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Pensions Cautioned Against Trying to Beat the Market

Company bankruptcies, pension terminations and complex retirement benefit regulations force Bradley Belt, executive director of the Pension Benefit Guaranty Corp., to deal with arcane subjects and language.



    There’s one concept, though, that he believes is straightforward and that companies should heed as they manage pension funds: Be careful if you’re going to pursue alpha, or above-market return.


    Although some pension funds may be able to find market niches that allow them to earn more than beta–the market return–they may not last long because there is about $4 trillion in pension money looking for the same niches.


    “What makes me nervous is … that conventional wisdom is that we’re going to be in a low-return, low-interest-rate environment for a period of time,” Belt says. “Everybody’s saying, ‘Aha, we’re going to chase alpha.’ Well, this isn’t Lake Wobegon, and not everybody is above average.”


    That’s particularly true of pensions, Belt says. “In aggregate, pensions are the market,” he says. “Not everybody can achieve above-average returns. For every winner, there’s going to be a loser. There’s not enough alpha for everybody.”


“The problem is that companies aren’t willing to recognize that there is a trade-off between risk and return.”
–Bradley Belt


    Part of the reason that defined-benefit plans are underfunded by about $450 billion is that companies counted on the bull market of the 1990s to bring in outsize returns to sustain their programs. The economic downturn that hit in 2000 resulted in huge funding gaps.


    “The problem is that companies aren’t willing to recognize that there is a trade-off between risk and return,” Belt says. “Each company is in the best position to determine its own appetite for risk. But to pretend the risk isn’t there is not the answer. What they want to be able to say is, ‘Let’s take the risk so that we can get the upside but the downside is shifted to third parties.’ I guess we would all like to have that: Heads I win, tails you lose.”


    The business community asserts that the pension changes the Bush administration has proposed will increase the volatility associated with defined-benefit plans and force companies to shut them down.


    “They expect to spend a lot of money on their plans,” American Benefits Council president James Klein says of sponsoring companies. “What they can’t justify is having unpredictability about their expense.”


    Belt argues that companies will have the ability to control risk and volatility under the Bush plan. “If what company sponsors are saying is, ’The only way we’ll stay in the system is if we can continue to have the flexibility to chronically underfund our pension plans’ … then I think we need to ask ourselves whether the cost is too high,” he says.


Workforce Management, September 2005, p. 14 —Subscribe Now!

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Businesses Say Their Employees Can’t Reduce Health Costs on Their Own

Only 28 percent of employers believe the primary responsibility for controlling health care costs lies with the people getting and giving care: employees, doctors and hospitals. Instead, many employers say, the responsibility lies with intermediaries such as insurers, the government and employers themselves.

United Benefit Advisors and Ingenix, a health research and information company, surveyed 794 U.S. employers, ranging from workplaces with fewer than 49 employees to large employers with more than a thousand.

Thirty-nine percent of employers surveyed said they’re more supportive of federal intervention to address health care costs than they were a year ago. Thirty-three percent were not. Generally, this desire for federal intervention is aimed at getting more information about costs and quality of care. The overwhelming majority of employers–about 90 percent–say that over the next five years the U.S. will avoid turning to a taxpayer-financed health care system like Canada has.


Also from the survey:


·    Employers are committed to providing health benefits to employees, saying that it improves recruiting and retention. On the other hand, they “feel little obligation to do so for retirees.”


·    Nothing employers have done to control health care costs, according to the study, has consistently been effective in continually reducing those costs. While many employers, for example, say that wellness programs and the management of chronic diseases have been effective, about the same number say that those practices have had little impact. And most employers just don’t know yet if consumer-driven health care will cut costs in the long run.


·    New employees need not worry about coverage: employers are widely opposed to the idea of saving on health care costs by increasing the waiting period for new hires.


United Benefit Advisors released a separate survey, related to premium costs, in late August.


—Todd Raphael

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What To Ask Before Employees Leave

Companies that specialize in exit interviewing ask a plethora of questions, some as general as “Why did you leave?” and others as specific as “Can you give us names of those you believe are involved in criminal behavior?”



    The trick to effective questioning is to focus on areas where you feel you can improve the organization, says Scott Erker, a senior vice president in DDI’s Selection Solutions group. “Don’t ask questions if you aren’t going to use the information,” says Erker. “We see a lot of companies going through the motions of just asking the usual questions, rather than being strategic about it.”


    David Scarborough, chief scientist at HR consulting firm Unicru in Portland, Oregon, advises clients to interview the manager as well as the departing employee. “We ask managers ‘What was the impact of this person’s departure on your department?’ We are looking for patterns that relate to job performance, so that they can hire better qualified and better suited candidates,” he says.


    Here are some typical interview questions being included on exit surveys, according to several vendors (depending on the answers, most surveys include follow-up questions that hone in on specifics):


  • Did you find your new job or did it find you?


  • Were you satisfied with your compensation and benefits?


  • How did you feel about your supervisor?


  • How did you feel about the working relationships you had with members of your team?


  • Did you work give you a sense of accomplishment?


  • Are there things we could have done to make your job more fulfilling?


  • Did you feel you had opportunities to expand your knowledge and learning?


  • What are some things you would address that are problems in the workplace?


  • What competencies do you feel were required to do your job and did you have them?


  • What did you like about your job? What did you dislike about your job?


  • If there were an opportunity to return, would you do that?


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Use of Exit Interviews Grows, Gets More Sophisticated

The HR metric of the moment may be employee engagement, but many companies have also placed a new emphasis on employee disengagement by reinventing the exit interview and acknowledging there’s much to be learned from a departing employee. The development and implementation of these surveys is increasingly being outsourced, and the data compared with other workforce surveys.



    Vendors that provide these services say demand is rising because outsourced exit interviews are often more comprehensive and strategic than internally devised surveys, which can be incomplete or haphazard. Beth Carvin is CEO of Nobscot, a Web-based software provider whose products include WebExit, which was introduced in 2001. She has seen growth in both the number of her business’s clients as well as her revenue of between 20 to 50 percent a year since then. “Exit interviews are the one process that companies haven’t really figured out how to do well,” says Carvin.


    Like Carvin, Diane Irvin has seen demand for her firm’s exit interview services grow rapidly in the last few years. Irvin, senior vice president for the HR research and consulting firm Strategic Programs, says the Denver-based company has been growing more than 70 percent a year for the past three years, largely due to its exit interview work. “Right now it’s trendy to do employee engagement surveys, but to engage employees you have to understand them. Comparing your exit data to your engagement data helps you do that.” Irvin and others in the exit interview business find employees are both more likely to participate and to be more honest when someone unconnected to their employer asks the questions.


    Nobscot, Strategic Programs and most other vendors provide clients with detailed reports that correlate responses from departing employees and analyze data, breaking it down by age, seniority, gender and other demographics. The number of questions ranges from about 35 to 70. For larger organizations, the questions are generally quantitative rather than qualitative, although most surveys contain a section for open-ended comment.


    Since January, Black & Veatch has been comparing data from its newly designed exit interviews with its workforce engagement surveys in order to accurately gauge how employees feel about their jobs. The engineering consulting firm hopes the information gleaned from its surveys will help senior management find ways to increase employee productivity and, ultimately, profits. The company may discover, for example, that supervisors need a specific kind of training or development to better manage their teams.


    Michael Harris, a professor of human resources at the University of Missouri-St. Louis’ College of Business, says that’s a smart move. “Think of your employee as your customer,” he says. “Most companies want to measure customer satisfaction, but it’s important to also find out why your customers are leaving.”


    Black & Veatch changed its old set of exit interview questions–which B.J. Holdnak, vice president of organization effectiveness describes as “kind of hit or miss”–to a standardized survey that identifies high performers and categorizes the reasons they leave. Black & Veatch’s exit survey also tracks demographics. “Are younger people leaving us more often than those with a longer tenure? If so, why? Is it compensation? Their team? The environment? The culture? We are looking for patterns,” says Holdnak.


    Some of the same questions asked in Black & Veatch’s exit interviews are also asked in their engagement survey, so that the responses of those currently in the workforce can be compared to those who are leaving.


    Richard Wellins, a senior vice president at human resources consulting firm DDI, says asking exit interview questions before people actually exit–in engagement surveys–can help a company prevent people from leaving. “The idea is that the questions you ask for a current employee are very similar to what you ask a person who is leaving. For example, on an engagement survey you might ask, ‘Do you feel you have opportunities to expand your knowledge and learning? Are we meeting your needs for learning and growth?’ and on the exit survey it’s the same questions, only past tense,” says Wellins.


    Richard Harding, director of research at Kenexa, says this kind of comparison across surveys is relatively new for businesses. “You’re looking not just at why people are leaving, but why they are staying,” says Harding. “Then you give your managers actions they can take to keep their people. Just doing exit interviews after someone leaves is like shutting the door after the horse has left the barn.”


Expansion plans
    Black & Veatch has an aggressive expansion plan in place, a response to dramatic growth in worldwide energy and water markets that began about three years ago. Its work is concentrated in those industries, says Holdnak, and the firm wants to capitalize on the opportunity for growth by hiring people that are a good fit and will stay put.


    “We are going to have to increase the number of people we hire and retention is also going to be an issue. If [energy and water] markets are better, people are more likely to jump ship,” says Holdnak.


    Black & Veatch hasn’t been collecting data long enough to know how it will use the information to make changes, but as the firm grows, a big concern is fostering a globally inclusive corporate culture.


    Between 30 and 35 percent of Black & Veatch’s 7,000 employees work outside of the U.S. “Having policies and processes that resonate with employees in different countries across a variety of cultures is a challenge for us and we’re hoping the data we get from these surveys will help us achieve that,” says Holdnak.


Increasing participation
    Sutter Health, a healthcare network based in Sacramento that serves northern California and Hawaii, overhauled its exit interview process when it developed a nursing retention and recruitment plan four years ago. The data is being used to help stem the turnover of newly hired nurses, which is very high compared to Sutter’s general nursing population, says Diane Lahola, director of workforce planning and retention at the company. Turnover of new nursing school graduates is high throughout the healthcare industry, says Lahola, and Sutter wants to find out “what it will take to create a more satisfactory work environment for nurses, because the cost of turnover is very high and they are difficult to recruit.”


    Sutter’s affiliates–the members of its network–have been allowed to either internally redesign their exit interviews or contract with third-party vendor Strategic Programs. “It made sense to use a third party because you tend to get better participation rates and more [candid] data,” says Lahola. The first year, between 40 and 50 percent of affiliates outsourced exit interviews; this past year 75 percent did. Lahola says for affiliates who conduct the interviews themselves, participation among departing employees is between 0 and 12 percent. With a third party, average participation is about 70 percent.


    The new exit surveys give Lahola more accurate information than she had previously. “A lot of times someone will say they are leaving because they are getting more money across town, when the real reason is that you can’t pay them enough to work for their manager,” says Lahola.


    In an effort to get at the true reasons employees leave, Lahola compares exit data to the data she gets on annual employee opinion surveys. She was surprised to learn this fall, after the most recent opinion survey, that the orientation and assimilation period was a sore spot for new nurses. It wasn’t the structure of the orientation program itself. It was other things, such as current employees not being prepared for a new employee’s first day on the job. “Although it wasn’t happening at all our affiliates, I didn’t realize the degree to which this was a problem,” says Lahola. “New nurses and other employees would show up for their first day and staff may not have been prepared to orient and assimilate them.”


    Also surprising was the issue of competitive pay. Employees currently with the organization are actually less satisfied with their pay than those who leave. “That tells me people aren’t leaving because of money,” she says. “And I can drill down by affiliates to see where the problem is most acute.”


    Sutter Health’s affiliates are just starting to make changes based on the exit data. New nurses are now surveyed about their work experience at the 30, 60 and 90-day mark and several affiliates have begun mentor or buddy programs. Another reason nurses were leaving, says Lahola, was a perceived lack of career opportunities, despite the fact that Sutter offers a variety of programs that allow employees to move from one affiliate to another or attend management and leadership programs. “We need to connect the dots better to show employees these opportunities exist,” says Lahola. “Now we focus on that in all of our communications.”


Hiring alumnae
    Jeppesen, an Englewood, Colorado company that provides aviation data such as maps and flight plans, redesigned its exit interviews in 2000 with the help of an outside vendor. Information from the exit surveys spurred the company to offer more training for managers and change the way management jobs are posted. “There was a perception here that people got jobs through who they knew rather than what they knew,” says Alice DiFraia, the company’s director of human resources and organizational development.


    The changes had a profound effect: by 2003, turnover was down to six percent, which was DiFraia’s goal, and the company stopped performing exit interviews. This year, however, turnover began rising again–it’s 12 percent now–and the company has reinstituted the interviews.


    Data from exit interviews is also used in less obvious ways. United Risk Partners, for example, a firm that doesbackground checks, is finding that about 40 percent of companies also use it to conduct exit interviews. Craig Lawrence and Marco Confuorto, partners in the suburban Chicago firm, are both trained investigators and use the interviews to gain information about a company that management can’t find on its own. “From a risk management standpoint, you can find out things about sexual harassment, drug and alcohol abuse, intimate relationships and criminal activity,” says Lawrence. “To investigate a criminal allegation you would have to hire an investigator to go under cover for a 90- or 120-day investigation. Exit interviews are a way to obtain inside intelligence about operations without having to make those significant investments.”


    Boomeranging–getting highly valued employees who leave voluntarily to return–can also be facilitated via exit interviews. Exit questions for those employees focus on what it would take to get them to stay. Beth Carvin of Nobscot recalls an insurance company client that was able to do just that. “They called an employee who had left to say, ‘All the great things you liked about working here are still here, and the things you didn’t like? They are gone.’ They hired this guy back within two weeks,” she says.


    Richard Harding of Kenexa says because employees sometimes find the grass isn’t necessarily greener at another company, doing exit interviews a few weeks or even months after valued employees leave can help a company find out what it will take to bring them back. Harding says Kenexa asks departing employees if they’d consider returning to the company, and under what conditions. About two-thirds say they would consider returning if the circumstances changed. Often, employees don’t say they want more money–they just don’t want to work for the same manger.

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Large Companies Want Employees to Share Health Care Burden

Efforts to make employees shoulder more of the health insurance burden by managing their own health care spending and becoming tougher consumers has not yet resulted in significantly reduced costs, according to a new study.

The annual survey of employer health benefits found that premiums for employer-sponsored health insurance rose by 9.2 percent in 2004, a lower increase than the two previous years but a rate at which health costs outpaced inflation and wage increases. The average annual premium for a worker with single coverage is $4,024, with the employer contributing $3,413; for family coverage, the premium is $10,880, with the employer paying $8,167. The report by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust was based on a poll of 2,995 randomly selected public and private employers.


Cost-shifting continues
Two other studies suggest that companies will shift more health care costs to their employees. A Robert Wood Johnson Foundation poll of 600 business owners and benefits managers shows that companies expect health care costs to rise 12 percent over the next year and that they will require employees to bear an average of 21 percent of the increase. And a survey of 1,883 employers released by Mercer Human Resources Consulting and Marsh Benefits stated that 62 percent of large employers will shift costs to employees in 2006.


The major reason consumer-driven health care hasn’t lowered company bills is that too few workers have signed up, according to the Kaiser report. About 20 percent of employers offer high-deductible health plans, which require deductibles of $1,000 for a single account and $2,000 for a family. Only 3.9 percent of employers offering health plans also make a contribution to a health reimbursement arrangement or allow employees to establish health savings accounts.


About 1.6 million workers are enrolled in HRAs, while 810,000 have an HSA. The goal is to make workers more sophisticated consumers who demand lower-cost and higher-quality health care. But with so few employees controlling their own health care spending destiny, cost reductions have been modest to nonexistent.


“It’s really not something yet that can influence the overall health care bill,” says Drew Altman, president and CEO of the Henry J. Kaiser Family Foundation. “That’s not a statement based on the merits of the approach; that’s a statement based on the math.”


Although individual health care accounts haven’t taken off, about one-third of companies with more than 5,000 employees offer high-deductible options. More than 40 percent of firms with more than 200 employees will seek premium increases next year, according to the Kaiser report.


But companies don’t think that making employees more market-oriented through higher deductibles, premiums and co-payments will be a panacea. “We expect the prevalence of these consumer-driven approaches to grow, despite the fact that only 16 percent of employers say that they believe that these plans will be ‘very effective’ in controlling health care costs,” the report states.


One expert who contributed to the Kaiser study warned that consumer-driven health care may result in unintended consequences.


“Long-term costs for resulting acute care could rise if preventive care or other chronic disease management is delayed or avoided by those individuals who have high out-of-pocket costs,” says Mary Pittman, president of the Health Research and Educational Trust.


Regardless of the strategies used to reduce health care spending, Altman is pessimistic about the future. “What we see is the slow but perceptible fraying and deterioration of our employer-based health insurance system,” he says.


More information on health care benefits is available online.


—Mark Schoeff Jr.

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Monster’s Comp Change Doesn’t Mean a Sale–But Stay Tuned

The final paragraph in an otherwise bland document that Monster filed with the Securities and Exchange Commission on September 14 has fanned speculation that the online recruiting company is preparing to be acquired. Monster says that as a matter of practice it does not comment on rumors or speculation. But in case a deal is taking shape, CEO Andrew McKelvey and seven other executives will be ready.


The filing showed that Monster’s compensation committee recently amended contracts of key executives to shield them from taxes that an acquisition triggers. The company modified existing change-in-control provisions to provide the executives with a “gross-up,” a payment to defray excise taxes they might incur if the company was sold.


Robert Burke, Monster’s director of global branding, says the change simply enacted what he referred to as a “best practice” in executive compensation, one that is common among Fortune 1,000 companies. “It doesn’t mean we’re a takeover target,” Burke says.


Andy Oelbaum, president and CEO of ExecPay, a compensation consulting firm in Port Washington, New York, says the fact that the filing states that the company amended existing contracts is of interest.


“When you amend your change-in-control provisions, that would give a strong indication that the company may be thinking of a merger or acquisition or reorganization in the short to midterm,” Oelbaum says.


But compensation committees at large companies have adopted gross-ups with greater frequency, even if there are no plans to merge or sell, according to Mercer Human Resource Consulting. Of 350 companies Mercer surveyed, 79 percent that have change-in-control protections provide executives with gross-ups, up from 64 percent in 1998.


Payments like these serve to keep existing management in place when an acquisition might be in the works. Though executives obviously welcome them, the programs earn scrutiny from institutional investors. That’s because gross-ups can double or triple the cost of a company’s severance program, says Carol Silverman, a principal with Mercer.


For any company, such costs are academic until there’s a deal. McKelvey, who founded Monster’s parent company in 1967, has maintained that Monster is not for sale. A year ago, he cited his good health at age 70 and the robust growth in the online job listings market as reasons Monster should remain independent.


James Walden, an analyst for Morningstar in Chicago, says that the company’s recent purchases of Web sites overseas make it less likely that it was contemplating being acquired itself.


If Monster is considering a sale, it’s understandably tight-lipped about it. But Burke says the company always considers “strategic alternatives to increase shareholder value.”


—Jonathan Pont

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Health Behaviors and Consumerism

To gain a better sense of the pluses and pitfalls of consumer-driven plans, McKinsey & Co. interviewed more than 1,000 employees who have been covered by a consumer-driven plan for at least 12 months. McKinsey’s analysis compared the health behaviors of those employees with employees covered by other health insurance. As a group, the employees covered by consumer-driven plans were:


• 50 percent more likely to ask about medical costs

• 20 percent more likely to participate in company wellness programs

• 30 percent more likely to get an annual check

• Satisfied (44 percent) with the switch to consumer-driven care

• Dissatisfied (80 percent) with insufficient pricing information, specifically doctors’ charges

Source: “Consumer-Directed Health Plan Report—Early Evidence Is Promising,” June 2005

Workforce Management, September 2005, p. 58 —Subscribe Now!

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Feedback on Integrity Tests

The following letter relates to a recent article about a court ruling affecting integrity tests.


Dear Editor:


While there has been a lot of confusion regarding the 7th Circuit Court of Appeals recent decision regarding an employer’s use of the Minnesota Multiphasic Personality Inventory (“MMPI”), your publication’s recent article entitled “Court Ruling that Employer’s Integrity Tests Violated ADA Could Open Door to Litigation” really takes this lack of understanding to a new level.


Contrary to the article’s assertion that the MMPI is “…the most popular screening test used by U.S. employers…”, it is not a commonly used test in the employment domain. In fact, it is used only by a handful of employers to screen for safety-sensitive positions (e.g., flight crew, nuclear plant operator, police officer)–except in some isolated, misguided instances like Rent-a-Center’s use.


With respect to the recent litigation that stimulated the article, Karraker v. Rent-A-Center…(the) holding by the Seventh Circuit has no impact on the vast majority of testing instruments utilized by employers. The instruments used by most employers were not developed to help identify any disabilities nor do they contain items that are likely to reveal the existence of a disability.


According to the ADA and extensive guidance provided by the Equal Employment Opportunity Commission, such tests are not medical in nature and should be administered prior to tendering a conditional offer of employment.


The Seventh Circuit’s opinion relied extensively upon long-existing Equal Employment Opportunity Commission guidelines regarding medical examinations, and merely reinforced the commonly held notion that the District Court had erred in deciding that the MMPI was not a medical test. The decision’s impact is minimal except for correcting the District Court’s misguided decision regarding when the MMPI can legally be administered. The opinion merely said that the MMPI could not be administered prior to an employer tendering a conditional offer of employment.


Flying in the face of your article’s characterization that the MMPI is an integrity test, the 7th Circuit Court of Appeals acknowledged that “Psychological tests that are designed to identify a mental disorder or impairment qualify as medical examinations, but psychological tests that measure personality traits such as HONESTY (emphasis added), preferences, and habits do not.”


The article also indicated that a “…recent survey found fewer than a dozen…” lawsuits had been filed against employers use of integrity tests. In reality, there have been approximately 35 complaints filed against employers who are using integrity tests–a relatively small number in light of the large number of these instruments administered.


And unmentioned in the article, these suits have been consistently disposed of (in favor of employers) at the administrative level (e.g., EEOC, California Department of Fair Employment and Housing) because the instruments have been shown not to exhibit disparate impact and have extensive validation evidence documenting that they are job related and consistent with business necessity. Apparently employers use integrity tests since they aren’t commonly challenged, they don’t contain invasive items, they don’t exhibit disparate impact and they have been shown to be job-related.


Very truly yours,


William G. Harris, Ph.D.
David W. Arnold, Ph.D., J.D.
Executive Director
General Counsel
Association of Test Publishers


Editor’s note: The story took particular note of the fact that the MMPI was not designed as a workplace integrity tool. It also pointed out that this has not prevented employers for using it as such, as was the case with Rent-a-Center. Further, the story did not contend that all integrity tests are now suspect. The issue is that integrity tests whose design is similar to the MMPI might run afoul of the ADA. And while the Association of Test Publishers believes that the 7th Circuit Court’s decision has limited impact, other employment law and testing specialists disagree, as the story shows.


As to the MMPI’s popularity, the story relied on research by employment law attorney John Canoni, who is quoted in the article. Mr. Canoni defers to the Association of Test Publishers in its assertion that that the MMPI is not the most popular test in use by employers. Finally, because of an editing error, the story incorrectly said that the 1991 decision in the Target case was a U.S. Court of Appeals decision. The court that handed down the ruling was the California Court of Appeals.

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Overwhelmed by Choices

T he leaders of Cummins, a manufacturer of power generation equipment and systems, knew that some of their employees might be reticent to explore the unknown world of consumer-driven health plans unless the company provided a few guideposts.



    So the Columbus, Indiana-based company invested in a Towers Perrin financial modeling tool that helps employees run cost comparisons. By answering a series of questions flashed on a computer screen, employees could develop a rough picture of their out-of-pocket health expenses for the upcoming year, broken down by plan.


    To sweeten the deal, Cummins officials also committed to depositing $100 into the health flexible spending account of every employee who test-drove the financial tool. About half of the 10,000 eligible employees did so, says Jill Olds, director of benefit strategy. Roughly the same number, 46 percent of Cummins’ eligible employees, selected one of the two consumer-driven plans with health reimbursement accounts for 2004 instead of the third option, a managed care plan.


    “In 2003, consumer-driven health plans were frightening for employees,” Olds says. “And, to the extent that we were able to provide them a tool to model their own experience, that was helpful for them.”


    Compared with the typical managed care plan, in which employees don’t have to consider much beyond meeting the co-pay, consumer-driven health care can appear to be rife with decisions.


    Do you really need to get that shoulder checked out? Which doctor should you consult? How expensive is that physician? Is that recommended MRI necessary?


    Within limits, having options can be enormously liberating, says Barry Schwartz, a psychology professor at Swarthmore College and author of the 2004 book The Paradox of Choice: Why More Is Less. “Having some control is more than helpful. It’s essential to our well-being,” he says. “And you can’t have some control without some choice.”


    But, he cautions, “once you cross some kind of magical line–and no one knows where that is–instead of liberating people, choice paralyzes them. People become overwhelmed, confused.”


    Schwartz worries that employees will become indecisive, postponing vital care and, in the end, running up larger health bills. Employers, he says, should help employees by narrowing complex health choices as much as possible, perhaps by presenting choices in pairs across a series of computer screens. “In effect what you are doing is hiding most of the options from people,” he says. “Then people are more relaxed about decisions, more confident about them.”


    Human resource managers also can provide an emotional safety net by offering health advocates, wellness programs and other specialized resources when employees become ill, says Ron Fontanetta, a principal with the health and welfare practice at Towers Perrin. That’s when employees are most receptive to information anyway, he says.


    “It’s important to create an environment of empathy with the member,” Fontanetta says. “When they are sick, they are scared.”


    Employers that don’t stay ahead of employee needs will soon discover that “consumer-driven’’ can be an apt term. In 2002, the first year Aetna offered a consumer-driven plan to its own employees, leaders didn’t provide a financial modeling tool, says Robin Downey, Aetna’s head of product development. Employees, she says admiringly, cobbled together their own computer spreadsheets to better divine their own personal cost-benefit picture.


Workforce Management, September 2005, p. 60 —Subscribe Now!

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State of the Sector Health Care Benefits

Once more concept than reality, consumer-driven health plans are poised to proliferate in the next several years, driving changes in health spending that even early employer converts can’t precisely predict.



    Large employers, previously content to watch an adventurous few wade into the uncertainties of the high-deductible plans, are rapidly creating their own prototypes. In 2004, just 4 percent of companies with at least 500 employees offered a consumer-driven plan, according to Mercer Human Resource Consulting’s annual benefits survey of 3,020 employers. But one-fourth planned to implement the approach by 2006.


    With employers facing ever-increasing health costs, consumerism was this summer’s buzz as companies prepared for 2006 enrollment, says Paul Mango, practice leader for the North American payor provider practice at McKinsey & Co. “We think in the next 24 months you will see a dramatic uptick” in plans, he says. “Virtually every (insurance) payor we talk to now says employer interest is far beyond their expectations.”


    The plans, which typically pair a high-deductible policy with some form of personal employee spending account, are designed to persuade employees, via their wallets, to become less cavalier about treatment decisions–from doctors’ visits to toe fungus prescriptions. This insurance approach “makes people more aware that doctor’s office visits don’t just cost $10 or $15,” says Janice Pushaw, director of global benefits strategy at Whirlpool, which added a consumer-driven plan in 2004.


    But it’s still too early to know how counting pennies will influence long-term employee health, and thus the final bill. Early cost savings have been promising, but employees may be deferring treatment until they build sufficient funds in their personal accounts, Mango says. Gail Shearer, a health policy analyst at Consumers Union, calls the overall insurance concept a double-edged sword.


    “It may well deter some spending,” she says. “It also may deter needed care. It may end up backfiring.”


    Meanwhile, employers face a difficult task: boosting enrollment. Sign-up rates, with the exception of standouts like Owens Corning or Whirlpool, have been on the anemic side. In Mercer’s survey, just 16 percent of employees in 2004 chose a consumer-driven plan when provided another option. Fear of the unknown likely contributes to those decisions. A 2005 survey by Towers Perrin that explores the health purchasing decisions of 1,400 employees found that 55 percent preferred higher premiums over the possibility of reduced health benefits. “There tends to be a desire (among employees) to over-insure because of the fear factor,” says Ron Fontanetta, a principal with the health and welfare practice at Towers Perrin.


    But employers can create a softer landing, Fontanetta and others say. Health advocates can steer employees to specialized treatment centers and suggest prevention strategies. Financial modeling tools can spit out cost estimates, helping employees decide whether the newer high-deductible plan is beneficial. Above all, company leaders must view the shift to consumerism as a fundamental change in corporate philosophy, Whirlpool’s Pushaw says.


    “If all you are looking at is a cost savings number, it’s not going to work,” she says. “We put a stake in the ground and said, ‘We’ve got to do something about rising health costs, and we have to change (employee) behavior.’ “



Changing behavior
    The new high-deductible plans, also dubbed “consumer-directed,’’ can influence health spending–at least in the short term.


    Whirlpool, where 55 percent of employees are enrolled in consumer-driven plans, reports that as of early August the company had spent 15 percent less on that group this year than it had on employees in the company’s managed care plan. Mark Snyder, director of benefits for Toledo, Ohio-based Owens Corning, says his company’s health costs increased less than 5 percent in 2004–compared with previous annual increases of 12 percent–after the introduction of two consumer-driven plans. Employee use of generic drugs has increased about 3 percent, and emergency room visits are down 5 percent to 10 percent, he says.


    The high-deductible plans, which include health reimbursement accounts and health savings accounts, are far from cookie cutter in their approach.


    The company’s contribution to the employee account can vary, as can the size of the deductible. Some employers also pay for annual physicals and preventive tests, such as mammograms. In July, Aetna took the dramatic step of offering coverage, effective next year, for diabetes, blood pressure and other preventive medications. The option was introduced in response to employer interest, says Robin Downey, head of Aetna’s product development.


“It may well deter some spending. It also may deter needed care. It may end up backfiring.”
–Gail Shearer, health policy analyst at Consumers Union


    “There are some employers that are concerned that as these plans become more mainstream, maybe some employees won’t get the drugs,” Downey says.


    To some degree, the plans contain a carrot and a stick. The sticker shock of a higher deductible is usually accompanied by the promise of an employee health account that can accrue if employees limit their health spending.


    But don’t assume that employees shortchange their own preventive care, proponents of consumer-driven plans say.


    Aetna reports that adult preventive exams have increased 23 percent among its consumer-driven membership, compared with 8 percent for those enrolled in other insurance plans. And a recent McKinsey & Co. analysis, which focused on the experience of five companies that have switched exclusively to a consumer-driven model, found that participants were at least 20 percent more likely to adhere to treatment plans for chronic conditions.


    Whether health savings can be sustained is the question that makes everyone nervous.


    Skeptics of consumerism point out that managed care was once considered the remedy for skyrocketing health care costs. In a report released in August, California Insurance Commissioner John Garamendi blasted the high-deductible plans, saying they would further destabilize the health insurance system by eroding benefits and cherry-picking younger, healthier employees. Others concerned about the plans’ long-term effects point to a study published last year that provided a snapshot of one unidentified employer: By the second year, hospital costs for employees in the consumer-driven plan had ballooned, running more than double what they were prior to enrollment.



Boosting employee uptake
    Amid this shifting landscape, can employees be encouraged to make the leap into consumerism, or do they require a bit of a nudge?


    McKinsey & Co.’s Mango argues that companies must shift all of their employees to a consumer-driven plan to reap the full benefit. “We don’t think companies who go at this on a slice basis will be successful,” he says. Otherwise, Mango says, employees with more chronic conditions will inevitably remain with the more traditional managed care coverage.


    But there are ways to catch employees’ attention without eliminating their options, says Snyder at Owens Corning, which has achieved a 71 percent enrollment rate. When the company introduced two health reimbursement accounts for 2004, it also redesigned the PPO option, forcing employees to give all of their health options a fresh look, Snyder says.


    Snyder says he has been looking closely for signs that employees might be skimping on vital care. Owens Corning, he says, benefits from nurses based at the work sites who can intervene if they hear, for example, that an employee is not filling a prescription for a cholesterol-lowering medication. “Any time you have cost-sharing, you are always going to have employees who may make short-term financial decisions that affect their long-term health.”


    Still, Snyder’s voice carries a lilt as he describes his employees’ take-charge attitude toward their newly acquired personal health accounts. Like others on the leading edge of consumerism, Snyder hopes that confidence will translate to more impact on employee treadmills and less on the bottom line.


Workforce Management, September 2005, pp. 57-60 —Subscribe Now!