Author: Site Staff

Companies would have to provide more detailed information about compensation to employees under a regulation that the Department of Labor will propose next year.

In releasing the agency’s regulatory agenda on Monday, December 7, Secretary of Labor Hilda Solis put a high priority on wage-and-hour enforcement.

“In these difficult times, American workers deserve to be paid every cent that they earn on the job,” Solis said in an online video. “It’s an issue of transparency.”

The department will require employers to increase the amount of information they provide to employees about the hours they work, the amount they’re paid and the overtime they’ve earned.

The rule would “update decades old record-keeping regulations in order to enhance the transparency and disclosure to workers as to how their wages are computed and to allow for new workplace practices such as telework and flexiplace arrangements,” the department said in a statement.

The regulation is slated to be circulated in August. In an online exchange with the media and public, Solis said that compliance costs for companies would not be determined until the rule is drafted.

Large employers, particularly those who have employees in many states, may not feel too much of an impact, according to Noah Finkel, a partner at Seyfarth Shaw in Chicago, because they’re providing a lot of wage information.

“This will federalize what they’re doing already,” Finkel said. “The key is how our midsized and smaller employers will respond to this regulation, especially those who don’t use payroll vendors like ADP.”

In her video statement, Solis said that the record-keeping rule and other parts of the regulatory agenda will not burden employers, but rather will “help level the playing field for businesses that play by the rules.”

Much will depend on how the regulation is written and the penalties that are applied, Finkel said. California, which already has stringent reporting requirements, may serve as a model. There has been an increase of “gotcha litigation” revolving around pay statements.

“Enterprising plaintiff’s lawyers are becoming a thorn in employers’ sides,” Finkel said.

The wage record-keeping rule is one of 90 regulations that the department will be proposing. It outlined 12 “specific strategic outcomes” it is seeking with the package.

They include “increasing workers’ incomes and narrowing wage and income inequality”; “securing safe and healthy workplaces, wages and overtime, particularly in high-risk industries”; “assuring skills and knowledge that prepare workers to succeed in a knowledge-based economy”; “helping workers who are in low-wage jobs or out of the labor market find a path into middle-class jobs”; and “ensuring workers have a voice in the workplace.”

Facilitating unionization is the point of another rule that will be proposed. The Office of Labor-Management Standards will draft a regulation requiring greater disclosure by employers of consultants that they hire to advise them on union organizing campaigns.

“When workers or union members have more information about what arrangements have been made by their employer to persuade them whether or not to join a union, this information helps them make more informed choices and acts to level the labor-management relations playing field,” the department said in a statement.

—Mark Schoeff Jr.

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When Todd Bisping was asked to help put the brakes on Caterpillar Inc.’s drug spending, he didn’t know much about health insurance or prescriptions.

But after 16 years at Caterpillar, mostly in its parts business, he knew plenty about squeezing costs.

“We just looked at it as a supply-chain issue,” said Bisping, an engineer with an MBA and a background in information technology.

He helped Caterpillar wield a combination of size and pricing savvy to negotiate directly with pharmacy giants Walgreen Co. and Wal-Mart Stores Inc., eliminating industry middlemen called pharmacy benefit managers.

In exchange for more business from Caterpillar, the two pharmacy chains agreed to price cuts expected to slash the company’s $150 million annual prescription drug bill. Bisping would not say how much Caterpillar will save, but analysts peg the figure as high as 25 percent, or about $37.5 million, even as drug prices are expected to rise next year by 5 percent nationwide.

It’s not huge money for Peoria, Illinois-based Caterpillar, which is expected to post profits of $1.7 billion next year.

But it will save money for the 120,000 employees, retirees and family members covered by Caterpillar’s health plans. And it could show other companies a path to savings in the $300 billion U.S. prescription drug market, which has defied even government efforts to restrain rising costs.

“[Caterpillar] has cut some new territory here,” said Larry Boress, CEO of the Midwest Business Group on Health, a Chicago-based trade group.He said many of the organization’s 100 or so big companies are considering following Caterpillar’s example by negotiating directly with pharmacy chains.

But a model based on exclusive contracts withbig pharmacies such as Deerfield, Illinois-based Walgreen squeezes out smaller pharmacies, which already are losing ground to big chains, supermarkets and mail-order distributors.

“It could be devastating,” said Mike Patton, executive director of the Illinois Pharmacists Association in Springfield, which counts about 500 independent pharmacies among its 2,000 members, as well as big chains such as Wal-Mart and Walgreen.

Flat co-pays
Some employees are unhappy about having to choose between their traditional pharmacies and co-pays that double if they don’t use Walgreen or Wal-Mart.

Caterpillar is unapologetic, saying the changes have allowed it to keep drug co-pays flat since 2003 overall, while eliminating them altogether for some prescriptions.

“The solution isn’t just to pass on a larger and larger percentage of the cost to employees,” said Bisping, who was named Cat’s pharmacy and informatics manager in 2005.

At the time, Caterpillar’s overall spending on employee health care was rising by more than 10 percent annually. Savings on drugs are helping the company close in on its goal of bringing those increases in line with inflation by 2010.

“By 2005, we hadn’t made much of a dent in that goal,” Bisping said. “Now, it’s in line of sight.”

First, Caterpillar increased the use of generic drugs, from about 50 percent to 70 percent. Then Bisping turned to the supply chain, trying to lower drug costs.

“No one could explain to me where the money was being made or spent,” he said.

He turned to former Pfizer Inc. pharmacist Josh Bellamy of the Peoria-based consulting firm Health Strategy. They scrapped a murky drug industry pricing benchmark called “average wholesale price” in favor of the “cost-plus” pricing method used in Caterpillar’s own tractor business.

Signing on
Caterpillar also decided to negotiate directly with pharmacies rather than through a pharmacy benefit manager. The company still uses a PBM to administer claims.

At first, Arkansas-based Wal-Mart was the only pharmacy chain willing to deal directly with Caterpillar. But after Wal-Mart and Caterpillar staged a successful pilot program, Walgreen was ready to sign on this summer when Caterpillar looked for bidders on a two-year contract.

“What better blunt instrument to disrupt a system than Wal-Mart, right?” Bellamy said. “Walgreen had the same problem as Wal-Mart: seeing margins go down and volume go down because of mail-order programs. This could give them market share without opening more stores.”

Hal Rosenbluth, president of Walgreen’s health and wellness division, said he’s discussing similar deals with about 50 companies.

“It’s a new model,” he said. “What you lose in margin, you make up in volume.”

Filed by John Pletz of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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The cost of health care premiums provided by large employers is unlikely to change if the Senate passes its health reform legislation, according to a report published by the Congressional Budget Office and the Joint Committee on Taxation.

The finding is significant because employment-based insurance accounts for about five-sixths of the total health insurance market.

The key reason why premiums for large employers would go unchanged is that the health insurance offered by almost all large employers already meets the minimum coverage requirements in the legislation. The legislation would require all health plans to have an actuarial value above 60 percent.

“Essentially all large group plans have an actuarial value above 60 percent,” the report states, “so the effect on premiums in that market would be negligible.”

Specifically, premiums for large employers either would not change or be 3 percent less than what they are expected to be if no health reform legislation is passed.

Small employers may face slightly larger premiums if health reform passes. Changes in premiums for small employers with 50 or fewer employees could range from a 1 percent increase to a 2 percent decrease in 2016 compared with what the expected increase would be under current law.

The 29-page report published Monday, November 30, said the costs of premiums would be affected in three ways: minimum coverage requirements that would require insurers and employers to provide more generous benefits; streamlined administrative costs due to new insurance regulations that forbid rating individuals and small groups based on people’s health; and a tax on high-cost insurance plans that would lead people to choose less expensive options.

In general, the average cost of premiums would increase 27 to 30 percent because people would be required to obtain a greater amount of coverage. A policy would cover “a substantially larger share of enrollees’ costs for health care [on average] and a slightly wider range of benefits.”

Those cost increases would be offset by reduced costs to insurers of providing insurance to individuals because of changes in law to the individual market. For instance, insurers would no longer be allowed to vary premiums or coverage terms to reflect an individual’s state of health.

Further reductions are expected to come from a mandate requiring all residents to purchase insurance. Many of the new enrollees are expected to be healthy and to spend less on health care than the current average.

A proposal to tax high-cost “Cadillac” health plans would likely entice most policy holders to buy less expensive plans. About 19 percent of workers have plans that are considered high-cost, and most would switch to lower plans, yielding a savings of about 9 to 12 percent on their premiums.

The report noted that its analysis relied on assumptions of savings that could turn out to be false.

For instance, an increase in the number of insured workers could increase overall consumption of medical services, which would cause health insurance premiums to rise faster than expected.

—Jeremy Smerd

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