HR’S ROLE IN HEALTH CARE REFORMReevaluating Your Total Rewards Strategy

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Session Objectives Business Impact of Pay or Play Decisions for HR Implications to Total Rewards Strategy Role of Benefits in Employee Engagement Key Considerations for Achieving an Optimal Total Rewards Strategy

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The Affordable Care Act

The Affordable Care Act (ACA) offers employers the choice to “pay or play” Employers can offer health insurance to their workforce or pay a

non-deductible tax penalty to the IRS

Health care exchanges provide an open market where customers can pick the right plan at the right price for their needs

Were You Ready for HCR THEN?In 2010, most employers predicted reform would have no impact on workforce management objectives.

Improving productivity 72%Engaging employees in driving business results 74%Attracting and retaining talent 67%Providing effect total rewards package 49%

Health care reform is forcing employers rethink their employee value proposition and educate workers about how their health-related behaviors affect the bottom line.

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Are You Ready for HCR NOW?

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Fewer than half of human resources and employee benefits decision makers are confident that they understand employer responsibilities under the ACA

More than 50% of small and midsized companies are not prepared to provide the SBC, and a third of large companies are also not prepared for this requirement

Roughly a fifth to a third do not or are not sure if they expect some degree of impact resulting from the establishment of public Exchanges on January 1, 2014

Source: ADP Research Institute Survey May 2012

Health Care Reform Drives Business OutcomesHow will employers respond?

Most Employers Expect to “Play” by Retaining a Medical Program after 2014

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20%

67%

13%

18%

67%

15%

Don't know

"Play" options

"Pay" options

FinanceHR

Source: 2011 Towers Watson-Forbes Survey: Opportunity to Align Cost and Talent Objectives

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The Impact of Health ExchangesWhat is the difference between private and public health exchanges? Private exchange is funded using a defined contribution approach

Under this plan, the employer funds a defined account on a pre-tax basis for each eligible employee who then purchases health coverage within the exchange

Private corporate exchanges are considered employer-sponsored health coverage

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Defined Benefit vs. Defined Contribution

Defined Benefit Employer contributes

finite amount towards employee’s health insurance

Variable employer cost of health care

Uncertain annual health care cost increases

Limited product options selected by employer

Limited decision support for choosing health plan

Defined Contribution Employer contributes

finite amount towards employee’s health insurance

Employer controls annual cost increases

Increased product options selected by employee

Recommendation engine to identify best option for employee

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PollWhat impact will Reform have on my company’s ability to achieve workforce management goals (productivity, attraction and retention, competitive rewards package)?

1. Positive Impact

2. No impact

3. Negative Impact

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Health Care Reform Drives Business Outcomes“Pay or Play” decision impacts: Different workforce composition- more part-time workers

Reallocation of total rewards package- additional compensation in lieu of health insurance

More health care choices for employees- workforce uncertainty

Corporate image and perception

Internal and external administrative challenges (data gathering, tracking and reporting)

Competition for critical talent

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Implications to Total Rewards StrategyHealth Care Reform will have a direct impact on: Attraction and retention Total Rewards mix Employee engagement Competitive position in the marketplace

Employers must take into consideration: Organizational Philosophy/ Mission/Values Competition for talent Employer Value Proposition

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Implications to Total Rewards Strategy

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Total Rewards Strategy- Key Considerations Does your Total Rewards program attract, retain and engage the

talent you need? Does your Total Rewards program align employee behavior with

the organization’s overall strategic objectives? What are the tradeoffs for balancing employer and employee

objectives? Do employee understand the value of their Total Compensation

package?

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Poll

Are you having difficulties with attracting and retaining top talent and those with critical skills in your organization?

1. Yes

2. No

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Attraction and Retention Issues Evolve Around Critical Skills% of Companies Citing RETENTION Difficulties

2007 2008 2009 2010 2011

Critical-skill employees 49% 47% 16% 31% 36%

Top-performing employees 40% 37% 14% 25% 28%

All employees 27% 19% 5% 11% 11%

Quit rate 2.1% 1.9% 1.2% 1.3% 1.3%

Number of quits per month (in millions)

3.1 2.7 1.7 1.8 1.9

Sources: 2011/2012 Talent Management and Rewards Study, Towers Watson and the U.S. Bureau of Labor Services

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Employee Value Proposition (EVP)Total Rewards is a key component of a company’s EVP.

Business Strategy

Organizational Context

Human Capital Practice

Brand Promise

Business Results

Employee Performance

Financial Performance

Customer Engagement

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What is your Employee Value Proposition?Benefits Medical

Dental Vision FSA

Prescription Drug Plan Life Insurance EAP Retirement (DB and DC)

Legally Required / Mandated (Unemployment, Social Security, Workers’ Compensation, Medicare and State Disability)

Comp Fixed Pay (aka base pay)

Variable Pay (at risk)

Performance and Recognition

Performance and Goal Setting

Ongoing coaching and feedback

Self, Peer and 360 degree feedback

Rewards and Recognition

Formal or informal Cash or noncash

rewards

Development and Career Opportunities

Tuition reimbursement and / or discounts

Attendance at outside seminars

Corporate universities Coaching / Mentoring On-the-job learning

Internships Apprenticeships Job rotations

Work-Life Health and Wellness Caring for Dependents

Workplace Flexibility Paid & Unpaid Time Off

Community Involvement Culture Change

Initiatives

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Why is it Important?

Optimal Mix of Reward Elements

The Company’s Ability To

Employ Top Talent

That Is

Drive Business Success

Attract Motivate Retain

1. Compensation

2. Benefits

3. Work-Life

4. Performance & Recognition

5. Development & Career Opportunities

Engaged Satisfied

Performance Results

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Attracting and Retaining Critical Workforce Segments

What are the current demand / supply

characteristics of your labor market?

Is a particular skill set or expertise in especially

high demand?

Which positions are most critical to the

company’s success?

Which positions are the hardest to find and

keep?

Ho

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The Reality is… Organizations Must Consider: Understanding the different segments of their workforce and

implementing tailored strategies to attract, develop and retain them

Falling too far behind increases the risk of losing key talent when the economy turns around

68% of employees said their benefits influence whether they choose to stay in their current job (Source: MetLife; 7th Annual Study of Employee Benefits Trends)

Job candidates evaluate not only salary but total rewards packages

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Poll

Do you think that your top competitors will maintain employer sponsored health insurance benefits?

1.Yes

2. No

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Employee Engagement

Definition of a Fully Engaged Employee Is enthusiastic and inspired by his/her work

Is willing to “go the extra mile”

Believes they can affect quality, customer service, and business costs

Believes in the organization and works to make it better

Understands organizational context and the “bigger picture”

Respects colleagues and helps others

Remains at the organization despite opportunities elsewhere

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Why Employee Engagement Matters

It is estimated that disengagement costs companies $350 Billion per year in lost productivity.1

Higher productivity Lower turnover Attract top talent Enhanced reputation Improved customer satisfaction and

loyalty Reduced absenteeism Sustainable growth Resilient in the face of change

Source: 1 Gallup August 2009 Employee Engagement Index

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The Importance of Health Care Benefits

Employers underestimate the importance of health care benefits to attracting employees

All Employees High-Potential Employees

Rank Employers Employees Rank Employers Employees

1 Base Pay Job Security 1 Challenging work Job Security

2 Organization’s mission and values

Base Pay 2 Career development opportunities

Base pay

3 Organization’s reputation as a great place to work

Health care benefits 3 Organization’s mission, vision and values

Career development opportunities

4 Career development opportunities

Length of commute 4 Base pay Promotion opportunity

5 Challenging work Vacation/PTO 5 Organization’s financial performance

Health care benefits

Source: Towers Watson 2011 Talent Management and Rewards Survey

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The Role of Benefits in Employee Engagement Organizations Must Consider: An effective benefits strategy tailored to the needs of the

workforce creates a positive brand image

Sends a message

We care about our employees

You are joining a healthy and engaged team

A recent MetLife study noted that 68% of employees said their benefits influence whether or not they choose to stay in their current job

Gather and analyze information (benchmarking, demographics, surveys)

Inventory current benefits offerings. Do they align with overall benefits strategy?

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What Do Employees Want? The current system of job-based

benefit coverage restricts choice and that employees greatly value being able to exercise that choice

Employees value choice in health plan offerings

Employees most often selected plans within the same price range as their current employer-offered plans

Value in Employer Benefits

Provide more

Options for Employees

Change Would be

Slow

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What Do Employers Want? Continue to offer benefits to employees as part of the employee’s total

compensation package

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Source: 2012 Survey on Employer Health Benefit Plans and Preferences by Oliver Wyman

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What Can Employers Do?

Continue to Reduce Benefits / Cost Shift to Employees

Offer Value Based Benefits or Wellness Incentives

Get Out – Move Employees to Public Exchange

Defined Contribution with Private Exchange

Offer Narrow Networks / Implement Compliance Models

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Employer Considerations

Before dropping health coverage, employers should consider: Tax implications – employer and employee premiums are pre-tax

shielded from FICA and income taxes

Coverage in the exchange may be inferior to employer sponsored health plans

Moving to the exchange is an all or nothing proposition

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Implications to Total Rewards StrategyHealth Care Reform will have a direct impact on: Attraction and retention Total Rewards mix Employee engagement Competitive position in the marketplace

Employers must take into consideration: Organizational Philosophy/ Mission/Values Competition for talent Employer Value Proposition

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Total Rewards Strategy- Key Considerations Does your Total Rewards program attract, retain and engage the

talent you need? Does your Total Rewards program align employee behavior with

the organization’s overall strategic objectives? What are the tradeoffs for balancing employer and employee

objectives? Do employee understand the value of their Total Compensation

package?

Take a Strategic View

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Health care strategy, as an element of the Employee Value Proposition, is formed through internal discovery, internal philosophy and competitive pressures.

How does this decision affect employees? Your competitive positioning?Would these dollars be reinvested elsewhere in Total Reward PortfolioWould you lose control over the company's investment of workforce health?Can you still influence employee well-being and productivity?Group benefits plan vs. private exchange?

Do Your Homework

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As with any major change initiative, people need to be involved to build acceptance and adjust behaviors.

Gather and analyze information (benchmarking, demographics, surveys)

Consider internal and external factors that may influence your health care strategy

Inventory current benefits offerings. Do they align with overall benefits strategy?

Understand your health plan offerings and costs Know the provisions of the new health-care reform law

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Poll

If Reform increases your organization’s health care costs would you:

1. Pass cost increase to employee- increase share of health costs paid by employee

2. Reduce health benefits

3. Absorb cost in the business

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Health Care Reform is a Catalyst for ChangeEmployers now have a significant opportunity to reshape their Employee Value Proposition and Total Rewards strategy to: Ensure competitiveness while managing costs

Align employer and employee goals

Update Total Rewards programs to maximize employee engagement

Enhance corporate image through effective communication and change management programs

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Education is Key

Educate management on reform and their implications

Model financial impact of reform on the organization

Educate employees on reform and their implication

Reexamine your benefits strategy regularly

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Change Management

As with any major change initiative, people need to be involved to build acceptance and adjust behaviors:

Significant effort is necessary to educate and engage employees Enlist support from leaders Solicit employee input Communicate relevant and timely information on an ongoing basis

to employees Engage employees in a meaningful conversation about

health care

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Prepare Management for Change

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Use health care strategy to inform management how Health Care Reform continues to affect the company.

Changing health care landscape affects business overall

What competitors are likely to do

How the organization aligns its health care strategy with its total rewards strategy

The potential impact of health care related decisions on employee relations and productivity

Prepare Employees for Change

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In 2010, most employers predicted reform would have no impact on workforce management objectives.

Communicate relevant and timely information on an ongoing basis to employeesFocus on the total health experience as part of the employee value propositionEngage employees in a meaningful conversation about health care

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Achieving the Optimal Total Rewards StrategyOrganizations Must: Understand the critical workforce segments and implement

strategies to attract develop and retain them

Create a mix of rewards to balance company and employee needs

Design total rewards strategy to influence the right behaviors to drive business results

Continuously evaluate the rewards mix – to avoid losing key talent when the economy turns around

Key Takeaways Align Employee Value Proposition and Total Rewards Strategy

Engage leaders and employees regularly and act on feedback

Measure results in context of business outcomes

Recognize that improved workforce health increases employee engagement, which in turn improves business results

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Questions?

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