Category: Benefits

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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The comprehensive health care reform legislation introduced by Democratic leaders in the Senate on Wednesday, November 18, contains less onerous requirements on employers that do not yet offer insurance than a similar bill passed by the House earlier this month.

Still, employers oppose the bill on numerous grounds. A chief concern among employers as well as some economists is that a requirement for all individuals to purchase insurance—deemed necessary to spread risk—is enforced by a relatively weak penalty.

Individuals would be required to purchase health insurance, but the penalty for not doing so would be small—$95 per person in 2014, rising to $750 in 2016. 

Likewise, some economists said a weak penalty against employers not offering insurance could make dropping coverage an appealing alternative.

Large employers with more than 50 full-time employees would be assessed a fine up to $750 for every employee who works more than 30 hours a week if any employee received health insurance subsidies from the government.

The fine is still smaller than penalties introduced in the House’s plan, which would assess a tax of up to 8 percent of payroll. Employers would have to pay for the cost of any employee who receives a government subsidy to purchase health insurance.

Small employers would receive subsidies based on the average income of the firm to help defray the cost of providing insurance to full-time workers.

Employers and insurers also criticized the expansion of government health programs they fear will cause underpaid hospital and medical providers to shift costs to private employers.

An estimate by the Congressional Budget Office put the cost of the bill at $848 billion over 10 years. That money would help extend health insurance to an estimated 31 million uninsured Americans and legal residents by expanding eligibility for federal programs and providing subsidies to lower-income workers and tax credits to small businesses.

The bill would be paid for by increased taxes on the health industry, an excise tax levied against insurers and employers who self-insure on “Cadillac” health plans, as well as other fees, such as a 5 percent tax on cosmetic surgery. The House plan, by contrast, paid for the bill in large part through a 5.4 percent tax on wealthy Americans.

A 40 percent excise tax would be levied against employers that offer so-called Cadillac plans, which total more than $8,500 for individuals and $23,000 for families. That threshold would grow along with inflation. Employers whose workers engage in high-risk professions would be exempt from the tax. The U.S. Chamber of Commerce called that a loophole to exempt union plans.

Ultimately, the Senate health care reform proposal is estimated to reduce the budget deficit during the next 10 years by $130 billion, according to the CBO.

Most provisions would be enacted in 2014, though some changes would take place immediately, including the creation of a reinsurance pool to make insurance for individuals and small groups more affordable as well as new laws that would prohibit insurers from denying people coverage for having pre-existing conditions.

Though insurance would still be offered through the open market as well as by self-insured employers, economists expect many of the newly insured to purchase coverage through an insurance exchange managed by states.

Legislation in the Senate would create health cooperatives to be included in the exchanges. It would also create a government-funded public health option, known in the bill as the community health insurance option, but states could exclude it from the exchange.

The Senate bill’s relatively minor penalty against employers that do not provide insurance could lead some to drop coverage, economists say. According to an analysis of the bill by health research foundation The Commonwealth Fund, overall enrollment in employers-based health care will stand at 152 million by 2019, a drop from about 160 million today. Many employers would shift to offering employees coverage through health insurance exchanges.

According to the Senate plan, the exchanges would be set up in 2014 and would initially be open only to small employers. By 2017, large employers could choose to purchase insurance through the exchange.

Employees could opt to purchase health insurance on the exchange if their employer offers health care coverage that costs more than 9.8 percent of their household income.

The health insurance industry argued Thursday, November 19, that the weak penalty against individuals could create an incentive for people to hold off on purchasing health care until they become sick. Because the new laws would guarantee coverage, a sick person could buy insurance without penalty only when they felt they needed it.

In an important caveat, self-insured employer plans and multiple-employer welfare arrangements, known as MEWAs, would not have to meet the “essential health benefits package” minimums as defined in the bill. These plans would be protected by ERISA, which allows them to define the plans as they see fit, though employees could opt out of the plans if they were too expensive, according to the bill. Self-insured plans would still have to provide a health plan that meets the minimum actuarial value standard of 60 percent.

The basic coverage requirements, however, are aimed at health plans providing coverage through the state-based insurance exchanges.

The bill would allow children up to age 26 to stay on their parents’ health plans.

Though the bulk of attention has focused on changes in the way insurance is offered, much of the 2,074-page bill focuses on changes to the health care system, including an intensified focus on wellness and prevention.

Employers, for example, would be able to increase incentives to participate in wellness programs from 20 percent of the cost of a health plan to 30 percent. That number could be increased by the secretary of Health and Human Services to as high as 50 percent.

Senate Democrats need 60 votes to avoid a Republican filibuster of the measure.

—Jeremy Smerd

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This article has been revised to reflect the following correction:

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Correction: November 23, 2009

An earlier version of this article misstated the estimated savings to the federal deficit of the Senate’s health care reform bill. The Congressional Budget Office has estimated that the bill would reduce the deficit by $130 billion.

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Group health care plan costs climbed an average of 5.5 percent in 2009, the lowest increase in more than a decade, as employers stepped up efforts to better control costs.

That 5.5 percent increase brought costs up to an average of $8,945 per employee, compared with an average of $8,432 per employee in 2008, according to a survey of nearly 3,000 employers released Wednesday, November 18, by Mercer of New York.

Costs rose an average of 6.3 percent in 2008; from 2005 through 2007, costs increased by an average of 6.1 percent in each of those three years.

“This is good news, and the cost increase is a better number than we might have expected,” said Linda Havlin, a Mercer worldwide partner in Chicago.

One factor holding cost increases down, especially among smaller employers, was increased adoption of high-deductible, account-based consumer-driven health care plans, which have costs strikingly lower than more traditional plans.

For example, 15 percent of employers with 10 to 499 employees in 2009 said they offered a CDHP linked to either a health savings account or health reimbursement arrangement, up from just 9 percent last year. And of those small employers that offer a CDHP, for 55 percent it is the only medical care plan they provide to employees.

The difference in costs between CDHPs and other plan designs is striking. CDHPs linked to HSAs cost an average of $6,393 per employee in 2009, or nearly $2,000 less per employee than preferred-provider-organization or point-of-service plans, according to the survey.

Next year, 18 percent of smaller employers said it is “very likely” they will offer a CDHP, while 24 percent of larger employers—those with at least 500 employees—said it is very likely they will offer a CDHP in 2010. This year, 20 percent of larger employers offered a CDHP.

Another important factor helping to keep costs more under control was increased employer adoption of health management programs, such as health risk assessment programs, which seek to identify employees’ health conditions so action can be taken to prevent those problems from worsening.

For example, 73 percent of employers with at least 500 employees said they offered a health risk assessment program this year, up from 65 percent in 2008, while 71 percent said they offered a disease management program in 2009, up from 66 percent last year.

The slowing of group health care plan costs also was the result of a longtime employer strategy—shifting more costs to plan participants. For example, among PPOs in which a deductible is imposed for in-network coverage, the average deductible for individual coverage climbed to $1,096 in 2009, up from $1,001 in 2008. As recently as 2004, the average deductible for individual coverage in PPOs in which a deductible was imposed was $686.

The National Survey of Employer-Sponsored Health Plans will be published in March. The report costs $600, and the report and tables cost $1,200. More information is available online at www.mercer.com/ushealthplansurvey.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Advocacy groups and employers expressed concerns about an emergency paid sick leave bill designed to help workers who are stricken with the H1N1 flu at a Capitol Hill hearing on Tuesday, November 17.

The Emergency Influenza Containment Act would guarantee up to five paid sick days for employees who are told by their supervisors to go home or stay home because of a contagious illness.

The measure was introduced on November 3 by Reps. George Miller, D-California and chairman of the House Education and Labor Committee, and Lynn Woolsey, D-California and chair of the workforce protections subcommittee.

At the hearing, Debra Ness, president of the National Partnership for Women and Families, argued that employees should decide when to use the sick leave.

“I think we need to tweak it here and there,” Woolsey said of the bill. “It really should not just be left up to the employer.”

At least one other Democrat also had misgivings about companies determining when employees should take days off for illness.

An emergency sick leave measure introduced November 17 by Sen. Christopher Dodd, D-Connecticut, and Rep. Rosa DeLauro, D-Connecticut, addresses the issue.

The Dodd-DeLauro bill, modeled after DeLauro’s Healthy Families Act, would guarantee up to seven paid sick days for workers to use to treat their own flu-like symptoms or to care for a sick child. Under the Miller-Woolsey bill, employees could only take time off for their own illness.

Under Dodd-DeLauro, the employee, not the employer, would determine when to take sick leave, although Department of Labor regulations could require certification.

Each bill would go into effect within 15 days of being signed into law and would sunset after two years.

“This temporary legislation will slow the advance of H1N1 being spread through the workplace and encourage open communications between employees and their employers on sick leave policies,” Miller said. “This emergency measure will not, and should not, supplant the need for comprehensive paid sick leave policies. But I believe it will be a circuit breaker needed to get this virus under control, while protecting workers, employers and the public.”

A witness representing the business community, however, asserted that the Miller bill could short-circuit paid time off policies that many companies have in place.

Bruce Clarke, president and CEO of Capital Associated Industries in North Carolina, said that it’s not clear whether or how the federally mandated sick days would mesh with existing PTO plans and other leave programs.

“If employers are mandated to provide a certain level of a specific leave benefit, they must decide whether to add that on top of existing employer leave policies or to reduce the existing in order to meet the new mandate,” Clarke said in prepared testimony.

Clarke also resisted the idea of employers directing employees to stay at home if they are sick. That could put companies in the position of violating privacy laws.

In exchanges with House labor panel members, Clarke defended the private sector’s response to the H1N1 outbreak. He said companies have shown creativity in helping employees deal with their health issues.

“The human resources professionals we work with every day are on top of it,” Clarke said. “These companies … care about their employees.”

He cited Bureau of Labor Statistics data showing that 93 percent of full-time workers and more than half of part-time employees have access to paid sick leave. But Miller pointed to government statistics that indicate that 50 million workers lack paid sick leave.

“There’s a universe of people out there who can be and are fired for missing a day of work for any reason,” Miller said.

Ness, who maintains that employers with PTO programs would satisfy paid sick leave requirements, argued that a federal leave safety net is necessary for low-wage workers.

“We need a basic labor standard,” she said.

During the hearing, Miller seemed as interested in culling information about the potential effect of the emergency sick leave bill as he was in promoting it.

“We’re going to go over this testimony,” Miller said in an interview. “Some of the [suggestions] were helpful.”

—Mark Schoeff Jr.

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With H1N1 flu fears spreading as fast as the sickness itself, a leading House Democrat wants rapid action on legislation that would give employees five paid sick days.

But in rushing out the measure on Tuesday, November 3, Rep. George Miller, D-California and chairman of the House Education and Labor Committee, roiled paid leave advocates who worry that he gives employers too much power to determine who can stay home.

The author of broader paid sick leave legislation, Rep. Rosa DeLauro, D-Connecticut, is not on board.

“I am concerned that the Miller bill—while a modest step forward—would establish a limp paid leave benefit that is triggered by the employer and can also be taken away by the employer; and it offers no real guarantee that a working parent can care for a sick child,” DeLauro said in a statement Thursday, November 4, to Workforce Management.

DeLauro added that she “can work with Chairman Miller to make it a better bill.”

The House labor committee will hold a hearing on Miller’s measure, the Emergency Influenza Containment Act, the week of November 16. It’s unclear when or if a companion Senate bill will be introduced.

President Barack Obama declared the H1N1 pandemic—popularly known as swine flu—a national emergency on October 24.

Miller caught some in the advocacy community and on Capitol Hill by surprise with his proposal, which would guarantee five paid sick days to an employee if an employer “directs” or “advises” him or her to go home. The employer can end the leave at any time.

“Sick workers advised to stay home by their employers shouldn’t have to choose between their livelihood and their co-workers’ or customers’ health,” Miller said in a statement.

He asserts that at least 50 million workers lack paid sick leave.

The bill applies to companies with 15 or more employees but exempts those that already offer at least five days of sick leave.

DeLauro’s bill, the Healthy Families Act, would allow workers to accrue up to seven days of paid sick leave a year and gives them time off to care for sick family members.

Supporters of the DeLauro bill are cautious about Miller’s legislation.

“We want workers, not employers, to decide when they’re too sick to work and when they feel well enough to return,” said Lisa Maatz, director of public policy and government relations at the American Association of University Women.

Judith Lichtman, senior advisor at the National Partnership for Women and Families, said more work needs to be done on the Miller measure.

“We should all sit down and figure out how to retool this legislation so that it includes some of our most basic labor protections for working families,” Lichtman said. “We’re interested in seeing the bill strengthened, expanded.”

A business group, however, is gratified that Miller gives employers credit for existing leave programs.

“I was heartened to see that the idea that we’ve espoused is included in the bill,” said Mike Aitken, director of government relations for the Society for Human Resource Management. “It’s a recognition that employers are responding to this kind of leave.”

—Mark Schoeff Jr.

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Employees with individual coverage in consumer-driven health plans are seeing their employers’ contributions decline, while those with family coverage are seeing their employers’ contributions increase, according to a survey released Tuesday, November 3, by the Employee Benefit Research Institute.

The survey by Washington-based EBRI also found that the percentage of employers making contributions to either health reimbursement arrangements or health savings accounts tied to consumer-driven health plans dropped from 67 percent last year to 63 percent this year.

Between 2006 and 2008, the percentage of workers with employee-only coverage whose employer contributed at least $1,000 to either their HRA or HSA increased from 26 percent to 37 percent; but in 2009, it fell to 32 percent.

Meanwhile, the percentage of workers with individual coverage who received an employer contribution of less than $200 increased from 3 percent last year to 8 percent this year.

By contrast, the percentage of workers with family coverage who received a contribution of $1,000 or more increased from 59 percent last year to 73 percent this year. Nearly three-quarters of workers with family coverage in a CDHP now receive an annual employer contribution of $1,000 or more, EBRI estimates.

Among other findings in the survey:

● The percentage of individuals remaining in CDHPs for three to four years increased from 9 percent in 2006 to 26 percent in 2009, and the percentage who remained in the plans for five years or more increased from 3 percent in 2006 to 9 percent in 2009.

● The amount of money individuals have accumulated in their accounts has grown over time. Forty-seven percent had balances of at least $1,000 in 2009, compared with 43 percent in 2008, 44 percent in 2007 and 25 percent in 2006.

● Only 4 percent of the adult U.S. population in 2009 is enrolled in CDHPs linked to HSAs or HRAs, up from 3 percent in 2008.

The report, which presents findings from the 2008 and 2009 EBRI/MGA Consumer Engagement in Health Care Surveys and the 2006 and 2007 EBRI/Commonwealth Fund Consumerism in Health Care Surveys, was published in the November EBRI Notes and is available online at www.ebri.org.

Filed by Joanne Wojcik of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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