Access Exclusive, Trusted HR News & Resources >>> New Professional Members Save $20 Today
We asked HR professionals to tell us about their time in HR. Here are their stories.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Set yourself up for success with virtual SHRM-CP/SHRM-SCP Certification Prep Seminars.
#SHRM18 will expand your perspective – on your organization, on your career, and on the way you approach HR. Join us in Chicago June 17-20, 2018
Health care reform requires executives to make decisions based on incomplete information.
With 30 employees in Los Angeles and Seattle, Coalition Technologies, a web design and marketing company, isn’t large enough to be subject to the health coverage mandate under the Patient Protection and Affordable Care Act. Yet this year Chief Executive Officer Joel Gross is planning to offer health insurance coverage for the first time.
Still, he has concerns. “With the federal government and states mandating that I cover a wide range of benefits, it may be difficult in the future to keep up with the requirements,” he says. He expects that most federal subsidies and tax credits available to certain small employers will be gone after three years. He counts on maintaining strong corporate growth to cover these costs.
Gross is not the only one with this open-ended view of health coverage. When the health care reform law was signed three years ago, there seemed to be plenty of time before Jan. 1, 2014, when the following main provisions are scheduled to take effect:
As these changes loom, employers are finding that forming health care reform strategies and becoming compliant require fluid evolution rather than hard-and-fast decisions.
Consider the public health insurance exchanges. Their form, products and services will greatly influence many business decisions, especially for small employers that can use them to provide health coverage immediately.
The trouble is, state governments are at different stages when it comes to establishing exchanges. In fact, many states have declined to set up exchanges, instead leaving the task to the federal government. As a result, leaders of small companies are expressing confusion about how exchanges will work in their states and whether they will offer affordable plans.
Employers still have time to decide whether to offer health coverage in 2014—but not a lot. Final decisions about offering benefits “need to be made sometime in August into early September, and employers need time to do some analysis first,” says Traci Watts, a national leader for health care reform for Mercer in Washington, D.C. “There is quite a bit of information available to work with.”
At Baltimore-based consulting firm Bolton Partners Inc., executives have asked key questions about how to handle the health coverage mandate for their 85 employees. “We plan to continue offering benefits, but many employers are asking themselves ‘Do we want to keep being in the business of providing health benefits when paying the penalty is much cheaper? What are competitors doing? What will the exchanges look like, and how will their offerings compare with what we offer?’ ” says director Mark Lynne. “There is concern that the exchanges might be too optimistic in their pricing at the beginning, with plan cost increasing dramatically as a result.”
With all the uncertainties, decision-making related to health care reform becomes an ongoing exercise rather than a one-time event. Companies may choose to continue the status quo to the extent possible for another year or so to evaluate the viability of exchanges. “With so many variables still to be determined through regulation, 2014 is likely to be just the beginning for making these decisions,” predicts Amy Bergner, managing director with PricewaterhouseCoopers Human Resource Solutions in Washington, D.C. “An employer that ‘plays’ by continuing to offer health coverage on Jan. 1, 2014, may not be doing so in subsequent years.”
Consider First Data Corp. With 24,000 employees worldwide, the company is too large to leverage exchanges right now. Moreover, “We can’t compete in the labor marketplace without offering a good health and welfare plan,” says Denise Watson, senior vice president of global compensation and benefits for the Atlanta-based company.
Therefore, executives declined an invitation to participate in a private exchange pilot project with a defined contribution approach. Rather than providing employees with flat-dollar amounts to choose and pay for health coverage under the pilot, executives opted to wait and see what happens in the marketplace. At the same time, if competitors start moving toward defined contributions, “that would certainly create opportunities to look at that option,” Watson notes.
As some employers consider significant changes in their health benefits, including defined contributions, “these decisions can go hand in hand with the pay-or-play decision and can be part of an evolving strategy,” Bergner suggests.
In five years, “I would not be surprised if the health benefits arena is very much like the retirement arena, with a shift from defined benefit plans to defined contribution plans,” Watson says.
Making decisions about health coverage to comply with health care reform involves several factors. While it would be easy to simply compare the cost of health coverage with the cost of paying the penalties for not offering coverage, employers need to look at all the variables. These include not only the direct costs of dropping coverage—penalties—but also the indirect costs such as:
Many employers say, “I don’t want to be the first employer in my industry or my marketplace to drop coverage,” because of negative employee reaction, Bergner says. “These decisions require a financial assessment as well as a workforce management assessment.”
In addition, employers considering breaking their organizations into smaller entities or pledging to keep individual employees’ hours below 30 per week to avoid the health coverage mandate need to consider the potential consequences. For example, hiring more part-time employees or reducing employee hours below the 30-hours-per-week threshold might save money on benefits costs but could have a negative impact on productivity.
HR leaders at Honolulu-based Hawaiian Airlines keep the whole business in mind when contemplating health coverage decisions. The company has been operating under mandated health coverage since 1974, as the result of a state law that requires employers with at least one employee to offer it. Yet executives still face plenty of strategic and tactical questions related to federal health care reform that Ed Bray, director of employee benefits, is preparing to address.
Bray employs a tailored model that shows the financial impact of health care reform on company health care costs for six years. The model projects how the requirement for employers to automatically enroll employees in a health plan, unless those employees opt out, is likely to increase the number of workers covered by the company and the overall costs. In addition, the company has opted to grandfather its health plans and, therefore, has not introduced the preventive care benefit required by health care reform. However, if the company decides to change its plans, thereby losing grandfathered status, the model shows the cost implications of doing so—balanced with projected savings that could result from free preventive health services or more cost-sharing with employees, for example.
The model “makes sure that these decisions are business decisions,” Bray says.
With chief financial officers and other finance officials becoming more involved in HR and benefits decisions as a result of health care reform, modeling can help HR and benefits professionals speak the language of financiers. “The million-dollar question will be ‘Who is driving the ship—subject matter experts from HR and benefits or people involved on the financial side?’ ” Bray says. “Become more proactive by using this type of financial modeling and developing a road map of where you anticipate health insurance costs to go.”
Protect Corporate Health: Beware of Public Backlash
When it comes to compliance with health care reform, employers would do well to consider the impact of their actions on public opinion—specifically, customers’ opinions.
Many employers are not thrilled about the potential for higher costs and more administration, but some—notably Darden Restaurants; Papa John’s International Inc.; and John Metz, owner and operator of 40 Denny’s restaurants—were initially quite vocal about their dissatisfaction with the Patient Protection and Affordable Care Act. They commented that they planned to pass along the cost of health insurance to customers or to cut employee hours to avoid having to comply with the health coverage mandate. The mandate requires businesses to provide health coverage to employees who work an average of 30 or more hours per week; otherwise, employers must pay a penalty.
However, since making such remarks, all three have softened their responses in the face of public backlash.
“Companies have a lot of different stakeholders beyond employees, including customers, the communities in which they operate, and those who use their products or services,” says Steve Wojcik, vice president of public policy with the National Business Group on Health in Washington, D.C. “Employers have to make sure that whatever they do about health care reform does not jeopardize those relationships.”
Darden Restaurants Chief Executive Officer Clarence Otis noted in a conference call with investors and analysts that the negative publicity associated with the decision to keep employees below 30 hours per week was bad enough to potentially hurt the company’s financial results this fiscal year. “We are being cautious about our sales and earnings forecast for the full year,” Otis said in December 2012. “Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden … and how we might accommodate health care reform.”
Beyond strategic decisions, there are tactical issues. It can take months, if not years, to implement plan designs and the technology changes necessary for regulatory compliance. For example, one problematic issue for many employers is the systems work required to support reporting obligations that determine whether workers are considered full time and eligible for health coverage under the law.
Therefore, many HR and benefits executives advocate a multidisciplinary approach that includes representatives from finance, tax, legal, payroll, information technology, communications and other functional areas. “Talk about what is happening so that each area can budget time and resources,” Bray advises.
Communicating to employees about health care reform is also vital because of misinformation swirling around the law. “Health care reform has been so political that employers are starting from a base line of misinformation” held by employees, says Jennifer Benz of Benz Communications in San Francisco. “For example, there have been rumors that the required reporting of the dollar value of health benefits on [W-2 forms] starting this year means that the value of those benefits is going to be taxed.”
Benz suggests that employers develop a benefits website outside of their firewalls. Such a site would not include secure or personal information but could provide details about benefits plans and changes that are easy for employees and family members to view.
Just the Beginning
Some companies operating in highly competitive industries and markets for talent tend to have rich benefits offerings. “Maintaining a strong employee value proposition is crucial to our ability to maintain a strong employee population and to attract the knowledge workers our business requires,” explains David Kirby, vice president of human resources for Deltek Inc., a midsize company based in Herndon, Va., with about 1,000 employees.
Because Deltek offers some top-tier benefits plans to employees as part of that value proposition, executives are more concerned about the so-called Cadillac tax set to take effect in 2018 than they are about health care reform. This tax levies a 40 percent tax on the value of health benefits above a certain threshold—$10,200 for single coverage or $27,500 for family coverage.
Kirby is concerned that when the Cadillac tax goes into effect, there will be pressure to drop those top-tier plans or to increase premiums and pass the expense on to employees. Both options could have strategic implications for the company’s workforce management.
And so, the strategic and tactical implications of health care reform will roll along.
The author is a New Jersey-based business and financial writer.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Choose from dozens of free webcasts on the most timely HR topics.
SHRM’s HR Vendor Directory contains over 3,200 companies