By Walter Kalmans
Most CEOs delegate anything health care related to HR, but given its visibility, cost and increasing complexity, every CEO needs to get smart about health care and know what to say about health care to employees.
The Bottom Line: First, begin with the bottom line and know the numbers. How much does the company spend per employee and dependent for health care and how has that amount changed over time? For example, the annual health care cost per employee might be $5,000 and the company covers 100 percent of the employee’s premium but 50 percent for spouses and children. Over the past five years, the company’s health care costs have increased an average of 8 percent per year without any material changes to health benefits.
The Compensation and Benefits Benchmark and Strategy: How does the company’s compensation and benefits package stack up against competing employers and can benchmark data be articulated to employees? For example, the company has benchmarked itself against competing employers and has a general philosophy of paying salaries that are often a bit higher than market average while health care benefits are more comparable to competing firms.
Healthy Employees Work More and Cost Less: Know the general health of the employee base and promote wellness. The company’s benefit consultant/broker or insurance carrier can provide general information about employee health and additional summary information can be determined from an employee health assessment which typically involves a medical history, blood draw, and brief physical examination. Promoting wellness and “walking the walk” keeps health care costs down and reduces absenteeism/improves productivity.
Preparation for Healthcare Reform in 2014 Requires CEO Attention in 2013: Health care decisions made in 2013 will likely have significant impacts on 2014 employee compensation and benefit strategy, expenses, and taxes. Health care reform paperwork will likely be as time consuming as Sarbanes Oxley is for public companies, only both public and private companies will have to comply. Companies need to decide in 2013 if they will continue to offer health care insurance in 2014 or instead send employees to state exchanges and pay penalties and additional taxes. CEOs must be involved in such decision making because such actions are likely to impact employee recruitment, morale, and retention.
How Health Care Brokers/Consultants Are Compensated: Health care benefits are often sold via brokers and consultants. CEOs should know how these folks are compensated. Sometimes, they are paid a percent of the health care premium by the health care insurer; other times they receive a flat per member per month fee regardless of the premium.
The Difference Between Self Insured and Fully Insured (Mid/Large Companies): Small companies are almost always fully insured, which means the company pays a monthly premium for health care coverage whether employees visit the doctor or not. Many mid-size and large companies are self-insured which means they pay health care expenses only when they are incurred. Most self-insured companies also purchase “stop loss” insurance to cap financial exposure to catastrophic claims. CEOs of mid-size and large companies should make sure their company has considered the self-insure option.
What to Say and When to Say It: If neither the company’s health benefits nor employee and dependent contributions are changing, then it should be a fairly simple communication. As soon as a business decision has been made to materially change the health benefits or shift cost to employees, the CEO should be the leader out front communicating both verbally and in writing the business rationale for the change. For example, he or she might explain that the company decided it could no longer keep paying 100 percent of the premium increases and therefore had to make a decision to reduce health care coverage or have employees bear part of the premium increase. Then the CEO can sit down and the financial and benefit design details can be explained by HR or the benefit broker/consultant.
Employees are a company’s most important asset, and employees care about health care. Savvy CEOs recognize they must take a more active role in understanding how health benefits fit into the company’s recruiting and retention strategy, and if changes are to be made, CEOs need to be the ones communicating why the changes are necessary.
Walter Kalmans is President of Lontra Ventures, a management consultancy in Austin, TX. Lontra Ventures serves technology, health care and life sciences companies.
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