Rethinking Benefits, Consumerism and Incentives Strategies with Wendy Lynch
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Transcript of Rethinking Benefits, Consumerism and Incentives Strategies with Wendy Lynch
LYNCH Consulting LTD
Saving your business and your people
Who Survives? How Benefits Costs are Killing Your Company
Wendy D. Lynch Ph.D.
Every day,
employees make hundreds of choices that affect business
directly
© 2013 Lynch Consulting LTD
Daily choices
At work Do I come to work today?
Motivated Do I give my full effort?
Effective Do I acquire new skills?
Healthy Do I make healthy choices?
Stay Do I look for another job?
These are all connected
© 2013 Lynch Consulting LTD
IF your employees have the opportunity to
1) lower expenses 2) be more productive
Do you want them to?
Can they?
© 2013 Lynch Consulting LTD
We’ve been led to believe the problem is…… Unhealthy lifestyle and illness
© 2013 Lynch Consulting LTD
3 companies, 3 health cost stories
$3,536
$2,705
$4,981
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Company #1 Company #2 Company #3
Predicted Medical Costs
Three companies: Same gender, age, tenure, salary.
Healthiest
Most Wellness
© 2013 Lynch Consulting LTD
Predicted Medical Costs by Company
Predicted Medical Costs
$3,536
$2,705
$4,981
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
#1 #2 #3
Three companies: Administrative Workers. Modeled as same age, same gender, same tenure, same salary, same # diagnoses, same co-morbidity, same region of the country
Not health
© 2013 Lynch Consulting LTD
Us versus them…..
Usual Approach: It’s the employees fault. They aren’t healthy They have bad attitudes They don’t have good skills
We need to change employee behavior! ________ management pick one: case, care, disease, absence,
stress
© 2013 Lynch Consulting LTD
Face the facts
Health-related costs are not simply due to health problems
Employers won’t be solving the wellness problem any time soon.
Now what?
© 2013 Lynch Consulting LTD
Do you really want to know?
If things don’t work like you THINK they do……
© 2013 Lynch Consulting LTD
IF your employees have the opportunity to
1) lower expenses 2) be more productive
Do you want them to?
Will they?
© 2013 Lynch Consulting LTD
Imagine that…a company is a river….
Optimal Performance
© 2013 Lynch Consulting LTD
When things go wrong…..
Inefficiency, High Costs and Low
Performance
© 2013 Lynch Consulting LTD
Currents aligned with optimal human capital performance
© 2013 Lynch Consulting LTD
“Currents” are incentives
Aligned with optimal human capital performance
High Job Performance
Optimal Benefits Use
High Engagement in Health Protection
Job Mobility
Financially Self-Sufficient
Capacity Growth
© 2013 Lynch Consulting LTD
Currents misaligned with optimal human capital performance
© 2013 Lynch Consulting LTD
Currents are incentives
Low Performance
High Benefits Use Low Engagement in Health Protection
Job Lock Financially Limited Capacity Stagnation
Misaligned with optimal human capital performance
© 2013 Lynch Consulting LTD
The reservoir of capacity each human has to contribute to the well-being of his community, job and family. Comprised of three types of assets: •Skills •Health •Motivation
Health Motivation
Skills
Human Capital
© 2013 Lynch Consulting LTD
Human Capital
Human Capital
Assets
How you
choose
Work,
Leisure
You Spend
Money
Recognition
Travel
To Get Something Useful or Satisfying
Rewards
Intrinsic, Extrinsic, Monetary, Intangible
Health Motivation
Skills
© 2013 Lynch Consulting LTD
Less earnings… more benefits
and other benefits
© 2013 Lynch Consulting LTD
Compensation as Motivation
Who Survives: Lynch & Gardner, 2011
60.0%
3.0%
3.0% 2.0%
1.0%
13%
11%
7.0%
Wages
Performance Bonus
Retirement
Training
Health Accounts
Health Insurance
Paid Time Off
Taxes
Misaligned rewards for Low Performance Absence Health care utilization
Rewards for High performance Attendance Health
© 2012 Lynch Consulting LTD
Currents aligned with optimal human capital performance
© 2013 Lynch Consulting LTD
Currents are created through incentives
Shared Rewards
Short-term rewards Longer-term human capital investments
Something to Gain 1
© 2013 Lynch Consulting LTD
Shared Rewards Does this condition exist for most employees? Check if Yes
Eligible for performance bonuses
If yes, employees know exactly how their bonus is determined
Bonus is at least partially determined by individual performance
Total amount employees can earn in bonus or profit sharing is >10% of salary
Can cash-in some unused paid time-off at 100%
Cover prevention/screenings at 100% (no deductible)
BOTH: Offer training/tuition allowance worth at least 2% of salary
AND >10% of employees use it
BOTH: Offer a HSA with $2,000 or more in employer funds
AND at least 30% of employees choose this option
Match a 401K deposit at 4% or higher
All workers have multiple opportunities to increase skills and advance
© 2013 Lynch Consulting LTD
Implications
Score Result Implication
0 to 3 Misaligned Productivity 30%-40% below achievable.
High turnover of top performers.
4 to 6 Neutral Productivity and turnover will depend on
other factors. When business climate is
good, performance will be better. When
climate is difficult, performance will
suffer.
7 to 10 Aligned Strong productivity. Retention of high
performers.
© 2013 Lynch Consulting LTD
Data on shared rewards
Variable pay
35 - 44% increase in output
15 - 25% increase in average wage
Profit sharing
Three studies: productivity increased by ◦ 5% - 9%
Ohkusa, Y. Journal of the Japanese and International Economies, Elsevier, vol. 11(3), pages 385-402, September. Cable, J.The Economic Journal, Vol. 99, No. 396 (Jun., 1989), pp. 366-375. Lazear. The American Economic Review. 2000. Vol 90. No.
© 2013 Lynch Consulting LTD
Reduction in absences after implementing pay-for- performance
Average monthly absences in department
After bonus
© 2013 Lynch Consulting LTD
Likelihood of STD by Percent of Variable Pay For Which Employee is Eligible
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0% 10% 20% 30% 40% 50% 60%
Relative Variable Pay (Variable Pay/Total Compensation)
Lik
elih
oo
d o
f H
avin
g a
(N
on
-Pre
gn
ancy
) S
TD
Cla
im
Likelihood of having a (Non-
Pregnancy) STD Claim, controlling
for age and gender.
Likelihood of having a (non-pregnancy) STD claim, controlling for age and gender.
© 2013 Lynch Consulting LTD
IF your employees have the opportunity to
1) be more productive
Do you want them to?
Will they?
© 2013 Lynch Consulting LTD
Realign Compensation to Optimal
Realign and Maximize Revenue
Who Survives: Lynch & Gardner, 2011
60%
3% 3%
2%
1%
13%
11%
7%
Wages Performance Bonus Retirement Training Health Accounts Health Insurance Paid Time Off Taxes
60% 15%
3%
2%
3% 5% 5%
7% Company X
Optimal Benchmark
© 2013 Lynch Consulting LTD
Currents aligned with optimal human capital performance
© 2013 Lynch Consulting LTD
Currents are created through incentives
Shared Rewards
Short-term rewards Longer-term human capital investments
Something to Gain 1
Shared Responsibilities
Something to Lose 2
Consequences Ownership of decisions
© 2013 Lynch Consulting LTD
Shared Responsibilities
Does this condition exist for most employees? Check if Yes
A pay statement clearly identifying the dollar value of all investments/benefits the organization makes on their behalf
A PTO bank of time off, rather than separate sick leave, vacation, etc.
Less than 100% of pay during short-term / long term disability
A company-wide high-deductible health plan, with the deductible at least $2000/$4000 (individual/family)
An out-of-pocket maximum of $3000/$6000 (individual/family) or higher
Fewer than 31 days of paid-time off per year including holidays (but options for unpaid time)
Active use of a quality improvement process (such as lean six sigma) at all levels of the organization
A culture encouraging independent decisions about work
Resources for financial decision-making provided
Resources for healthcare decision-making provided
© 2013 Lynch Consulting LTD
Implications
Score Result Implication
0 to 3 Misaligned Avoidable healthcare utilization up to 30%
higher regardless of health status. High
absenteeism and disability rates.
4 to 6 Neutral Healthcare utilization and absenteeism
will depend on other influences, such as
business climate.
7 to 10 Aligned Prudent spending of healthcare dollars.
Minimal avoidable cost. Minimal excess or
unplanned absences.
© 2013 Lynch Consulting LTD
83%
10%
7%
Human Capital
We
exchange
work for pay
The employment contract
Health Motivation
Skills
Performance
Rewards
Compensation
© 2013 Lynch Consulting LTD
Human Capital
When we
substitute
benefits for
performance
rewards
Reward What?
benefit 1
benefit 2
benefit 3
?
83%
10%
7%
Investments Safeguards
Taxes
Health Motivation
Skills
69%
24%
7%
Performance
Rewards
The employment contract
© 2013 Lynch Consulting LTD
69%
24%
7%
Rewards
Business Investments
When we
substitute
benefits for
performance
rewards
Reward What?
Unlimited
sick leave
@ full pay
Extreme incentives: Belgium
• 1.3% GNP
• Some departments 35 days/year
• 65% could be working
• Most labeled with depression
Health Motivation
Skills
?
Performance
© 2013 Lynch Consulting LTD
69%
24%
7%
Business Investments
When we
substitute
benefits for
performance
rewards
Reward What? Health Motivation
Skills
?
Performance
Misaligned incentives: healthcare
Rewards Rich
Medical
Benefits • Cover Bariatric Surgery
• New employees getting surgery
• Full coverage and STD
• Most quit in 18months
© 2013 Lynch Consulting LTD
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6 7 8 9 10
Shar
ed R
ewar
ds
Shared Responsibilities
Alig
ned
Pampered Partners
Entitled Disengaged
AlignedMisaligned
Misa
ligne
d
An aligned work contract
High performance
and high benefit costs
High performance
and low benefit costs
© 2013 Lynch Consulting LTD
IF your employees have the opportunity to
2) lower expenses
Do you want them to?
Will they?
YOU
YOU?
© 2013 Lynch Consulting LTD
Realign Compensation to Optimal
Who Survives: Lynch & Gardner, 2011
60%
3% 3%
2%
1%
13%
11%
7%
Wages Performance Bonus Retirement Training Health Accounts Health Insurance Paid Time Off Taxes
60% 15%
3%
2%
3% 5% 5%
7%
Optimal Benchmark
© 2013 Lynch Consulting LTD
Another kind of current….
Insurance coverage…. If you don’t know what you SHOULD be paying…….. Are you likely to be under or over paying?
Under Paying?
© 2013 Lynch Consulting LTD
Another kind of current…..
If the real cost is hidden And there are conflicting goals among plan/brokers/team Are you likely to be under or over paying?
Over paying?
© 2013 Lynch Consulting LTD
Have you ever wondered if maybe…. you aren’t getting the best deal?
Fees
Premium Insurer’s risk
Employee Cost-share
$2,000,000
$1,000,000
$1,500,000
$500,000
$0
$500 deductible Fully-insured
CDHP ($3500) Fully-insured
Fees
Premium Insurer’s risk
Employee Cost-share
Health Account
Difference < $200K
© 2013 Lynch Consulting LTD
Have you ever wondered if maybe…. you aren’t getting the best deal?
Fees
Premium Insurer’s risk
Employee Cost-share
$3,000,000
$1,500,000
$2,500,000
$500,000
$0
$500 deductible Fully-insured
Self-insured, CDHP ($4000)
Fees
Premium Insurer’s risk
Employee Cost-share
Health Account
Difference < $300K
Employer’s Exposure
$2,000,000
$1,000,000
© 2013 Lynch Consulting LTD
How do you know?
you don’t.
Unless you go through an informed coverage review process.
© 2013 Lynch Consulting LTD
The typical process ignores…..
Five things in a rational coverage review PROCESS (see all sides – and their incentives) Design, Optimizing: 1. Level of Risk 2. Consumer selection (the right plan) Transparency, Identifying 3. Reasonable rates 4. Add-on fees 5. Optimal negotiation strategy
Nobody tells you
© 2013 Lynch Consulting LTD
What did the coverage review process find?
Fees
Premium Insurer’s risk
Employee Cost-share
$2,000,000
$1,000,000
$1,500,000
$500,000
$0
$500 deductible Fully-insured
CDHP ($2500) Fully-insured
Fees
Premium Insurer’s risk
Employee Cost-share
Health Account
Difference < $200K Optimal Risk Transparent rates & negotiation
New (better) design transparent
Difference $375K more Optimal Selection
Employer
© 2013 Lynch Consulting LTD
Fees
Premium Insurer’s risk
Employee Cost-share
$3,000,000
$1,500,000
$2,500,000
$500,000
$0
$500 deductible Fully-insured
Self-insured, CDHP ($4000)
Fees
Premium Insurer’s risk
Employee Cost-share
Health Account
Difference < $300K
Employer’s Exposure
$2,000,000
$1,000,000
What did the coverage review process find?
Transparent rates Transparent fees & better negotiation
Difference $500K more
Self-insured, CDHP ($3000)
© 2013 Lynch Consulting LTD
Of savings, percent attributable to design and transparency elements
60%
20%
0% 0%
20% 20%
0%
50%
0%
30%
25%
13%
21%
42%
0%
38%
0%
15%
46%
0%
10%
20%
30%
40%
50%
60%
70%
Risk Consumer selection
Reasonable rates
Add-on Fees Optimal Negotiation
Strategy
Design, Optimizing…. Transparency identifying…
Company 1: $ 600,000
Company 2: $375,000
Company 3: $675,000
Company 4: $575,000
$1,000 to $,3000 PER EMPLOYEE
© 2013 Lynch Consulting LTD
What/who gets in the way?
Would your internal team…..? Would your health plan representative…..? Would your broker…..?
Welcome an independent review
© 2013 Lynch Consulting LTD
It will do more good for your employees
60% 15%
3%
2%
3% 5% 5%
7%
than it does giving it to the insurance company
© 2013 Lynch Consulting LTD
IF your employees have the opportunity to
2) lower expenses
Do you want them to?
Will they?
YOU
YOU?
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Contact: [email protected] 303-949-7666