snook -tying strategy and benefit design

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

Proprietary & Confidential – Not to be reproduced and/or distributed; contents intended solely for use of intended recipient(s).

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Today’s Topic and Its Component Parts

The problemThe conceptThe process– Context– “Guiding Principles”– The pathway

Relevant input factorsThe results – a case study


The Problem


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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,…..


The Concept


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The Concept

Corporate

HR

Total Rewards

Benefits

Health Plan


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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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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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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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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


The Process


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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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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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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

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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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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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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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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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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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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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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



Plan design/pricing



Plan design/pricing



Lever of lesser impact for this goal

Plan design/pricing


Education and communication Plan administrationElement 5 Measure 5

3


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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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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


Relevant Input Factors


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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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*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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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


Case Study


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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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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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snook -tying strategy and benefit design

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