Author: Louise Esola

Salary freezes, salary cuts, shortened workweeks, halting 401(k) matches and layoffs are almost a daily event in many business sectors as employers navigate the tough economy.

Employees are aware of the economic downturn, but experts say companies still should tread carefully when deciding how to communicate changes that usually mean less money in employees’ pockets.

Transparency, without the spin, is a best practice for companies that are scaling back, says Nicole Melton, a Philadelphia-based senior consultant and communication practice leader with Watson Wyatt Worldwide.

“We want [employers] to be straightforward and empathetic,” she says. “Be candid.”

Showing employees the financial reasons behind the changes is key, says Ken Groh, a Chicago-based vice president of the communication group with Aon Consulting. “Show them exactly why you have to do this,” he says.

That’s what JohnsonDiversey, a Sturtevant, Wisconsin-based provider of commercial cleaning products and services, did when it decided last year to switch from a traditional preferred provider organization health care plan to a consumer-driven plan and its retirement program from a pension to a 401(k) starting this year.

Todd Blazei, vice president of total rewards for JohnsonDiversey, says the company was aware employees might view the changes negatively. That’s why the company spent months planning how it would break the news.

In the end, JohnsonDiversey disclosed the changes in waves. First, the company’s CEO delivered what Blazei described as an in-depth video presentation discussing the company’s struggles in keeping up with rising health care costs and pension obligations.

Then, employees received two newsletters within two months, highlighting the changes to their health benefits and retirement plans. Roughly one month before open enrollment began, JohnsonDiversey hosted town hall-style meetings, by phone and in person, for employee questions.

By then, the affected 2,000 U.S.-based employees had few questions and concerns, Blazei says.

“People understood why,” he says. “We presented a clear business case for making the changes. Employees heard the same message several times. It wasn’t watered down and they got the information.”

Experts say such a super-informative method, delivered by those in key leadership positions, is the best way to approach employees with benefits changes. While companies may not have months to prepare, communicate and make benefits changes, they still should make a thorough presentation.

Melton says one major pitfall for employers to avoid is assuming workers understand why the company is scaling back. Employees, she says, want to see the numbers. Companies that fail this sort of disclosure risk damaging employee morale, she says.

There is a trust factor that gets lost when employers leave their employees out of the loop on specifics, says Groh. “This is particularly sensitive now because people think they did nothing wrong and they think that it’s the greed on Wall Street,” he says. “You can see why employees can be angry and demoralized.”

That’s why experts say leadership visibility is important when a company makes changes. “There’s no room for innuendo,” Melton says.

This leads to another pitfall for companies to avoid: the lack of empathy from frontline managers and top executives in initiating such changes, she says.

“Employees do understand. … We’re inundated with the news on how the economy is affecting the world and employees want to know how solvent their company is, but they need to know this information is coming from human beings,” Melton says. “They want to know how this is affecting everyone in the company.”

Memphis, Tennessee-based FedEx Corp. put empathy into play last year when it trimmed executive salaries within weeks of reducing retirement contributions, a company spokeswoman says. The point, she says, was for employees to understand that the economy was affecting the entire company, and not just those who deliver the packages.

Not all companies, however, will tackle areas such as executive pay when trimming their budgets, and some may be operating in the black while still trimming employee benefits, experts agree. This can muddy the water when getting the message across, Melton says.

“Dialogue between employers and employees is a must,” Groh says. “The message has to be, ‘We are in this together.’ Some companies have come out and said they do not want to lay people off, so instead they are going to a four-day workweek, for example. If you share the information the right way, people will get it.”

While laying off workers and freezing salaries are common ways that businesses facing a tough economy are trying to control costs, they also are critically evaluating the voluntary benefits they offer, experts say.

Employers are spending more time examining voluntary benefits, such as retirement health care and long-term disability, to possibly shift some company-paid benefits to voluntary status or trim voluntary benefits overall, experts say. Meanwhile, some employees are abandoning voluntary offerings in order to keep more money in their paychecks, they say.

“This is one topic our clients have in the air right now,” says Lale Iskarpatyoti, a Philadelphia-based group health care practice leader for Watson Wyatt Worldwide. “Everyone—employers and employees—is focused on keeping costs low.”

“Clearly, all of our clients are saying their priorities have changed,” says James Blaney, New York-based chief growth officer with Willis Group Holdings Ltd.’s North American benefits practice. “There is less disposable income for everyone; employers are carving out their core benefits programs and rolling back offerings.”

Ray Brusca, vice president of benefits for Towson, Maryland-based Black & Decker Corp., says he has heard that many companies are shifting core benefits to voluntary status, a trim-the-budget trend the power tool and accessory maker is not likely to follow.

“We are being told [by experts] that as an employer in these times, we need to be supplying more [voluntary benefits],” Brusca says. “There are people proposing that as a way for employers to eliminate or scale back their ERISA-type benefits and offer them on a voluntary basis. That’s just not us.”

Since the economy plunged deeper into recession in the fourth quarter of 2008, research on the effects on company-paid and voluntary benefits has been limited.

In December, Watson Wyatt updated its “Effect of the Economic Crisis on HR Programs” survey of 117 U.S.-based companies. In addition to layoffs, hiring and salary freezes, and cuts to merit-based incentives, 10 percent of companies were planning eliminate or trim their retirement plan contributions.

Early last year, New York-based MetLife released its sixth annual “Study of Employee Benefits Trends” of 1,652 benefits decision makers, which found that 55 percent of companies offer voluntary benefits and see them as ways to retain employees and keep employer costs low.

Late last month, Chicago-based outplacement and consulting firm Challenger, Gray & Christmas found that 92 of 100 human resources executives surveyed said their companies had cut costs to cope with economic pressures, including some voluntary benefits.

Reducing costs appears to be the driving force for change in voluntary benefits, experts say.

Bruce Sletten, Fort Worth, Texas-based vice president for Aon Consulting Worldwide’s elective benefits practice, says voluntary benefits slowly are becoming a mainstay in employers’ benefit offerings, leaving employees paying more.

But particularly in the increasingly sluggish manufacturing and retail sectors, Sletten says employees are slow to embrace the voluntary plans.

Watson Wyatt’s Iskarpatyoti says enrollment in voluntary programs, such as legal plans and retirement programs, are at all-time lows as employers begin to offer scaled-back versions of core health care programs, such as consumer-driven plans, that typically take a bigger bite out of employees’ paychecks.

“[Employees] have to first find the money to pay for their health care and then continue to contribute to retirement,” she says. “These voluntary benefits are optional and have become less likely as a place [where] employees are spending their money.”

In turn, employers are looking at little-used voluntary benefits, such as those that provide legal guidance and some forms of disability, and cutting them from their benefits portfolio, experts say.

Although employers typically do not contribute to voluntary benefits, there are some administrative costs involved, Iskarpatyoti says.

“Employers are taking a long look at their menu of offerings, and where they are not seeing participation, they are cutting [voluntary benefits],” she says.

Eventually, employers could have difficulties meeting benefit providers’ minimum participation requirements, thus forcing them to halt some voluntary benefits even if an employer wishes to keep them, Sletten says.

The question remains: Are employees complaining? Not really, Blaney says.

“A lot of employers are preying on the fact that as long as employees have a job, nobody is going to complain as long as they still collect a paycheck,” he says. “Let’s face it: Workers are hearing a lot about reduction in workforce. We hear it every day. There is a general anxiety in the relationship between employers and their employees.”

Workforce Management Online, February 2009 — Register Now!

Falling on an icy sidewalk while shoveling snow could result in bruises and a day or two off work for people in their 20s. Experts say those same events could result in major injuries and significant sick leave for older workers.

    “The fact of the matter is, older workers have higher incidence [of injuries] and slower recovery,” says Carol Tavella, Devon, Pennsylvania-based senior manager with SMART Business Advisory & Consulting.

    For employers, that means more time until that worker returns to the job, less productivity and, eventually, higher disability costs, experts say.

    In a 2006 study, the U.S. Bureau of Labor Statistics found that the median number of days off work for all workers suffering injuries or illnesses was seven; for workers 55 to 64 years old, the figure jumped to 12 days; for workers 65 and older, the median time off was 15 days.

    For the most part, such absences would fall under short-term disability, which generally picks up where paid sick leave expires and can typically cover workers for three to six months.

    Tom Klett, a Stamford, Connecticut-based senior consultant with Watson Wyatt Worldwide, says that despite concerns from companies regarding absenteeism among older workers, most of these experienced employees will avoid short-term leave whenever possible for fear of losing their job.

    “People want to hold on to their jobs, especially in this economy,” Klett says.

    This, in turn, keeps workers on the job when they haven’t fully recovered from minor injuries and may result in major injuries later on, he says.

    “Here’s where the concerns are manifesting, in longer-term disability,” Klett says.

    As for long-term disability, or disability that lasts anywhere from a year to until an employee reaches retirement age, statistics show spikes in those figures for older workers.

    For example, the Social Security Administration said 67 percent of Social Security Disability Insurance awardees in December 2007 were 50 or older. The government’s SSDI program is available to those who have been deemed disabled for at least a year or who have been diagnosed as permanently disabled. This program, often tapped by disabled workers to supplement their long-term disability income, is notorious for its backlog of applicants and its tough standards. Nevertheless, the demand for SSDI is growing, says Dan Allsup, a director with Allsup Inc., a Belleville, Illinois-based firm that assists disabled workers in collecting benefits.

    Experts say employer-based disability—a benefit to which about 30 percent of workers have access, according to Social Security Administration estimates—is also expected to grow considerably as the workforce ages.

    “I can see how employers are looking at this when dealing with older generations of workers,” Tavella says. “Individuals are staying in the workforce longer.”

    However, not everyone believes an increase in disability claims is an issue about aging. Helen Darling, president of the Washington-based National Business Group on Health, says an increasing number of workers, regardless of age, are becoming more susceptible to injuries because of the health of the current population.

    “This is much more a function of health than age,” says Darling, who cited the example of a healthy 55-year-old worker versus an obese 25-year-old employee. “We cannot assume that older workers are less productive and more prone to injury than younger workers.”

    For employers that are trying to gauge their potential exposures, Paul Botkin, a Dallas-based senior VP at Aon Consulting, points to predictive data analytics. These programs aim to collect data from an employer’s workforce, such as health assessments and risk factors, and use that same data to create programs to keep the company’s workforce strong and healthy.

    “Employers want to predict which population [of employees] … is likely to suffer injuries,” Botkin says. “Employers want to look at the data and see what they can do to encourage employees to be more proactive.”

    While many employers already gather data about their employees, by way of health assessments and questionnaires, and may even have wellness programs, older workers in particular might benefit from gym memberships to keep them fit and strong. Companies could pay all or part of the gym membership cost, he says.

    “What you can do is say to people that there are some things you can do to avoid injuries, like stretching, strength training and physical therapy,” Botkin says. “What you want is an employer to help promote a physically healthy population” regardless of age.

    Watson Wyatt’s Klett says companies see wellness as the ticket to not only maintaining a healthy workforce, but also zeroing in on their own disabled workers.

    “When employers reach the point where [a worker] is out [on long-term disability], companies often do everything they can and give employees all the services they need to get them back,” he says.

When it came to introducing high-deductible health insurance plans to its workforce, Sperian Protection USA Inc. decided candor was only way to help employees cope with the financial sting of the plans.

“We made a conscious decision that we wouldn’t dance around the issue and that we would take it head on,” says Mike Vittoria, vice president for human resources. He helped Sperian Protection introduce consumer-driven health plans to the company’s 1,500 employees in 2004. “We realized that they weren’t convenient plans and we were upfront. Employees will respect that, we thought.”

Like many companies, Sperian Protection, which is based in Smithfield, Rhode Island, was facing double-digit health insurance premium increases four years ago. It turned to consumer-driven health plans to help manage those costs. For the company, the new plans weren’t introduced to shift costs to employees—it still pays a hefty portion of the health bill—but to urge workers to take responsibility for their own health and to see the dollar signs for themselves, Vittoria says.

“They started to become aware that health care wasn’t free,” he says. “We saw value in getting our employees involved in the cost of health care.”

The company knew success entailed an extensive communication plan.

“This requires a lot of re-educating the workforce,” Vittoria says. “Employees [in 2004] didn’t like it.” He says the company had one employee at an information meeting say, “I should go to the doctor and just give them my card and never see a bill.”

“Employees want their health care to be convenient,” Vittoria says. “We’re probably the most complicated plan out there.” He calls it an “HRA carved out of a PPO.”

Currently, the company has both health reimbursement and health savings accounts, both of which allow employees to save for future health costs.

It presents employees with a “layered” plan deductible, in which the employee pays the first $2,250 for single coverage and the company pays all costs between $2,250 and $10,000. After $10,000, insurance picks up the costs.

It isn’t easy to grasp, and requires Sperian Protection to hold monthly meetings for employees, Vittoria says.

“We don’t do the once-a-year open enrollment meeting,” he says, adding that most employees are satisfied with the high-deductible plan. “We are constantly educating the workforce.”

Vittoria says a major key in keeping costs low is the company’s focus on health and wellness. To be eligible for one of its plans, the company requires that employees participate in health risk assessments to identify chronic illness that, if left unmanaged, could incur expensive trips to the emergency room.

Before BlueLinx Co. introduced consumer-driven health plans to its employees, few of the 3,600 workers at the construction materials distribution company knew the difference between the cost of going to the emergency room and the cost of visiting a doctor’s office instead.
Dean Adelman, the Atlanta-based company’s chief administrative officer, helped introduce a high-deductible health insurance plan in 2007 that was much different from the company’s health maintenance organization plans.

Reception was difficult and that first year was bumpy, Adelman says. “HMOs are pretty much free [to employees], so it was a shock. For over 30 years we trained people to pay $10 to go see a doctor, and now we’re asking them to look at the cost. It’s been a learning experience.”

The company began offering high-deductible plans to handle skyrocketing health premiums by getting employees involved in health costs and control, he says.

“Our biggest success so far has been getting people to move from brand-name drugs to generic, because they now see the cost,” Adelman says.

This year’s coverage comes with deductibles that range from $1,500 to $4,500, with the company offsetting half of the deductible by depositing that amount into an employee’s health savings account. Employees add to their health savings accounts with pretax income.

Once the deductible is met, employees must pay 20 percent of all services.

A highlight of the plan is that most preventive services, such as annual physicals, are covered 100 percent. BlueLinx also offers incentives, such as $100 for taking part in a company-sponsored health risk assessment, Adelman says. The idea is to help employees catch any medical conditions early to avoid expensive treatment later, he says.

BlueLinx still offers traditional plans, such as HMOs and PPOs, but they have heftier payroll deductions and don’t feature incentives.

The first year was tricky because most employees did not understand the high-deductible plan, but this year has been easier, Adelman says. Last year, more than half of the employees who enrolled in the high-deductible plan linked to a health savings account did not spend all of the money in those accounts, which means they can save it and apply it to future medical expenses.

About half of the company’s employees are enrolled in the consumer-driven plan, and Adelman expects that to increase. “Anyone who signed up for the [consumer-driven health] plan in 2007 stayed with it,” he says.

“It’s been a learning experience and we are seeing a lot of success stories. People are losing weight and getting off their Lipitor,” a cholesterol-reducing prescription medication, Adelman says. Wellness initiatives have allowed employees to save on health costs and thus save their own money, he says. “In the long term, people see the savings.”

For scores of companies that have faced double-digit annual increases in health care costs, making the move to high-deductible health plans has become the ticket to limiting increases by forcing employees to better manage their care and costs.

The switch, however, is never easy, according to experts and companies that have made the change, including Humana Inc., based in Louisville, Kentucky; Sperian Protection USA Inc., based in Smithfield, Rhode Island; and BlueLinx Co. in Atlanta.

“The reality is that for the last 20 years, employees and their families have been insulated from the actual costs of health care,” says Randall Abbott, a senior consultant with Watson Wyatt Worldwide who is based in Wellesley Hills, Massachusetts. “This is changing the mind-set of those who’ve been accustomed to not sharing the costs of care. For many, this is a role they don’t want to assume.”

A tough sell
Consumer-driven health plans can be a tough sell to employees, some of whom are accustomed to using their health insurance coverage cards at every doctor visit and never seeing a bill thereafter, Abbott says.

“Employees tend to be skeptical of anything new,” says Bill Sharon, senior vice president for Aon Consulting in Tampa, Florida.

While employees may be accustomed to $10 or $15 co-payments and the ability to pay modest contributions for expensive emergency room visits and brand-name prescription drugs, those days are over at a host of companies.

For instance, with high-deductible health insurance plans, the coverage doesn’t kick in until the employee first meets that deductible, which pushes workers to act as more savvy consumers when it comes to shopping around for cheaper services and seeking generic drugs.

These plans often come with health savings accounts. These accounts allow employees whose deductibles this year are at least $1,100 for individual coverage and $2,200 for family coverage to contribute pretax dollars into an account to pay medical expenses.

Also, health reimbursement arrangements linked to high-deductible health plans allow employers to fund the accounts that help employees pay for uncovered health care expenses.

Employers are providing cash incentives, usually put in health reimbursement arrangements, for employees who participate in health risk assessments and wellness programs, such as smoking cessation and weight-loss initiatives, steps that experts say can reduce health costs for both employers and employees.

Controversial approach
The move to consumer-driven health plans, though, has its share of controversy.

Opponents of the movement argue that cash-strapped employees will forgo necessary health tests and doctor visits to avoid high bills and that adoption of consumer-driven health plans is another way for companies to shift more costs to employees.

A major issue in implementing high-deductible plans is when employers underestimate employees’ concerns or fail to communicate effectively, says Abbott, the Watson Wyatt Worldwide consultant.

“A lot of employers feel that they can announce [the switch to consumer-driven plans] and leave it there for employees at open enrollment,” he says.

Aon’s Sharon says employers also can get into trouble if they “oversell” a consumer-driven plan by making it sound better than it is.

“There are good stories and bad stories out there about how to present these plans,” he says. “When the plan is designed correctly and the communication is done effectively, companies can see 40 percent to 50 percent enrollment” in high-deductible health plans.