Category: Benefits

Employers could begin to see cost savings and improvements in the quality of health care in the next year as more private insurers plan to follow the federal government’s lead in refusing to pay hospitals for medical errors.

In recent months, Blue Cross and Blue Shield, Aetna and WellPoint have said they will look for ways to stop paying for certain preventable errors called “never events” or “serious reportable events” by the National Quality Forum, a coalition of employers, doctors and policy-makers that has identified 28 adverse medical events. The group describes these errors in a 2006 report as “serious, largely preventable” medical mistakes.

Spokesmen for Cigna and UnitedHealthcare say the companies are looking into developing a policy to stop paying for these medical errors. Cigna plans to have a national policy in place by October, by which time the Centers for Medicare & Medicaid Services (CMS) says it will stop reimbursing hospitals for the added cost of care to treat eight conditions that are considered among the most common and most preventable errors.

Those conditions include: leaving objects in the body during surgery; using the wrong blood type; air embolisms; catheter-associated urinary tract infections; vascular catheter-associated infections; bed ulcers; certain surgical site infections; and hospital-acquired injuries like burns and broken bones sustained from falls.

Though medical errors account for only a fraction of the $2.1 trillion national health care bill, not paying for them has long been seen by employers as the best way to exert financial pressure on hospitals to improve the quality of the care they deliver. But it was not until CMS said in October that it would no longer pay for medical errors that other insurers followed suit.

“CMS is the 2,000-pound gorilla,” says Helen Darling, president of the National Business Group on Health, which last year began asking its members, mainly Fortune 500 companies, to stop paying for never events. “Once CMS made its announcement, we knew the hard stuff was over.”

The business group has created a tool kit to help employers include language in contracts with hospitals that would waive fees associated with medical care that harms patients or is necessary because of a previous medical error. Hospital associations in Massachusetts, Minnesota and Indiana have said they will not bill for certain medical errors.

A spokesman for the health insurance trade group America’s Health Insurance Plans said the change among insurers came in part because of pressure from employers who did not want to pay for poor care.

“In the long run, with a view toward providing not only the safest [but] highest-quality care, you can ensure that employers and employees will not pick up the tab for mistakes in a hospital setting,” says the association’s spokesman, Mohit Ghose.

The next challenge facing this movement is to design billing codes that trigger fee waivers. As consensus over not paying for medical errors builds among payers and providers of health care, employers will find it easier to put these standards into contracts with hospitals, says Jim Conway, senior vice president for the Institute for Healthcare Improvement.

“You will see hospitals that are not surprised that employers want to put that language into a contact, because it is being routinely discussed now,” he says.

—Jeremy Smerd

Employees aren’t the only ones thinking about suspending their 401(k) contributions as a result of the economic crisis. Many employers may be discussing a similar move with regard to 401(k) matches, experts say.

On Thursday, October 23, General Motors announced it was suspending its 401(k) match as one of many ways the Detroit automaker is trying to cut costs. The company had matched salaried employees’ 401(k) contributions up to 4 percent.

And while General Motors might be an extreme example of how some companies are being battered by the financial crisis, some experts say the automaker won’t be alone in its decision to freeze its 401(k) match.

“A number of companies did this during the bear market in 2001,” said Ted Benna, who is known as the founder of the first 401(k) plan and is COO of Malvern Benefits Corp., a 401(k) plan administrator. “We are in a very nasty situation that isn’t going to get better for some time and a lot of employers are going to be anxiously looking at how to reduce costs.”

In 2001, GM became one of the handful of large employers to freeze its 401(k) match, but the automaker resumed it when business began to pick up.

Even though these moves by employers are temporary, they can still have a substantial effect on employees’ ability to save for retirement, said Alicia Munnell, director of the Center for Retirement Research at Boston College.

“You would think that people would increase their contributions to offset the loss of their match, but that rarely happens,” she said.

This can be particularly difficult for low-income workers who need the employer match to have any kind of retirement nest egg, said Don Stone, president of Plan Sponsor Advisors, a Chicago-based 401(k) consultant.

The good news is that while some companies may suspend their 401(k) matches, it shouldn’t have as much impact on employees’ contribution rates as it has in the past, said Lori Lucas, defined-contribution practice leader at Callan Associates. That’s because more employers have adopted automatic enrollment.

“Typically when employers suspend their match, we see participation decrease, but we may see less of that in this environment,” she said.

Some experts believe few employers will freeze their 401(k) match.

“Companies that have a 401(k) plan as their only retirement savings program are less likely to stop contributing to these plans, because it’s the only thing they are doing,” said Dallas Salisbury, president of the Employee Benefit Research Institute. “And it sends the message to employees that the company is in dire circumstances.”

—Jessica Marquez

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Dear Beneficial Results:

Not surprisingly, the global recession impacted the scope and availability of employee reward and benefit programs around the world. Results from Towers Watson & Co.s’s Global Workforce Study, a 2010 survey of more than 20,000 employees in 22 countries, showed that some of the most common changes included the reduction or elimination of bonuses and pay increases, along with cuts in health care benefits.

How have employers and employees responded since weathering the worst of the recession? Employers now face a context in which employees seek greater security. Employees rate a secure and stable position as the most important element in their preferred work situation. Consistent with this desire for security, employees are also more risk-averse since the recession, especially regarding health care benefits. A 2010 U.S. survey of attitudes toward retirement conducted by Towers Watson, for example, shows that employees are willing to see more taken out of their paychecks in exchange for greater predictability in health care costs. Employees say they even opt for lower bonus and pay increases in favor of more retirement benefits and predictable health care costs.

Organizations, which face rising costs and more constrained resources, are responding with more creative options. This trend is evident in health care programs. A Towers Watson study of 588 employers completed in January 2011 revealed that organizations are expanding the use of incentives for employees to participate in workplace health programs. Employers are also increasingly using social media technologies to spread the message about such programs.

In addition, reward programs are increasingly segmented. For example, many employers are choosing to customize reward and recognition programs for employees in critical roles that directly drive business success, such as customer service staff or research-and-development teams. Such segmentation allows employers to better control total spending on rewards while targeting populahealtions that they cannot afford to lose.

Still other employers are expanding the notion of reward and benefits to include learning opportunities and effective work environments. For example, many health care organizations are supporting employee efforts to meet requirements for job-specific certifications, directing resources toward programs that further employee development in key roles.

Post-recession, some realities surrounding rewards and benefits remain. Defined benefit plans are more often cited as a reason to join an organization than are defined contribution plans. Pension programs are among the top factors that would entice employees to join another organization. The competitiveness of pay and benefit programs is a top driver of employees’ intentions to stay with their current employers. Far from disappearing in a post-recession economy, benefit and reward programs remain an important component of human capital strategies, and employers are responding with increased creativity in efforts to hold the line on costs without risking employee retention and engagement.

SOURCE: Patrick Kulesa, Towers Watson & Co., New York

LEARN MORE: Rewarding employees goes beyond pay and benefits, especially in a tight economy.

Workforce Management Online, July 2011 — Register Now!

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Dear Power in Numbers:

While it is not common practice, there have been numerous attempts by employers to use their consolidated purchasing power to buy health care coverage for their employees. In some cases, employers in the same industry formed a coalition, while in other cases, employers in the same geographic proximity banded together.

Purchasing coalitions hold the promise of lowering costs by bargaining with hospitals, physicians, and other providers for lower reimbursement rates. This spreads fixed administrative costs over a larger membership base, and enables better management of cash flow.

Unfortunately, coalitions face a number of obstacles:

• Many employers join a coalition with the expectation that they will accept the results of the coalition’s negotiations with insurers (and/or providers) if it’s better than the deal that employer gets on its own. But this thinking can undermine the very ability of the coalition to negotiate, since the coalition cannot bind its membership to the terms it negotiates. Nor can it promise the insurer volume from the full coalition. Insurers learn pretty quickly whether the coalition has any “teeth.” If not, the coalition will be ineffective in offering better deals to employers.

• Employers may be unable to modify their benefit plans to take advantage of the insurer’s offer to the coalition. It may be particularly difficult for employers whose benefits are collectively bargained.

• Although the coalition may be successful in consolidating certain administrative functions (e.g., remitting premium), and hence obtaining a rate concession from the insurer, in many cases the coalition itself becomes responsible for these functions. The coalition would then have to charge member employers for assuming these functions, which may offset the negotiated savings.

• There are laws that govern this whole area, like laws that prevent or restrict the ability of insurers to give employer coalitions more favorable premium rates. New York insurance law, for example, prohibits insurers from granting more favorable rates to coalitions that have any members who employ 50 or fewer employees.

• State law not withstanding, many insurers will not underwrite coalitions due to concerns about adverse selection (i.e., the insurer ending up with the worst risks in the group) and the legalities of covering multiple employers (e.g., which one becomes liable for delinquent premiums).

• Some employers have attempted to establish coalitions that self-fund health benefits. These arrangements are generally considered Multiple Employer Welfare Arrangements, or MEWAs, and are governed by federal law. However, as a result of the perceived failure of MEWAs, the federal government allows states to regulate their financial solvency. Many states have laws limiting the ability of MEWAs to operate.

Michigan, for example, only permits employers to self-fund health benefits if: 1) they are members of an association of five or more businesses that are in the same trade or industry, 2) the association is not formed solely to provide health benefits to its members, and 3) the association has been in existence for at least two years.

Despite these many obstacles, there are examples of successful coalitions. Many state governments allow local counties, school districts, and other public employers to join their state health benefits program. These states have been able to achieve tremendous economies of scale and use their large membership bases to negotiate favorable arrangements with insurers and third-party administrators.

SOURCE: Harvey Sobel, FSA, Principal & Consulting Actuary,Buck Consultants, Inc., Secaucus, New Jersey, Jan. 17, 2003.

LEARN MORE: ReadSelling Health to High-Risk Workers.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Dear Education Isn’t Cheap:

Education assistance or tuition reimbursement programs are typically one of the most poorly managed benefits that companies offer. While nearly every company offers a variant of the benefit, few even attempt to evaluate the return on investment (or lack thereof). Such programs rarely have goals, and primarily exist just because everyone else has one. You are right to question what must be done to increase the program ROI, but I assure you that service return contracts are not the answer. Consider asking yourself:

1. Historically what is the percentage of participants in the program who have voluntarily separated following completion or near completion of their education?

2. How has completing the education affected the capability or capacity of the program participants to perform their jobs? In other words, does their on-the-job performance increase? Do they receive promotions more often? Does the quality of their work improve?

3. Historically, how has the organization leveraged the education it sponsored? Was a career plan in place to make use of what the participants were learning? Did the organization re-evaluate the position of the participant or their compensation upon completion of the education (re-recruiting them)?

4. What is the performance profile of the typical program participant? Is this a program that is primarily used by existing top performers, average employees or minimally engaged employees who continuously perform just above minimum performance standards?

The key in maximizing the ROI of this program, or any HR program for that matter, is to:

• Develop and clearly articulate a business reason for the program to exist.
• Cascade that reason down into clearly defined and measurable goals and objectives for the program.
• Establish metrics relevant to each goal/objective.
• Routinely communicate program performance and rigorously investigate/resolve non-ideal results.

Completing a degree or even adding new skills to one’s portfolio increases the person’s perceived market value, if not their actual value. Few organizations manage toward that perception. They do not re-recruit the program participant, placing them into a new position that utilizes their current skills. They do not adjust the compensation to levels that a competitor would now pay. And more often than not, they do not even congratulate the employees on their achievement. If such programs can have a positive ROI, achieving it will require that you manage the program for planned results, not administration.

SOURCE: Dr. John Sullivan, San Francisco State University, July 18, 2006.

LEARN MORE: Here is another article on this topic. Also, an intermediate course on calculating its ROI.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Dear Contrarian:

Research always is a good tool, but you should think carefully about the kind of research you need. We suggest that you first evaluate the firm’s financial situation and consider what can be afforded. Next, determine the impact of the benefits package on retention and recruiting by talking to human resources, including the compensation and benefits staff, to find out what they hear and know about your program from the people they are recruiting. It is crucial to include senior management to determine organizational strategy and goals.

We would suggest two additional approaches to fact-finding—conduct employee focus groups as well as a benchmark survey of companies with which you compete for talent.

The focus group charter can be clearly stated as exploratory in nature. The groups might examine employee understanding of their benefits and what employees value—why they come to work at your organization rather than going across the street—beyond the benefits you offer.

You might position this research as a way to determine whether your employees see the various people policies and programs (your total rewards programs) as linked to their professional and personal growth. The areas to discuss beyond benefits would be affiliation, career, work content and compensation. You might say that the information gathered through the focus groups will be used to define and articulate an employee value proposition for your organization.

In addition to focus groups, conducting a survey of those companies with which you compete for talent, especially when in growth mode, will help senior management decide where you need to be in light of the competition, and how to position yourselves. Benchmarking your company’s offerings against those of the competition is an important step in determining how to position benefits as part of your overall employee value proposition. Do you want to provide benefits that are richer than your competition, in line with the competition, or less rich than the competition? You may want to consider making up for any benefits shortfall in other areas (e.g., compensation, paid time off, richer affiliation, etc.)

It’s always tempting to just call your vendors and ask for a new “package,” but if you really want to align your benefits programs with your organizational goals, it is worth taking the time to do the research, and it’s worth doing the right research.

SOURCE: Nenette Kress, Segal/MGC Communications, New York; John R. Povinelli, Sibson Consulting (a division of Segal), Tempe, Arizona; and Chris Calvert, Sibson Consulting, New York, October 30, 2007.

LEARN MORE: Please read Diagnosing the Workforce to find out how and why companies are gauging the health of their employees.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Dear Bedeviled:

The best-known 1,000-hour rule is contained in Part 2 of Title 1 of the Employee Retirement Income and Security Act of 1974 (ERISA) and generally only applies to employee pension benefit plans. It’s also mentioned in the Internal Revenue Code (IRC) Sections 410(a) and 411(a) regarding participation and vesting in retirement plans.

The concept of 1,000 hours has received attention lately in the Section 403(b) universal availability requirement in the finalpe 403(b) regulations. Under that requirement, employees who are not expected to work at least 20 hours per week need not be offered the opportunity to make salary deferrals.

However, the IRS added that once such an employee works at least 1,000 hours in a year, he or she must become a participant in the following year. As pointed out in the preambles to both the proposed and final regulations, the exclusion for employees who are “expected to work (fewer) than 20 hours” is available only for non-ERISA 403(b) plans.

Although the 1,000-hour rule is best known in retirement circles, it also has some applicability with group welfare plans—generally only with respect to nondiscrimination testing.

Unfortunately, it is not applied on a consistent basis and does not apply to all benefits.

For example, in determining eligibility for nondiscrimination purposes under a dependent-care assistance program under IRC Section 129, employees with less than one year of service (defined with reference to the 1,000-hour requirement of IRC Section 410(a) can be excluded.

Additionally, for similar purposes, under group-term life insurance plans (IRC Section 79) and self-insured group health plans (IRC Section 105(h), employees with less than three years of service can be excluded. The regulations under IRC Section 105(h) state that although other methods can be used to measure service, the 1,000-hour requirement in IRC Section 410(a) would be reasonable.

It is interesting to note that both group-term life insurance plans and self-insured group health plans are permitted to exclude part-time and seasonal employees. IRC Section 105(h) defines a part-time employee as someone whose customary employment is less than 25 hours a week.

As a result, the 1,000-hour rule for such plans may not be an absolute figure. However, any exclusion for “part-time” employees is not an acceptable exclusion for retirement plans.

Group health plans that are insured are generally not subject to nondiscrimination rules, with regard to service requirements, under ERISA or the IRC unless offered through a cafeteria plan.

Other types of benefit programs, such as education assistance programs and adoption expense programs, are also subject to nondiscrimination rules, but those rules are not as well developed as are those for the benefit plans mentioned above.

SOURCE: John Kent Graham, regional director of compliance, Sibson Consulting, New York, February 24, 2009

LEARN MORE: The U.S. Department of Labor provides an FAQ on ERISA that aims to help employees understand the law.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Dear Workforce Newsletter