benefits, which represents about 10 large self-insured companies exploring medical tour­ism, says the newness of the industry and the misconceptions about it require employers to consult with those in the company who have an emotional and fiduciary stake in employee health benefits. That includes union and nonunion employees, company boards and others.

    “There are still issues of perception, and those are real considerations,” he says. “It’s a new topic and new things scare people. Stakeholders would have to be in agreement to make this play.”

Medical tourism may fource American hospitals to lower prices to become more globally competitive. “Outsource me. I just want to be busy and do what I love to do.” –Cary Passik, private practice cardiothoracic surgeon on Planet Hospital’s list of American doctors

    Companies catering to this potential market are aware of employers’ concerns and are doing what they can to offer products to allay worries.

    Making sure medical care is of the highest quality is the first step toward sending employees abroad for surgeries. Such due diligence is part of the service provided by medical tourism companies and health insurers, some of which are beginning to offer out-of-country networks of hospitals and doctors. Because every major health insurer has doctor and hospital networks around the globe for companies with expatriate employees, finding quality care is not as difficult as it might seem.

    Doctors or hospitals outside the U.S. must meet standards similar to those for medical providers stateside, executives from medical tourism companies say. In 1999, the same organization that created the Joint Commission on Accreditation of Healthcare Organizations, the universal standard for hospital accreditation in the U.S., launched an international accreditation and quality improvement program called the Joint Commission International. The International Organization for Standardization, a nongovernmental organization, has also established guidelines that employers can use to determine whether hospitals meet internationally recognized safety standards.

    The benchmark for doctors is board certification within their specialty, either in the United States or the United Kingdom.

    “So the quality modifiers are the same in the U.S. as they are overseas,” says Rudy Rupak, the founder of Planet Hospital, a medical tourism company. Rupak says knee replacement surgery in India costs $3,500, compared with an average 2003 cost of $31,000 in the U.S., according to the American Academy of Orthopedic Surgeons.

    Beyond quality, there is a cultural gap. Accreditation and board certification do not replace the emotional connection between doctor and patient, Rupak says. For that reason, he has developed what he calls his “Best of Both Worlds” program. In it, an American doctor delivers pre- and post-operative care and travels abroad to perform the surgery.

    Cary Passik, a cardiothoracic surgeon in private practice in New Haven, Connecticut, where he is also the associate section chief at Yale New Haven Hospital, believes medical tourism may force American hospitals to lower prices to become more globally competitive. Being on Planet Hospital’s list of American doctors may also help him make up for the decline in the volume of surgery his three-man practice has experienced in recent years.

    “Outsource me,” Passik says. “I just want to be busy and do what I love to do.”

Removing the middleman
    The circumstances fueling interest in overseas medical care have made employers and doctors like Passik strange bedfellows. Both view hospitals as expensive middlemen between doctors and patients.

    For every coronary bypass surgery Pas­sik performs, he is paid $2,800. That compensation stays the same, regardless of how much the hospital charges the patient or his insurer, a number he says ranges from $25,000 to $50,000. And if the person is not insured, Passik says, he does not get paid.

    The cost of bringing an American specialist would be passed on to the patient. But in the end, a knee surgery performed by an American doctor abroad would total about $7,000.

    “Hospitals don’t do anything for me except give me a place to practice,” Passik says.

    Passik hopes medical tourism will help create a health care market that offers individuals and employers more competitive rates. But to achieve this market change, enough employers must buy into the concept of medical travel to create the kind of critical mass that moves markets.

    Employers will need indemnity against lawsuits from employees with a medical malpractice claim, and they will need to integrate the overseas option into their existing benefits plan. Rupak says his company may offer a liability policy that protects employers from lawsuits.

    The solutions may depend on whether health insurance carriers enter the market. These companies would be best equipped to handle the legal and administrative hurdles of medical tourism.

    Smaller health insurance companies, like HealthNet in Woodland Hills, California, offer special plans for employers along the Mexico border. United Group Programs, a Boca Raton, Florida, company, is another regional health insurance company among the first to offer an out-of-country network to both fully insured companies and employers that offer “mini-medical” plans, which pay for a portion of the cost of surgery. The company, which has partnered with Planet Hospital, has about 300 clients from large companies with 10,000 or more employees, but only a handful, such as staffing company Manpower and DaimlerChrysler’s Mercedes-Benz dealerships, have expressed an interest in exploring the option.

    Major health insurance carriers, including Aetna, Blue Cross, Cigna, UnitedHealth Group and WellPoint, offer hospital networks for overseas members. None, however, have offered an-out-of-country hospital and doctor network for members stateside. Several say they are exploring the idea.

    Ultimately, the biggest impediment may be employer reticence, not a lack of willingness from employees to go abroad. If the incentives are right—waived co-insurance fees, a free trip for a companion or a share in the savings—employees will likely be enthusiastic, those in the industry say. Employers require more coaxing.

    United Group Programs vice president Jonathan Edelheit is enthused about his company’s out-of-country network. His customers, however, are not so openly enthusiastic. All declined to be identified for this article.

Workforce Management, November 20, 2006, pp. 1, 29-33 — Subscribe Now!

Health reinsurance programs have generally been designed to help small employers and individuals afford health care premiums. But the concept is gaining support among large employers, like Wal-Mart, that would benefit if employees they did not cover found affordable health insurance elsewhere.

   Reinsurance is essentially insurance for insurers. It is meant to subsidize the cost of health care incurred by older and sicker individuals. State-funded reinsurance pools, which exist in at least 20 states, are intended to mitigate the costs associated with the riskiest cases and help reduce premiums for individuals and smaller companies.

   Now reinsurance is gaining political ground on a national level, and support exists among large employers who face pressure because they do not insure a large portion of their employees.

   On PBS’ “The Charlie Rose Show” in July, Wal-Mart CEO Lee Scott said he would like to see government play a role in the “catastrophic side” of health care.

   The company’s chief health care lobbyist, Kate Sullivan Hare, said Wal-Mart was working with other large employers to develop a “private reinsurance mechanism.” Who is covered by the program, though, and at what amount have not been sorted out.

   “We haven’t specified that level of detail,” Hare says.

   For employers in industries with high turnover rates and a small percentage of employees who are covered by health benefits, a reinsurance program could be an affordable way to provide health insurance, says Deborah Chollet, a senior fellow at Washington, D.C.-based Mathematica Policy Research Inc. Wal-Mart would not receive any direct financial benefit from a reinsurance program, but it could help their image, she says.

   “I think it simply helps to mitigate the political pressure to cover more of their workers,” Chollet says. “For everybody that doesn’t have a group health option-not just workers at Wal-Mart-there needs to be a health insurance option.”

   Reinsurance differs from efforts some states have made to create high-risk pools that provide coverage to people who, because of prior conditions, have been denied coverage by insurers. Reinsurance helps ease the risk of every covered person and defrays the cost of coverage by paying a portion of the most expensive health care bills.

   “A sick person is offered the same premiums as a healthy person,” Chollet says. “You cannot be denied coverage.”

   National reinsurance has political appeal to both Democrats and Republicans and works to address a fundamental imbalance in the way health care spending is accumulated. According to a recent Watson Wyatt study, the sickest 4 percent of employees account for nearly half the health expenditures in any given year, while the healthiest 72 percent make up just 11 percent of health expenses.

   “Why are we trying to shave off dollars on the front end of prevention and basic services?” says Kathleen Stoll, director of health policy for Families USA, a group that advocates coverage for uninsured Americans. “We have to understand what drives up the cost of health care: high claims from a small number of people.”

   Whether the federal government pays for some of the cost of high-risk enrollees is a question that will likely depend on the spending priorities of Congress, Stoll says.

   Sen. John Kerry, D-Massachusetts, made reinsurance part of his platform during his failed presidential bid in 2004, and Sen. Bill Frist, R-Tennessee, floated reinsurance in a policy speech not long after. But it was Oregon Sens. Gordon Smith, a Republican, and Ron Wyden, a Democrat, who in July introduced the first national legislation on reinsurance. That legislation, which is in the Senate Finance Committee, would create demonstration projects to decide the best way to set up a national reinsurance program that would offer insurance to people suffering from catastrophic illnesses or who have exceeded their lifetime maximum coverage under their insurance plans.

When leaders at the Pension Boards of the United Church of Christ talk about a “good news story,” they are referring not to the teachings of Jesus, but to the saving powers of affordable health care.

    Like other stories with roots in religion, this one begins with a covenant: The denomination’s 2,000 congregations across the United States are obliged to purchase health care for their employees through the Pension Boards, the denomination’s benefits administrator, if the cost of insurance is within 15 percent of a competitor.

    But if the board’s health insurance exceeds the cost of the covenant, the informal agreement can be broken in favor of using a local health insurance provider. When health premiums climbed by 25 percent one year in the late 1990s, the plan’s attrition floodgates opened.

    By the end of the millennium, the Pension Boards had lost 1,100 households, dropping to 6,000. Its member pool had shrunk and its costs continued to climb.

    “When people bail out, the cost goes up for everybody that is left,” says Scott Patterson, senior minister at Dover Congregational United Church of Christ in Westlake, Ohio, a suburb of Cleveland. His church is part of the health plan because he thinks the church “has a commitment to the denomination.”

    As is the case for employers in the for-profit sphere, the rising cost of health care has made it increasingly difficult for churches and nonprofit organizations to offer health care benefits. In a 2004 survey of nonprofit organizations in the realm of services to children, the elderly, community development and the arts, the Johns Hopkins Center for Civil Society Studies found that they were shifting more of the cost of health care onto their employees, who already make less than private-sector workers. More than 60 percent of the organizations reported increasing their employees’ share of health costs. Still others eliminated raises or reduced other employee benefits in response to rising health benefits costs.

    In the case of Patterson’s church, the health care covenant was honored, but only after some internal discussion.

    “We don’t have very many churches that have spare money lying around,” Patterson says. “Health care is a place where some of the business people feel we could cut costs. But that, I don’t think, would be of great benefit to the clergy. I think it would hurt us in the long run.”

    Though some churches have introduced co-pays for drugs and doctor visits, congregations pay health care premiums. That arrangement is sacred ground. Having clergy themselves pay premiums would cut into their already low salaries. Average clergy salaries at the United Church of Christ are about $46,000 for men and $41,000 for women, amounts that have not kept up with other nonprofit professions, says Michael Downs, president of the Pension Boards of the United Church of Christ based in Cleveland. (Catholic priests have no family to support and take a vow of poverty.) Stagnant salaries have also been coupled with a drop in the social standing of clergy.

    “There was a time a generation or two ago that those who made a choice to become clergy were the cream of the crop,” says Kenneth Ulmer, director of health plans for the Pension Boards. “They had respect and a high position. On the social side, that has deteriorated dramatically.”

    The result has been that new ministers come into the fold when they are older, many as midlife career changers. In the Episcopal Church in the United States, the average age at ordination is 44, says Matthew Price, director of research for the Church Pension Group. Thirty years ago, three out of every four Episcopal priests were under 35.

    That group has aged and not been replaced. Now only one in four priests are under 35.

    “As a result, we are only getting people who are in that part of their life when they are significant users of health care,” Price says.

Different faiths, different needs
   Unlike the private sector, where the young and healthy offset the costs of older workers who typically spend more on health care, a majority of church clergy and lay workers are older than 45. The average age at the United Church of Christ is 57, Downs says.

    Catholic clergy and lay workers are even older, with an average age of 65, he says. In the Episcopal Church, the average age is in the low 50s, Price says.

    These trends span church denominations and are a source of common consternation for members of the Church Benefits Association, a group representing more than 50 church denominations that was founded in 1915. At one time the members considered forming a common health plan design for the entire group in order to lower costs. That idea never got off the ground.

    “Although we work very well together, the idea of getting a common plan design was not effective,” says James Sanft, chairman of the association’s health benefits committee and an actuary for the Lutheran Church-Missouri Synod. “We all had different business models.”

    Congregations in the United Church of Christ pay a flat fee toward their benefits regardless of congregation size or how old its members are. Thus the covenant: The more people in the plan, the cheaper it is.

    The Evangelical Lutheran Church of America, on the other hand, has six rate classes for health plans based on geographic differences in costs. A congregation’s contribution rate is a function of a pastor’s compensation, says Brad Joern, director for health products at the ELCA Board of Pensions.

    Given the plan differences, the benefits association focused on drug expenditures. In 2001, the group formed a coalition to purchase prescription drugs from a pharmacy benefit manager.

    Today, there are two coalitions: Eighteen denominations contract with Medco, and seven buy through Express Scripts.

    “The more lives we bring into the coalition, the better our deal gets,” Sanft says. By bringing a large volume of consumers together—168,000 households in the Medco coalition alone—administrative savings enjoyed by the PBMs get passed on to the church groups, as do rebates and discounts on wholesale prices. Using two PBMs keeps prices competitive.

    During a 36-month period from 2001 to 2004, the Medco coalition saved $30 million on pharmaceutical spending, Sanft says. Modeled after the success of the drug coalitions, the association began to purchase medical insurance and mental health services collectively.

    Savings from these programs have been modest, but there have been other benefits. Meeting with insurance companies and medical providers has helped those companies understand the special needs of clergy and church bodies, Sanft says.

    “Professional church workers often feel they live in glass houses,” Sanft says. “They’re always being watched. They are expected to have no issues, but they have normal pressures like anyone else. Everybody knows their business. It may be a big risk for them to step out because they are supposed to be the caregiver; it might be different for them to step out and say, ‘I need help.’ “

    Purchasing coalitions also exist in the private sector, but the church health care coalitions differ in an important respect: Each denomination shares information about their demographics and plan designs that private-sector companies usually hide because competitive benefits packages are a powerful recruitment and retention tool.

    Lutherans have lower per-person health care costs because their large network of parochial schools includes a younger population and more women, as opposed to the mostly male makeup of other church groups. Frank discussions about each member group’s costs help each understand why those costs vary among the denominations.

    “We are so open about sharing information because at the core, we are about the same thing, which is the mission of the church,” Sanft says.

Some miss out on savings
   Not all churches have benefited from the coalitions. The Presbyterian Church in America, which has 5,000 church employees and is concentrated in the Southeast and Midwest, dropped its health plan in February because of escalating costs and low enrollment, says Chet Lilly, the denomination’s business manager. The church, with only 800 people enrolled when its health plan closed, could not make enough money in fees to support its administrative costs.

    “The cost way exceeded what we could bring in with that particular plan,” Lilly says.

    For others, the savings from purchasing coalitions are not enough to offset the expense of maintaining old buildings and the cost of other forms of insurance.

    At the Episcopal Diocese of New York, which includes 200 congregations in 10 counties, parishes are required to pay clergy a minimum salary—for someone with 15 years of ordained experience that equals $42,000 a year—plus housing and benefits. Though the benefits are managed by the Church Pension Group, the parishes are responsible for the cost.

    “There are a number of parishes that used to afford a full-time clergyperson and now are looking for a part-time clergy,” says Gerald Keucher, comptroller for the diocese. “It’s the continuing pressure on budgets, as so much of what churches have to buy increases so much faster than the general rate of inflation.”

    At one such parish 75 miles north of New York City, the minister accepted less than the minimum pay and received health insurance through his wife’s employer in order to serve the community he called home. Upon his retirement, the parish of about 60 congregants realized it could not afford a new priest. A call for a part-time priest was eventually answered by a doctor who was making a midcareer switch and was willing to work part time at a local hospital.

    The church warden, who asked that neither he nor his church be identified for fear of upsetting other struggling congregations in the area, called the part-time clergyman a “gift from God.”

    “He’s ministering to the body and now he’s ministering to the soul,” the warden says.

    Still, the savings for members of the various coalitions have stemmed the upward spike in health care costs and funneled money back into the churches. The Episcopal Church has saved about $10 million since joining the pharmacy benefits coalition in 2001. Its plan has gained about 1,500 households, says Tim Vanover, the administrator of the Church Pension Group’s medical trust, which has 15,000 households totaling 22,000 people.

    Downs, of the United Church of Christ, says cost growth for his plan is now below the national average. The plan’s attrition has subsided. Part of the savings, Downs says, has increased good will among denominations.

    “The ecumenical church is coming together,” Downs says. “We may have different points of view on a number of things that are theological, but we have come together to leverage the purchasing power of the church to get better health care outcomes.”

Americans today get their history lessons from David McCullough, the country’s pre-eminent historian, a two-time Pulitzer Prize and National Book Award winner and author of best-sellers John Adams and 1776. McCullough, a keynote speaker last month at the Society for Human Resource Management annual conference, grew up in Pittsburgh and was an English major at Yale University before he “backed into history,” he says. McCullough recently spoke with Workforce Management staff writer Jeremy Smerd.

    Workforce Management: What might a historian offer businesses more concerned with tomorrow than yesterday?

    David McCullough: Well, I like to quote a wonderful line from a friend of mine, Daniel Boorstin, who was a very good historian and Librarian of Congress: “Trying to plan for the future without a sense of the past is like trying to plant cut flowers.” A sense of history gives one not only a view of what went before, but it also conveys the very realistic idea that we will be judged by history and that we are part of history. History is a way to measure ourselves against past performances. When we look at the way people faced up to past problems, broken hearts and broken promises, we can ask ourselves: How are we doing when faced with circumstances we don’t like?

    WM: On an individual level, how is history relevant to people in business?

    McCullough: Anybody who serves as a leader or who aspires to leadership must understand history and can learn far more about leadership in history than any other way. The lessons of history are manifold, to say the least.

    WM: Why are you so passionate about history?

    McCullough: We are raising a generation of young Americans who are historically illiterate, and this is a very serious problem. It’s a shame. It’s unnecessary. And it can be corrected.

    WM: Aside from your history class in high school, how else did you develop your passion for the past?

    McCullough: I grew up at a time when people had dinner together. The talk at dinner, again and again, was about history. It wasn’t labeled history; it was what went on in the old days of Pittsburgh. What happened to my father, my grandfather and my great-grandfather; the labor troubles and what the steel mills were like in those days.

    WM: And how does understanding history help us deal with the challenge of managing workforces?

    McCullough: The person who picks up a biography or history book that deals with human events wants to know about people and why things are the way they are, particularly in times of stress and uncertainty. I can’t tell you how many letters I’ve received that told me my biography of John Adams, which came out in 2001, helped them get through the aftermath of September 11th. When September 11th happened, there were people on television and in the press saying this was the deepest, darkest, most uncertain, dangerous time we had ever been through. September 11th was without question the worst single day in American history. It is a dangerous, difficult time and it’s a far more dangerous time than people like to keep in mind, but 1776 was a far darker time; so was 1942. Knowing that, you are more inclined to take what troubles we have with a little more backbone.  

Workforce Management, July 17, 2006, p. 9 — Subscribe Now!

Executives at Caterpillar Inc. call their employees’ penchant for costly brand-name drugs the “purple pill syndrome,” a condition that burns a hole in company pockets.

    Google the words “purple pill” and up pops the Web site purplepill.com, advertising Nexium. The medicine relieves the heartburn symptoms of acid reflux disease. Though generic versions are available, the seductiveness of the ads has led to high costs for companies like Caterpillar, where employees are running up expensive tabs at the drugstore with their preferences for more expensive brand-name drugs instead of a generic or over-the-counter equivalent.

    “Someone sees an advertisement for a brand-name prescription drug and they think, ‘Hey, that could be the answer,’ and they go for that instead of an over-the-counter drug,” says Caterpillar spokeswoman Rachel Potts, echoing a lament voiced recently by Sidney Banwart, the company’s vice president for human services.

    Often the goals of the pharmaceutical companies—promoting their brand-name drugs—come at the expense of companies looking to keep their costs down, especially when cheaper alternatives are available. Companies, helpless to take pharmaceutical advertising head on, are changing their health plans to make employees pay more if they want a brand-name drug when a generic is available. Employers are also putting an end to rebates received by pharmacy benefit managers for pushing brand-name drugs.

    Pharmaceutical companies spend nearly as much on promoting their drugs as they do on developing them. In 2003, money for research on new drugs dropped to $30.2 billion from $31.6 billion a year earlier. Spending on promotion of drugs, meanwhile, rose to $25.3 billion from $21.2 billion, according to the Pharmaceutical Research and Manufacturers of America, a pharmaceu­tical industry group, and IMS Health, a market research company covering the pharmaceutical industry.

    IMS considers promotion to include direct-to-consumer marketing, which accounted for $4.2 billion in 2005, up from $2.6 billion in 2001. It also includes the retail value of samples, journal advertising, and office and hospital promotion. Employers, meanwhile, are spending an increasing amount on prescription drugs. In 2004, U.S. companies spent $188 billion on pharmaceuticals, up from $174 billion in 2003 and $20 billion 20 years ago.

    Caterpillar, which spent 25 percent of its total health care costs, or $156 million, on prescription drugs in 2005, moved to a two-tiered co-pay system to make buying brand-name drugs more expensive for employees. After that failed to bring down costs, the company created a three-tiered co-pay system in which co-pays for brand-name drugs were higher. According to research by Hewitt, 78 percent of large companies use a three-tiered approach to lower prescription drug costs.

    “In many plan designs there is a perverse incentive,” says Gary Kushner, an employee benefits consultant and president of Kushner & Co. “Though it should cost the employee less to buy an over-the-counter drug, it costs more.”

    While the rate of increase in the cost of drugs slowed for Caterpillar, it did not slow enough. Beginning in September, Caterpillar will institute a “step therapy” program, the latest model for reducing prescription costs. Employees will have to pay the full cost for brand-name drugs if a cheaper alternative is available, unless doing so contradicts a doctor’s prescription.

    Some argue that the cost containment strategy can boomerang. Compliance with cholesterol-lowering drugs dropped 6 to 10 percentage points when co-pays were increased from $10 to $20, says Lori Reilly, a vice president for policy at the Pharmaceutical Research and Manufacturers of America, citing a Rand Corp. study published in January. She says higher co-pays may deter drug usage and lead to more expensive hospitalization down the road for improperly treated health problems.

    “It may be a short-term gain but a long-term cost to the health care system and to the employer,” she says.

    Luke Szymanski, a senior consultant with Hewitt’s pharmacy practice, says step therapy may be most effective in breaking the powerful hold pharmaceutical advertising has on consumers. Another way he says companies are reducing costs is by asking pharmacy benefit managers to pass on to companies the rebates pharmaceutical manufacturers offer to the PBMs for using brand-name drugs.

    But beware that “the PBM has a right to renegotiate the contract because you are taking that revenue away from them,” Szymanski says.

    Despite shifting more costs onto the consumer, perceptions are hard to change. When the allergy drug Claritin became available over the counter several years ago, Caterpillar noticed that employees and dependents stopped using it, preferring a generic prescription drug instead. Cost had something to do with that trend, but Potts believes attitudes were also at play.

    “Perhaps people feel if it’s over-the-counter it must be inferior,” she says.

Workforce Management, June 26, 2006, p. 6 —Subscribe Now!

It took more than 40 years, four doctors and a misdiagnosis of depression before Lew Mills, a family therapist in San Francisco, was identified as having attention deficit hyperactivity disorder.

    “It was a slow process,” says Mills, who was properly diagnosed in 1998 and is now 49. “Now there’s much more willingness to make the diagnosis. Then, adult ADHD was a new idea.”

    Once considered a mental disorder affecting only children, psychiatrists now consider ADHD to be a lifelong condition. And many adults, like Mills, are being retroactively diagnosed. The number of adults age 20 to 44 who take ADHD medication has grown 139 percent in the past five years, according to a study released in March by Medco Health Solutions.

    Despite rising prescription drug costs, which Medco says totaled $600 a person last year, up from $250 in 2000, awareness of the disorder will help employers tap into the talents associated with adults who have ADHD while avoiding the pitfalls.

    By conservative estimates, about 8 million adults show symptoms associated with ADHD: disorganization, impulsivity and inattention. Those characteristics can make people feel out of con- trol, anxious and depressed.

    When employers think about people with ADHD, they might see Bart Simpson misbehaving in school. But adults with ADHD, which used to be known by the stigma-inducing name of “minimum brain dysfunction,” also tend to be creative problem solvers, risk takers, and big-picture thinkers, says Kathleen Na­deau, the director of the Chesapeake ADHD Center and author of ADD in the Workplace.

    Nadeau cites as an example JetBlue founder and CEO David Neeleman, who turned a tendency to misplace plane tickets into the breakthrough concept of paperless tickets.

    “What’s critical is for companies to match the person with the position,” Nadeau says. “They are going to be dreadful employees if you put them into a position they are not suited for.”

Exact matches are not always possible. For employees struggling with tardiness, disorganization or other issues, work coaches and professional organizers have been known to help, Nadeau says.

    Like so many other adults with untreated ADHD, Mills found himself in a job that didn’t fit. As a consultant in the late 1990s in charge of managing a handful of clients, he found it difficult to organize and prioritize his work. Rather than dig in and make phone calls, he became overwhelmed by the procedural details of his office life.

    His anxiety paralyzed him. Soon he quit, with the company’s blessing.

    Estimated economic losses associated with ADHD are staggering. Adults who have ADHD have a higher unemployment rate, switch jobs more frequently and are out sick more often because they are more likely to suffer from stress, depression, anxiety and other emotional problems. All told, lost income for adults with ADHD nationally totals $77 billion annually, according to a study published by Joseph Biederman, a psychiatry professor at Harvard Medical School and the chief of Pediatric Psychopharmacology at Massachusetts General Hospital.

    Since receiving effective medication and counseling, Mills has seen a turnaround in his work. He returned to family and marriage therapy and has seen his practice grow as his clinical and organizational skills improved. He listens more attentively and can quickly pro­cess new information to help diagnose patients.

    “It’s hard to put your finger on it, but there is a change in perspective once you’re diagnosed,” Mills says. “A diagnosis is helpful in understanding what is difficult. It also helps me be easier on myself. I’m not sitting there saying I’m nuts.”

Workforce Management, June 26, 2006, p. 12 —Subscribe Now!

In the summer of 2002 John Mackey, founder and CEO of Whole Foods Market, took a long walk in the woods to clear his head. Among the issues foremost on his mind was his company’s rising health care costs.

    Four and a half months later, in October, Mackey completed the 2,175-mile Appalachian Trail; he also decided that beginning January 2003, Whole Foods would become one of the first large employers to switch exclusively to a high-deductible health plan. For Mackey, a libertarian who believes strongly in individual responsibility, the new plan represented the best way to force employees to be mindful, cost-conscious health care consumers.

    But the transition was not wrinkle-free. Despite a short but intensive campaign by Mackey to educate employees about the pending change and its rationale, the top-down decision ran counter to Whole Foods’ democratic culture, upsetting employees who regularly vote on company policy, from how to display produce to whether to hire someone in a store.

    “The change was going to happen anyway, which was a little challenging because that does not go with the Whole Foods Market philosophy of having a shared stake,” says Amy Schaefer, a company spokeswoman. “But because the plan had to be implemented so quickly, that’s the way it was.”

    The effort to change health plans provided an intense lesson for Whole Foods, which, along with Wendy’s International and Textron, was among the first companies to make high-deductible health plans their only health care offering: How a company transitions to a new plan is as important as making the change.

    Analysts say large employers have learned from the experience of others in recent years and, as a result, are taking longer between when they decide to drop all other health plans in favor of a high-deductible plan and actually implementing the change. A longer time frame may help change employees from passive consumers of medicine to active consumers of their health care.

    “For everybody, it’s a change from the traditional plan,” says Tom Billet, a senior benefits consultant with Watson Wyatt. “It’s not easy. For the employee, it requires more thought and research. But that’s the idea.”

    Enrollment in high-deductible plans is growing rapidly. UnitedHealth Group, for example, says it experienced an 80 percent year-over-year increase in the number of businesses offering consumer-directed health plans beginning in 2006, with 11 percent of its large employers making it their only health care plan.

    “We’re seeing that mostly the large companies, those with over 2,000 employees, are looking at a year of just education before throwing them into a full-blown CDH model,” says Amit Gupta, president of Fiserv Health CareGain, a technology company that helps design consumer-directed health care programs.

    Executives at Deere & Co., the company known for its John Deere farm equipment, told its 13,500 U.S.-based nonunionized employees last July that the company would be abandoning its current health plan in favor of high deductibles and health savings accounts partially funded by the company. The news was not a complete a surprise since the company’s CEO, Robert Lane, has been a staunch supporter of President Bush’s effort to expand the tax benefits of the accounts.

    What was noteworthy, however, was the company’s time frame for making the change: Rather than enrolling at the next opportunity, in January 2006, the company said it would make the wholesale switch in January 2007, 18 months after its initial announcement.

    “If you give them 60 days’ warning, they can’t possibly imagine how they’re going to survive,” says Duane Olson, Deere’s benefits manager. “Eighteen months—that’s a catalyst, isn’t it? Once it costs you money, what do you do? You try to figure out ‘What are my benefits?’ What is it going to cost me? What are my choices?’ Now people are asking doctors what their costs are.”

Reviving incentives
    The shift in time frames is due, in part, to disenchantment with high-deductible plans among employees, according to a survey published last year by McKinsey & Co. The survey found that 56 percent of employees whose companies had switched to a consumer-directed plan were less satisfied with their health insurance. Employers, meanwhile, have raved about the cost savings they’ve attained by making the switch.

    To bridge this satisfaction divide, large companies are bringing back wellness and preventive programs that may have failed in the past, Gupta says. “Getting people more engaged in incentives is growing because employers want to get people used to the idea of getting rewarded for healthy behavior.”

    Five years ago Deere canceled an employee assistance program because only six-tenths of 1 percent of employees used the free financial, counseling, and child and elder care services the company offered. As part of the transition to a high-deductible plan, the company brought back the program with expectations that 8 percent to 10 percent of employees would use it.

    “I’ve had more employees tell me that this new plan is the final catalyst: ‘If I keep smoking it’s going to cost me money,’ ” Olson says.

    Deere has supported these programs with online learning modules, newsletters and meetings open to workers and their spouses.

    Other common incentives, Gupta says, include deductions in premiums for nonsmokers or bonuses for those who sign up for wellness programs with the intent of encouraging people to use separate accounts to pay for health services. Such programs, like high-deductible health plans, encourage people to make use of free preventive medicine that could eventually help them keep their own health care costs to a minimum.

    Like other companies offering high-deductible plans, Deere will offer 100 percent coverage for all preventive health care, as defined by the U.S. Preventive Services Task Force. That includes screenings for common cancers, heart and vascular disease, a variety of infectious diseases, depression and drug abuse, diabetes and a host of other common diseases that are more costly to treat than prevent.

Getting unions aboard
    It is especially important for Deere to make the transition to high-deductible health care. The company would like to enroll its 8,700 unionized employees in the same health plan when their contracts are up for renewal in 2009. Union workers are currently enrolled in a plan with no premium and a small co-pay for visits to the doctor and prescription drugs.

    Bobby Garlan, a vice president of Local 74 of the United Auto Workers in Ottumwa, Iowa, says the possibility of a change in health plan has not yet been discussed, but that any change would be of great concern to his members. Though UAW officials say Deere has traditionally enjoyed good relations with its labor force, the stakes for a smooth change are nonetheless higher for companies with unionized employees. For both employee and employer, the change to a radical new health plan, Olson says, “can’t be a leap of faith. There’s too much at stake.”

    This was a point executives at Whole Foods quickly learned from their employees. After making the change to a high-deductible plan in January 2003, Mackey and his executives arranged for a companywide referendum on their entire benefits package, including whether to continue using a high-deductible plan.

    “The whole concept of working at Whole Foods is about empowerment,” says Amy Moore, the company’s benefits manager. “I think in this case they felt employees needed to have their input heard too.”

    Executives once again explained the rationale for the plan. It went something like this: Whole Foods had quickly grown to become the world’s largest natural foods supermarket chain, but its health care costs had grown faster.

    Four out of 10 employees chose to forgo the company’s health care plan, mainly because they were young (the average employee age at Whole Foods is 36) and healthy.

    This meant that those who regularly used health care signed up. That group included older employees or those with families, and, of course, employees with chronic illnesses. The result was that the healthy contributed little to the company’s health care pool of money, while the sick spent regardless of cost. The rising costs threatened other core company benefits, like deep discounts on food.

    In October 2003, employees passed the consumer-directed plan by a wide margin, Moore says. That year, medical-claim costs dropped 13 percent and about 90 percent of employees had money left over in their health reimbursement accounts. Hospital admissions dropped 22 percent. Since then, health care cost increases for the company have slowed to a pace below national rates, which show growth of 8 percent to10 percent annually. The slowed pace comes despite the company’s explosive expansion to 39,000 employees, up from 24,100 in 2002, Moore says.

    The company continues to tweak its plan to meet the needs of employees. This month, Whole Foods began to offer employees disease management programs for people with diabetes, cardiac issues and asthma. The programs are not unlike those that John Deere recently brought back.

    “If you want people to be smart consumers, you need to give them the tools and resources to do it,” Moore says.

    The change in plan, and the company’s response to its employees, seems to be working. Whole Foods employees recently voted to keep their consumer-directed plan as the plan of choice. They will vote again in 2009.

Workforce Management, May 22, 2006, p. 1, 33-34 — Subscribe Now!

College graduates in India are experiencing heady days reminiscent of the gilded dot-com era in the U.S. a decade ago.

    Indian 22-year-olds who hold college degrees and speak good English are easily finding entry-level jobs in the booming business outsourcing industry, where salaries are around $300 a month. In India this is enough purchasing power to buy a Hero Honda motorcycle or hire a maid who cooks. Of course, with employers clamoring for an edge in the hiring spree, employees need neither.

    In major tech hubs like Delhi, for example, where the outsourcing industry is located about 15 miles outside the city center, companies are offering their employees shuttle buses to work. Others are adding cafeterias and recreation rooms.

    “These are the tools that are not extremely high-cost in India and are being used to provide benefit and retain talent,” says Soumen Basu, executive chairman for Manpower India, whose clients include blue chip companies such as IBM and Motorola.

    The competition for good employees in the entry-level outsourcing work­force–and the desire to keep them–has challenged employers to offer incentives to reduce turnover, which averages more than 40 percent, Basu says.

    Attrition is perhaps the most significant challenge facing employers in India’s tech industry as it grows 30 percent annually and is expected to employ 1 million people by 2008, according to Nasscom, an Indian tech policy research group.

    Companies are also competing with prestige.

“The No. 1 recruitment tool is brand,” Basu says. “People want to work for the IBMs and Microsofts as opposed to an Indian name.” Often, he says, that is as important as salaries and benefits.

    As a way to distinguish its brand, Man­power, for example, offers 4,000 courses and programs for the ambitious entry-level customer service agent, from letter writing to certification in software and database management. An e-mail sent between executives at business outsourcing company Progeon, a subsidiary of IT consultant Infosys, and obtained by Workforce Management talks about using IBM, Microsoft, Sony and 3M as models for how to “create employer branding–influencing an employee’s ‘choice to join in.’ ”

    To remain competitive, Progeon offers shuttle buses, food courts, health care, gyms and special employee shops offering discounts on brand names. Progeon even has a “chief fun officer to promote fun and work–games, quizzes, puzzles, celebrations and team huddles are all part of a Progeonite’s work day,” according to the e-mail.

    This might sound like dot-com foolery, but every little edge counts.

    Microsoft, Oracle and Cisco all declined requests for interviews for this article, as did Reuters, which has recently begun outsourcing some of its editorial work. An editor at Reuters in charge of hiring, who spoke on condition of anony­mity, explained why companies are guarding their retention plans like state secrets.

    “It’s no secret that for all of us here –in whatever industry–the biggest challenges are the rate at which demand is growing for Indian knowledge workers, resulting in a rapid rise in salaries, and making sure you distinguish your brand in the marketplace so that you can attract and retain the best.”

    Focusing on benefits has also enabled companies to keep salaries, which still remain a relative bargain, from spiraling out of control, says Dave Jensen, a spokes­man for Genpact, one of India’s largest business outsourcing companies. “If you have a 20 percent increase in salary, that still amounts to the equivalent of a 3 percent to 5 percent increase in the United States.”

    As a result, the boom seems likely to continue. Genpact, which has 15,000 of its 19,000 employees worldwide in India, hires 800 to 1,000 employees a month across India by using storefronts in smaller cities, such as Jaipur, three hours from Delhi and Calcutta, like army recruiting stations. Likewise, recruiting firms like Manpower plan on expanding their presence from nine cities currently to 29 cities within the next three years.

    Only when the hiring boom slows will attrition rates come down. By then, Basu says, those college graduates looking to move into the management ranks will be forced to go back to school to earn the advanced degrees required by most Western companies. When that happens, the young Indian workforce will look much like their counterparts in the U.S. did when the dot-com era went from boom to bust: They’ll go back to school for their MBA.

Workforce Management, February 27, 2006, p. 6 — Subscribe Now!