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Tying strategy and benefit design Matthew L. Snook
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Services provided by Mercer Health & Benefits LLC.
Tying Strategy and Benefit Design
Learning to Look Forward
HR Florida 2011
Matthew L. Snook, [email protected] 207 6312
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1Mercer
Today’s Topic and Its Component Parts
The problemThe conceptThe process– Context– “Guiding Principles”– The pathway
Relevant input factorsThe results – a case study
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The Problem
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3Mercer
The Problem
….with decisions relating to how benefit programs are designed, and how benefit
dollars are spent.
Too seldom do HR leaders connect corporate needs,
driven by C-Suite guidance,…..
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The Concept
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5Mercer
The Concept
Corporate
HR
Total Rewards
Benefits
Health Plan
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6Mercer
The ConceptStart high and let things “trickle down”
Revenue growth
High level of employee engagement
Ties between revenue growth and rewards opportunities/results
Incorporation of “success-sharing”aspects in program design
Direct link between revenue growth and health plan delivery
Corporate Goal
HR Goal
Total Rewards Goal
Benefits Goal
Health Plan Goal
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7Mercer
The ConceptGoals lead to strategies which lead to tactics
Direct link between revenue growth and health plan delivery
Tie health plan “value” to varying levels of corporate revenue growth
Vary employee contribution rates based on prior year revenue growth success
Tie FSA/HRA/HSA account contribution to prior quarter revenue growth success
Tie key cost sharing provisions (copays, deductible, etc.) to prior year revenue growth success
Health Plan Goal
Health Plan Strategy
Health Plan Tactics
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8Mercer
The Concept – The Foundations for Health Care Strategy Development
Total Rewards Strategy• Base Pay will be market and industry competitive
• Benefits will be above market competitive (60th to 75th percentile)
• Variable Pay will allow for above-market total cash compensation (60th
percentile)
• Long-Term Incentives will allow those eligible to achieve total compensation at the 75th percentile or higher
• The ABC Work Experience will enhance the Associates’ lives
Organization Culture PlatformTaking care of OUR PEOPLE allows them to take care of our customers,
without distraction.
Taking care of OUR CUSTOMERS guarantees OUR SUCCESS as a company.
These are our goals, in this order.
Compensation (Base and
Variable Pay)Benefits The ABC Work
ExperienceLong-Term Incentives
Components of Total Rewards
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9Mercer
Benefits• Ahead of market in “key”
benefits areas• At market in non-key areas• Never a reason why an
Associate would leave ABC
Compensation (Base and
Variable Pay)The ABC Work
ExperienceLong-Term Incentives
Components of Total Rewards
The Concept – The Foundations for Health Care Strategy DevelopmentTotal rewards viewpoint
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The Process
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11Mercer
The Process
Understand contextWhere are we, and where do we want to go?
External environmentMarket positionBusiness contextFinancial driversHR objectives
Strategize / AnalyzeWhat are the rules that dictate how we accomplish our goals?
Stakeholder inputGuiding principlesDefine measurement parameters
DesignWhat is the pathway by which we will get there?
Consider innovations and alternativesAssess impact of solutionsDesign and integrate
Implement, manageand measure
Build and runMeasureImprove
1
2
3
4
RefreshPerformance to expectedUse of data to drive processRoadmap adjustment
5
Mercer’s five-step consultative / strategy process
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12Mercer
The Process – ContextGoals that might contribute to determination of direction
Revenue Growth (M&A, Organic Growth)
Brand Awareness/Improvement
Diversification or Focus on “Core Values”
Turnover Control
Culture Development
Expense Management/Reduction
Respond to Aging Workforce Issues
Establish Appropriate Competitive Positioning
Maximize Profitability
Determine ROI of Various Aspects of Total Rewards
Employee Value/Satisfaction Improvement
Employee Engagement/Motivation
Cost/Value Realignment
Participant Education
Population Health Improvement
Consumer Engagement
Administrative Simplification
1
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13Mercer
Components to Consider in the Context Discussion Where are we today?
Account-based plan as option and
promoted
Rich program with very little
employee cost-sharing
Account-based plan has highest enrollment
Eliminate all first dollar coverage
Design supports competitive position; plan
design promotes behavior change
Some consumerist features and/or
incentives in some plans
Case management only program
provided
Integrated programs covering full health risk
spectrum; entire population; not highly
communicated
Integrated programs cover full health risk
spectrum; highly communicated with incentives offered
Integrated programs covering part of health risk spectrum; partial
population; well communicated
No incentives for any consumer or wellness-related
actions
Offer incentives for various health
management activities throughout the year
Connect incentives to plan design, payroll
contributions or contributions to an
account
Offer raffles and other nominal incentives for
health fair participation or certain employee actions
Offer significant incentives (~$100) for HRA participation or
other activities
Plan Design
1 2 3 4 5
Health Management
1 2 3 4 5
Employee Incentives
1 2 3 4 5
Isolated programs covering parts of health
risk spectrum; little communication
1
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14Mercer
Enhanced tools provided to all
membership; solid communication
Basic tools and communication
provided by health plans
Tools targeted to support necessary
behavior change; highly communicated
Personalized tools and communication
integrated with program offerings
Enhanced tools provided by health plans; not highly communicated
Little awareness of health care strategy
Leadership engaged in setting strategy and provides support for
engagement activities
Leadership visibly supports and promotes a
health & wellness “campaign”
Leadership sets strategy, but does not provide
direction or resources for enacting strategy
Manage year-to-year financial budgets only
Complete “dashboard”of key performance
metrics and share with business partners
Understand cost drivers in program; design
interventions to support strategy
Monitor financial budgets proactively; measure
administrative performance
Document program expectations and
measure results of vendor and plan
performance
Consumer Education & Participation
1 2 3 4 5
Leadership Engagement
1 2 3 4 5
Program Measurement
1 2 3 4 5
Leadership engaged in strictly cost control
Components to Consider in the Context Discussion Where are we today? (cont’d)
1
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15Mercer
The Process – Guiding Principles
Guiding Principles:– Are the basis for developing the proposed strategy– Are used to test whether the strategy still “fits” as
decisions and adjustments are made
Guiding Principles often address the following:– Needs indicated by the business environment– Goals of offering the benefits program– Comfort with being on the leading edge– Desired positioning relative to peer groups– Split of employer and employee responsibility– Absolute “musts” of “must not” be touched/
jeopardized (“sacred cows”)
Guiding Principles should be developed based on the information gathered from leadership and/or project team input.
2
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16Mercer
Sample Guiding PrinciplesOne-page, little detail
Benefits targeted at market median with fewer, more meaningful choices
Company cost growth to be managed proactively while continuing to provide a safety net for employees
Maintain commitment to employees but reduce subsidies for dependents
More cost shift through plan design while maintaining protection for catastrophic events
Create a culture of health with visible leadership support
Manage health care costs through greater focus on health improvement and appropriate use of health care services for employees and their families
Offer wide provider networks but encourage use of the most effective providers
Develop and broadly share dashboard of key program metrics on a regular basis
2
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17Mercer
Eligibility is 35 hours/week Market is changing to reflect HCR changes and requirementsBenefits are not a significant A/R issue for employees under 35 hours
Control of cost growth is critical, but there is no burning platform to reduce company cost levelsCost sharing (payroll deductions) with salaried employees seen as uncompetitive
Benefits are important but details of the programs are not a critical driver of attraction/retention (A/R) for most hourly employeesBenefits are competitive for hourly population, less so for salaried associates
Shift PT employees with <35 hours to <30 hours by 2014, as dictated by HCRVary eligibility by business unit as A/R needs dictate
Proactively manage company cost growth due to pressures including rising transit costsManage health care costs through greater focus on condition management and health improvementMinimize or negate impact of Health Care Reform (HCR)Improve salaried employee cost share percentage
Maintain competitive position for hourly employees Ensure better employee understanding and satisfaction through improved employee communicationsExplore option of maintaining separate hourly/salaried programs to ensure ongoing competitiveness of salaried benefits
Program eligibility
Company budget/cost-sharing
Market position
Sample Guiding PrincipalsMuch more detailed version
Objectives/future stateCurrent stateGuiding principles
2
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18Mercer
Health management programs are a function performed by the medical plan vendorLittle encouragement for employees to understand or improve health statusLittle understanding of health care drivers or impact of existing programs
• All health coverages - medical, Rx, health management, EAP, dental - are with one vendor
• Communications materials not used by employees, not effective at reaching them, and not engaging them
Three medical plan choices are offered, including one catastrophic design, with varying enrollment
Cost drivers are better understoodOffer care/disease management programs that are specific to ABC’s needsMotivate employees to understand and improve their health through variety of programs and incentives
Evaluate vendors for best discounts, best fit, lowest net cost to ABCEnsure all vendors meet employee needs for quality and accessEnsure medical vendor can support consumerism needs with or without CDHEmployees have multiple access points to program information and understand how to access it
Continue to offer choice among plans, including a catastrophic optionPromoting personal responsibility is culturally consistent and should be a part of design. More exploration of receptivity to CDH is needed, but of interest.
Health management
Program/vendor management
Employee choice and responsibility (plan design)
Objectives/future stateCurrent stateGuiding principles
Sample Guiding PrincipalsMuch more detailed version (cont’d)
2
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19Mercer
The Process – Developing the Pathway High-level strategic roadmap
The final step in developing a strategy should be developing the strategic roadmap
The roadmap will help you evolve from the current state to where you optimally want to be across all aspects represented in the Guiding Principles
This will allow you to come to an understanding as to how the details of the strategy will be created and implemented and when/how results will be measured
3
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20Mercer
Strategic Roadmap – Key IngredientsStrategy elements, levers and outcomes measurement
Measure 4
Measure 1
Measure 2
Measure 3
Strategy Elements Levers Success Measures
Element 1
Element 2
Element 3
Element 4
Plan design/pricing
Health improvement and care delivery
Education and communication Plan administration
Plan design/pricing
Health improvement and care delivery
Education and communication Plan administration
Plan design/pricing
Health improvement and care delivery
Education and communication Plan administration
Plan design/pricing
Health improvement and care delivery
Education and communication Plan administration
Lever of lesser impact for this goal
Plan design/pricing
Health improvement and care delivery
Education and communication Plan administrationElement 5 Measure 5
3
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21Mercer
Current Plan 1
2011 2012
CurrentPlans
New Plans
Current Plan 2 Evolved
2014
New Plan Evolved
New Plan 2
Current Plan 1 Evolved
Sample Plan Evolution Approach 1Change over time
2013
Current Plan Hybrid
Current Plan 2
New Plan
Hybrid Plan Evolved
2015
End-State Plan 1
End-State Plan 2
3
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22Mercer
2011 2012
CurrentPlans
New Plans
End-State Plan 1*
Sample Plan Evolution Approach 2More aggressive implementation approach
* Hybrid of current plans 1 and 2.
End-State Plan 2
Current Plan 1
Current Plan 2
3
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Success metrics:Employees further engaged,
involved and informed around their health and use of health care servicesBetter choices, better healthCulture of health reinforced
Success metrics:Spouses are further engaged in
their own health risksAction plan for behavior
modificationPromoting choice for best
servicesChange to “culture where health
matters” begins
Success metrics:Employees make informed value-
based choices on RxEmployees value flexibility in
benefit choicesIncreased usage of preventive
healthEmployees with chronic
conditions and health issues have access to enhanced support Employees see their peers
participating
Success metrics:Employees understand
employer’s interest in their healthEmployees understand
their own health risksEmployees recognize
greater benefit choices and services
D Eliminate PPOD Offer only two CDHPsD Deliver all incentives through tax-advantaged accounts; increase amount “at risk” to $500H Continue health campaign and champion activity
D Raise deductible on PPO to build in incentive offsetD Add second CDHPH Continue health campaign and champion activityH Promote use of personal health recordH Continue health assessment, biometrics and targeted behavioral modifications with significant incentives as appropriate
D Incent retail clinic usage ($0 co-pay for 6 months, then $10)D Eliminate EPOD Add CDHP (HRA/HSA)D Further align PPO with consumerism and CDHPH Continue health campaign and champion activityH Add targeted behavior modification program with incentives (TBD, “health” day time off)H Promote employee and spouse health assessment and biometric screenings ($50/$50 to FSA/CDHP)
D Improve preventive health (with incentive of $10/service into FSA or premium reduction/holiday)D Unbundle dental/visionD Modify PPO and EPO Rx co-pays to coinsuranceD Adjust contributions to align with value of plansH Add health advocateH Add health campaign with champion supportH Update employee health assessment and add biometric screenings, both with incentives ($50/$50 to FSA)
D Add employee assistance programD Adjust contributionsD Add voluntary benefitsH Conduct health assessment with incentive ($100 to FSA)
Sample Roadmap
Year 4Year 3Year 2Year 1Current year
D = Design H = Health
3
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Summary Document – The Strategic Placemat
Benefits targeted at market median with fewer, more meaningful choices
Company cost growth to be managed proactively, while continuing to provide a safety net for employees
Create a culture of health with visible leadership support
Manage health care costs through greater focus on health improvement and appropriate use of health care services for employees and their families
Develop and broadly share dashboard of key program metrics on a regular basis
Guiding principlesEnvironment Strategy Actions Barriers Success measures
ABC population8,000 active and 20,000 retired employees
Business environmentExcellent business outlookNeed to attract / retain (up to 5,000 new employees over next 3– 5 years) to meet production goals; aging workforce, growing need for seasoned supervisors
HealthCare at ABCLimited ability for plan design and contribution changes – need to focus on behavior changeHave implemented health fairs, industrial trainers, biometric screening. Good participation and acceptanceMultiple programs available through current vendors, but lack of participation and integrationHealth care cost trend approximately 8%; cardiac and diabetes are significant cost drivers
Provide more meaningful benefit choices, with limited design changes
Engage employees and their spouses to actively manage their health
Leverage vendor partner programs as well as other programs adopted by ABC
Provide ongoing, targeted education and communication to employees and spouses
Recognize and reward effective health management
Actively manage health care and vendor costs
Eliminate redundant plan options over a two year period
Develop integrated set of care management programs encompassing wellness, risk reduction and chronic care management
Build programs off existing partnerships, add only where needed
Develop ongoing leadership engagement campaign
Develop targeted education and communications campaign with ongoing events throughout the year
Reward employees and their dependents for participation in health management programs
Develop data collection and dashboard tools for ongoing program measurement
Employee resistance to plan eliminations
Cooperation, data sharing and integration across vendors
Culture: employees are very driven and focusing on health may be a challenge
HR reps need to allow employees to take ownership and accountability
Remote geographic locations limit access to health care
Geographic health habits and influences
Lack of surrounding community support and community activities
Management ROI expectations – having to spend in order to save
A successful program at ABC would have:High levels of program participation
Employees see the value of managing their health and are willing to do their part
Health improvements shown through:
– increased use of preventive screening
– increased productivity
– decrease and better management of chronic conditions
High health care compliance and outcomes resulting in cost savings and reduced liability
ABC perceived as not only a safe company, but healthy as well
Achieve health care trend below the benchmark – be the benchmark
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Relevant Input Factors
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26Mercer
Relevant Input FactorsMarket conditions impact employer benefit decisions
The economy
Vendor market Health care
Addressing reformEmployers are anticipating both tactical and strategic implications of the health reform law. Compliance with eligibility and benefit mandates is a short-term concern. More complex challenges may come from cost shifting and ERISA challenges.
Legislative agenda
Emerging from recessionEmerging from the recession, employers and employees face uncertainties about the future. Although careful management held trend down in 2009, trend increased in 2010 and employers will continue to face health trends that require innovative ideas about how to control cost and improve workforce productivity.
Uncertain futureHealth plans face increasing scrutiny about their practices as legislators try to expand regulation. In the short-term, rates are rising due to unknown impact of health reform and other issues. Conservative rates are likely to continue as insurers evaluate their future under increasing regulation.
QualityAssuming as much as 1/3 of health care spending may be inappropriate or unnecessary, employers are testing innovative ways to improve quality. Ideas include behavior change incentives for both patients and providers, new care management models, domestic tourism and more evidence-based design.
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27Mercer
*ProjectedSource: Mercer’s National Survey of Employer-Sponsored Health Plans; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April) 1990-2010; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1990-2010.
Relevant Input FactorsHealth benefit costs still rising at unsustainable levels
17.1%
12.1%
10.1%
8.0%
-1.1%
2.5%
0.2%
6.1%
8.1%
11.2%
14.7%
10.1%
7.5%
5.5%
6.4%*6.9%
6.3%6.1%6.1%6.1%7.3%
2.1%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Workers' earningsAnnual change in total health benefit cost per employeeOverall inflation
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28Mercer
Source: IFTF, Center for Disease Control and Prevention
0%
10%
20%
30%
40%
50%
Determinants of Health Status
Determinants 10% 20% 20% 50%
Access to Care Genetics Environment Behavior
Relevant Input FactorsBehaviors are key cost drivers
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Case Study
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30Mercer
47% of employees in HSA, 53% in HRA
First year claims 17% under budget
Employee satisfaction remained high
Utilization statistics changed drastically
–Reduction in specialist, laboratory and radiology, and brand drug usage
– Increase in PCP, generic/mail order, and in-network provider usage
Full replacement of health plans, and implementation of HRA and HSA plansLaunch multi-media communication campaign focused on employee educationUse cost-estimator tool to educate employees on plan valueLower wage employees provided higher account funding levels
Measurement ResultsStrategic Plan
Educate employees on the costs of health care and what they can do to impact them
Improve health management and improvement efforts, and link to medical design
Hold costs steady, reduce trend over time
Help lower wage employees
Improve negative utilization trends
1/3 of active employees in unions
Rising health care costs, utilization skyrocketing
Three health plans: one HMO, two PPOs, with high employee satisfaction
No employee understanding of health costs
Options priced poorly relative to actuarial value
Guiding PrinciplesContext
Mercer Case StudyProcess, actions, results
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31Mercer
Final ThoughtsRelevant facts for plan design decisions
Employees dislike change, especially with “security blanket” issues.
Employees like cost predictability (i.e., copayments).
Inertia is very powerful, even when not in the employee’s best interest.
No one spends someone else’s money the same way they spend their own.
Every American knows smoking is bad for you, yet 21% of us smoke.
People who eat chocolate cake, red meat, gravy on their potatoes and butter on their biscuits do it because they like it!
Real Change is Hard –Proceed with Caution
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