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Weight-loss surgery saves employers money within as little as two years while transforming the health of employees, a new study shows.

In the largest study of its kind, researchers looked at health care costs of more than 3,000 patients who underwent bariatric surgery and followed them for as long as five years after the surgery to determine whether it reduced overall medical costs. Researchers concluded in the study, published in the American Journal of Managed Care, that payers recouped the cost of the surgery—which varied from $16,000 to $25,000—within two to four years.

“Is it a good investment?” asked Pierre-Yves Crémieux, the paper’s lead author. “The answer is yes. In two to four years you will get your money back. Regardless of whether it’s good for your patients, you will get your money back.” Crémieux is managing principal at Analysis Group in Boston and adjunct professor at the University of Quebec at Montreal.

Recent studies have shown the surgery to be good for patients too—a way to reduce the risk of chronic illness such as diabetes, heart disease, depression and other health problems in morbidly obese individuals. A study of weight-loss surgery published this year in the Journal of the American Medical Association showed that 73 percent of people with Type 2 diabetes had complete remission of the disease after weight-loss surgery, compared with the 13 percent of patients who tried only conventional medicines, changing their diet and exercising.

The question for employers has been one of cost—they have expressed concern that the surgery is dangerous and expensive. Since only a handful of employees at any one company typically are obese enough to need the surgery, one complication could make it impossible for a company to recoup its upfront cost.

Crémieux said improvements in the surgery, especially the increasing use of minimally invasive laparoscopy, have made it safer and cheaper. He said  laparoscopic bariatric surgery costs around $17,000 and recovery times are shorter, allowing companies to recover their costs within two years.

The study measured its savings by the cost of treating a control group with similar health conditions with drugs alone. A corresponding editorial concluded that rising costs for those who did not receive the surgery drove much of the savings. It also noted that little is known about the long-term costs and health effects of people who underwent bariatric surgery.

Still, the findings were a boon to companies such as Harrah’s Entertainment in Las Vegas, which pays for the surgery for people who meet certain health criteria. The company requires patients to meet with a personal trainer and a dietitian. The company also provides support groups to help patients adjust to the change.

“We have not been able to do a longitudinal study on our specific experience to date,” said Jeff Shovlin, the company’s vice president for benefits. “However, given the analytics that have been done by consultants and the medical community on bariatric surgery, it’s clearly supporting our decision to cover this benefit under our health insurance program.”

The editorial accompanying the research criticized employers and insurers who would decide to cover the surgery based only on its ability to provide a return, saying such a standard is not applied to other forms of surgery or medical and drug treatments. In the end, Crémieux said, it is the health of the patient that should be considered.

Shovlin shared an e-mail from a woman in the company’s health plan who underwent bariatric weight-loss surgery this summer. The woman, whose name was not revealed, described herself as being in her 50s, diabetic and frustrated that she would have to spend the rest of her life on expensive medications. She took four medications every day. One medicine, Byetta, cost the company nearly $10,000 a year.

In an e-mail to the staff of Harrah’s wellness center, the woman wrote: “Thank you for making me healthy and strong and disease-free, drug-free. No amount of money can buy the happiness I feel now, the peace of mind I have now.”

—Jeremy Smerd

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There’s more evidence that growth in 401(k) plan participants with account balances is dovetailing with the increase in plans using automatic enrollment. 
 
More than four out of five eligible employees had balances in their 401(k) plans in 2007, up from 78.9 percent in 2006, with increased employer use of automatic enrollment accounting for the rise, according to a recent survey by the Profit Sharing/401(k) Council of America in Chicago. 
 
“More than half of large plans utilize this feature, and usage by small plans doubled,” PSCA president David Wray said in a news release about the survey. 
 
That comes as no surprise to Pamela Hess, director of retirement research at Hewitt Associates Inc. in Lincolnshire, Illinois. She said automatic enrollment can increase employee participation by as much as 20 percent, based on Hewitt’s research. 
 
“It [auto-enrollment] is an increasing trend,” Hess said. “When you default employees into automatic enrollment plans, you absolutely get a participation-rate increase.” 
 
Still, further gains in employee participation could be had if pension-plan executives went back to existing employees who aren’t participating in the plan and re-enrolled them into 401(k) plans, Hess said. 
 
“Most companies do not ‘back sweep’ [enroll employees who declined participation initially] and enrolling existing hires will be much more painful,” Hess said. “Paychecks will go down for existing employees, while for new hires the money is never there to miss.” 
 
Jamie Kalamarides, senior vice president for Prudential Retirement Services in Hartford, Connecticut, said that once new employees are enrolled into a company’s retirement plan, plan officials should use automatic escalation, raising employee contributions to ensure adequate and increased retirement funds are available for employees. 
 
“Those two things [auto-enrollment and auto-escalation] combined will help participants make the right decisions and create the right inertia in savings for the future,” Kalamarides said. 
 
Hess cautioned that more employees enrolling in a company’s retirement plan and automatic increases in contributions could mean higher costs to a company in matching contributions and a potential strain on company profits. 
 
“Some companies just cannot afford to re-enroll existing employees due to these higher matching contribution costs,” she said. 
 
The PSCA survey also reported that the typical 401(k) plan has 65 percent of assets in equities, unchanged from 2006. Assets most frequently are invested in active domestic equity funds, followed by indexed domestic equity funds, stable-value funds and balanced stock/bond funds.

Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Employers are reckoning with the implications of a recent U.S. Supreme Court decision that could affect their ability to provide health care benefits.

The high court’s June decision in MetLife v. Glenn made it clear that employers and insurers face conflicts of interest in administering health benefit plans because they stand to gain financially by denying a claim.

The decision means employers and health insurance companies would be more vulnerable to lawsuits if they did not adequately address these conflicts.

Attorneys said the court’s ruling could open the door to expensive lawsuits from employees whose claims have been denied. Tim Jost, a professor of law at Washington and Lee University, said it could also lead employers to avoid the issue altogether by simply approving more health claims, thereby increasing health care costs.

“Employers and insurers better make sure they have their house in order,” Jost said. Insurers and employers must prove they have a conflict-free system in place—creating a “firewall,” for example, between those who adjudicate claims and employees who make financial decisions. If so, the court is likely to support a company’s choice to deny a claim, Jost said.

In cases with the appearance of a conflict of interest, however, employers and insurers could find themselves facing protracted litigation. Before the decision, federal courts widely accepted that conflicts of interest existed.

In affirming their existence, the Supreme Court made it clear that it would permit plaintiffs’ requests to pretrial discovery, a development considered significant, said attorneys specializing in the administration of the Employee Retirement Income Security Act.

“More discovery means more cost and expense for employers,” said H. Douglas Hinson, a partner in the ERISA litigation group of Alston & Bird in Atlanta. “The time that it takes to discover the facts and circumstances around the conflict could be more expensive than paying the benefit in the first place.”

Hinson says the problem with the ruling is that it does not say exactly how a conflict of interest would weaken a defendant’s case. Instead the court said a conflict of interest would be one factor for courts to consider.

To avoid litigation, employers should ensure that those denying claims operate independently, hiring outside doctors to review cases. Employers who hire outside administrators to adjudicate claims should state in their contract that the employer doesn’t become liable for poor claims administration, said Paul M. Yenerall, a partner with Eckert Seamans Cherin & Mellott in Pittsburgh.

The case, which has great implications for health plans, involved Sears, Roebuck and Co. employee Wanda Glenn, who with a heart condition had her disability benefits denied by Metropolitan Life Insurance Co.

Conflicts of interest among insurance companies became a national scandal in 2002 when it became known that Unum-Provident, the largest U.S. disability insurer, had offered medical advisors bonuses based in part on company earnings.

The court’s ruling portends increased scrutiny of health plans’ decisions. Their best course, Jost said, would be to develop a transparent and independent review system.

Otherwise, Jost wrote in a September online article in the journal Health Affairs, lawsuits “may raise the cost of some ERISA plans, which may mean that additional employers will drop health coverage or increase employee cost sharing or premiums, causing additional employees to forgo coverage.”

—Jeremy Smerd

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Internal Revenue Service guidance released Tuesday, September 30, answers several questions about a new law that allows reservist employees called up for military service to take health care flexible spending account balances as cash distributions.

That law, the Heroes Earnings Assistance and Relief Tax Act, which President Bush signed this year, allows employers to amend their FSA programs to let reservists called up for at least six months of active duty take FSA funds as taxable distributions instead of forfeiting balances.

FSA balance forfeitures are not uncommon, as activated employees and their families are entitled to enroll in TriCare, a Department of Defense health care program that provides generous benefits with no premium contributions. As a result, employees have a vastly reduced need for FSAs, which pay for uncovered health care expenses. Additionally, employees called up for active duty may be deployed in parts of the world, such as Iraq, where they would have limited opportunities to use health care services eligible for FSA reimbursement.

Employers, though, have raised many questions about the new law, which the IRS guidance—Notice 2008-82—has answered.

For example, the guidance makes clear that while the distribution feature is voluntary, employers that add such a feature will have to formally amend their FSA program to incorporate it.

In addition, while the distribution feature is available only to employees called up for at least six months, workers called up for fewer than 180 days can qualify for the distribution if subsequent calls increase the total period of active duty to at least six months. For example, if an employee is called to 120 days of active duty and the order is extended for an additional 60 days, the individual would be eligible to take a cash distribution from his or her FSA.

The IRS notice also makes clear that after an employee requests the distribution, the employer must receive a copy of the order or call to active duty before it can provide the distribution.

Employees have to request a distribution on or after the date of the call to active duty and no later than the last day of the FSA plan year—or grace period, if the employer has added such a feature to its FSA—during which the call to duty occurred.

Employers generally have to provide the distribution within 60 days after the request for a distribution has been made. 

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

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Massachusetts health care regulators agreed Tuesday, September 30, to ease and delay proposed regulations that would have subjected more employers to large financial assessments to help fund coverage for uninsured state residents.

Under a 2007 rule, employers with at least 11 employees are exempt from a $295 annual per-employee assessment if at least 25 percent of full-time employees are enrolled in their group health plans or if they pay at least 33 percent of the premium for individual coverage for employees within 90 days of their start date.

In July, the Massachusetts Division of Health Care Finance and Policy proposed tightening that rule so employers would have had to pass both tests to avoid the assessment.

That change in the Fair Share Contribution rule would have had its greatest impact on employers that have long waiting periods before new employees are eligible for coverage.

But the final rule assures that many employers, generally smaller firms, will continue to be exempt from the $295 assessment.

Under one change, employers with 11 to 50 employees still will only have to pass the enrollment test or the premium test to be exempt from the assessment. The earlier proposed requirement that both the enrollment and premium tests be passed would have applied to employers with at least 11 employees.

Employers with more than 50 employees, though, will still have to pass both tests. But under a new safe harbor provision, an employer that does not pay at least 33 percent of the premium for individual coverage can still pass if at least 75 percent of full-time employees are enrolled in the employer’s health insurance plans.

Additionally, the new rules won’t go into effect until January 1, 2009; regulators earlier proposed an October 1, 2008, effective date.

Business groups, especially those representing smaller employers, welcome the rule changes.

“Small employers are breathing a sigh of relief as the latest proposal to take more money out of their pockets has been put on ice,” Bill Vernon, state director of the National Federation of Independent Business/Massachusetts in Boston, said in a statement. 

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

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Four proposed constitutional amendments that organizations representing Colorado employers said would have had a devastating impact on businesses in the state have been withdrawn from November’s ballot, after a deal worked out with labor supporters that had proposed them.

A spokeswoman for the Denver Metro Chamber of Commerce said the amendments were withdrawn in exchange for $3 million in funding from businesses to support union opposition to proposed anti-union laws. The spokeswoman said the chamber was not contributing to the fund.

The amendments would have eliminated “at will” employment in the state and require private employers to have a “just cause” before terminating employees; mandate that all companies with at least 20 employees provide health insurance for workers and their dependents; remove the workers compensation “exclusive remedy” provision; and hold corporate officials criminally liable for illegal company activities.

Opponents of the amendments called them a poison pill by labor supporters as part of a strategy to have the anti-union measures withdrawn. The measures included a right-to-work provision banning compulsory union membership.

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

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Four days after narrowly defeating a $700 billion bill to rescue financial markets, the House approved a largely similar measure 263-171 on Friday, October 3—sending it to President Bush for his signature.

The bill authorizes the federal purchase of troubled assets from banks and other financial institutions to avert a systemic Wall Street failure. Firms participating in the program would have to agree to curbs on executive pay.

The pay provisions have remained intact since a bipartisan agreement was announced on September 28 after more than a week of sometimes tense congressional negotiations.

The final bill was amended by the Senate to include a raft of tax breaks, higher limits on deposit insurance and legislation that would require cost and coverage parity between mental health and medical benefits in insurance plans that offer both.

Following the 228-205 House defeat of the bill on September 29, the stock market plummeted 777 points. Seeking to give the measure new momentum, the Senate added sweeteners and passed it 74-25 on Wednesday night, October 1.

Ever since the initial House failure, fostered by caustic constituent reaction to the bailout proposal, business groups and other proponents have fiercely lobbied wavering lawmakers.

They warned that the bill’s demise could grind the Main Street economy to a halt, pointing out that a credit freeze already was severely limiting loans for consumers, students and businesses.

The gravity of the moment was apparent during the House debate on Friday. Minority Leader John Boehner, R-Ohio, described the decision as “probably one of the most serious votes we’ll ever cast.”

The Bush administration and the business community initially were cool to including executive pay restrictions in the package. But the provisions were part of the oversight added to the bill to secure bipartisan support. The original three-page administration proposal grew into the 110-page final measure bailout portion of the final measure.

“Our message to Wall Street is, the party is over,” House Speaker Nancy Pelosi, D-California, said in a floor speech just before Friday’s vote.

Under the bill, a company that sells assets directly to the government would be barred from giving golden parachute severance packages to departing executives and would be compelled to “exclude incentives for executive officers … to take unnecessary and excessive risks.” The company also would have to recover bonus or incentive compensation paid to a senior executive based on performance measures that later proved inaccurate.

If a firm sells more than $300 million in assets to the government at an auction, it would be prohibited from offering golden parachutes to newly hired senior executives. The company would be subject to a 20 percent excise tax on golden parachute payments to fired executives. Compensation above $500,000 would not be tax-deductible.

“It’s not unreasonable for the government to have control and oversight on compensation for companies that sell assets to the government,” said Tom Lehner, policy director at the Business Roundtable, a Washington group representing CEOs of large companies.

It won’t be clear how restrictions on executive compensation will work until the Treasury Department writes corresponding regulations.

Charles Tharp, executive vice president for policy at the Center on Executive Compensation in Washington, is concerned that amorphous definitions could hamper corporations.

“I don’t know how you comply with vague statements like ‘inappropriate’ or ‘excessive’ risk,” Tharp said. “I don’t know what excessive risk is. It really ties the hands of the board.”

He also warned that the golden parachute limits could prevent weak firms from finding new leaders. “Severance gives someone an incentive to join a troubled company and turn it around,” Tharp said.

The bill also changes rules governing health insurance plans that cover 113 million people. The mental health parity measure does not mandate that insurers offer mental health coverage. But if they do, it cannot be more restrictive than coverage for medical and surgical benefits.

Under current law, lifetime annual benefits for each category must be on par. The parity measure requires equality for deductibles, co-payments, out-of-pocket expenses, coinsurance, covered hospital days and covered outpatient visits.

The legislative journey for the mental health bill included a unique collaboration among business groups, insurance companies and mental health advocates who forged a compromise over three years of negotiations.

The bill would “end the discrimination against those who seek treatment for mental illness,” Pelosi said.

—Mark Schoeff Jr.

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Employees know it: Tobacco use is injurious to the health of smokers and to those around them. And employers also know that such use has an effect on health care costs. The U.S. Office of Personnel Management offers a plethora of resources that employers can use in guiding them on how to establish smoking-cessation programs in the workplace. Click here to read about “Relationship to Health Insurance Reimbursements,” “A Checklist for Assessing a Group Cessation Program,” lists of federal and other organizations that offer information, and more.

Like other large employers, the University of California, Berkeley—which has some 7,700 personnel serving a student body of 35,000—knows some of its success rests on having engaged employees. One strategy is career development; the university encourages managers to, in turn, encourage their employees. “Your support of training and development creates a ‘win’ for the employee and for your workplace,” the university advises supervisors. Other employers may find guidance in UC Berkeley’s plans in their attempt to establish or retool their training and development programs.Click here to review what the university has to offer managers.