Delivering the Tough Benefit News
Caudron, Shari, Workforce
HR in a Time of Caution
If you skip the sugarcoating, seek employee input, and start communicating early, you might find that your workforce will accept benefit-plan changes and cuts more readily than you ever could have hoped.
About a year ago, John Wilhelm, director of employee benefits at Ir Oreal USA, Inc., found himself staring down the barrel of double-digit health-cost increases, a position that many corporate professionals are finding themselves in. Because it couldn't afford to absorb the cost increase, the company-after much deliberation-chose to reduce the health-insurance reimbursement rates offered to its 10,000 employees. Instead of getting 100 percent reimbursement for a medical procedure, for example, employees would get 90, 80, or 70 percent, depending on the plan in which they chose to enroll. On top of this, the NewYork City-based company opted to change its health-insurance cycle from a calendar year to a fiscal year that ran from April 1 to March 31, meaning that employees would have an initial plan "year" that would be only three months long.
Not surprisingly, communicating the changes in L'Oreal's health-benefits program required a great deal of work. Employees had to learn about the short plan year, the reduced reimbursement rates, and what options they might have to keep their insurance coverage at levels they were comfortable with.
It was the kind of communication challenge that Wilhelm would have preferred to avoid. And when all was said and done, he was glad when it was over, "But it wasn't as bad as I thought it would be," he says. Why? Because L'Oreal communicated the changes to employees early, often, and thoroughly. "In the end, very few people chose to change their health plans, which we took as a good thing. It proved to us that the communication worked."
In the next few months, many more corporate-- benefits professionals will find themselves facing the same health-cost increases as L'Oreal-if they haven't already. According to Hewitt Associates, a global human resources consulting firm headquartered in Lincolnshire, Illinois, employers will experience double-digit health-cost increases in 2003, most likely in the neighborhood of 14 to 16 percent. However, because of economic pressures, most employers will only be able to absorb an 8 percent increase, leaving a cost increase gap of 6 to 8 percent. The only containment options available to companies are to cut benefits or increase employee costs. Worse yet, these increases are expected to continue for the next several years, making it entirely likely that corporate health costs will double by 2007.
The intensifying cost pressure is placing a tremendous burden on corporate HR professionals, who must determine not only how to respond to the ongoing increases, but also how to communicate the bad news to employees. The challenge is compounded by the fact that employees regard medical benefits as the most valuable corporate perk. Push too many of the costs onto the employees' plate and companies risk harming workplace morale and recruitment efforts. Do too little and the bottom line-and overall job security-suffers. What's a company to do? How do benefits professionals decide what containment strategy to use? And once that decision is made, how do they communicate that news to employees in a way that doesn't destroy morale?
Cut benefits or increase employee costs?
Since absorbing ongoing health costs is not an option for most employers, companies can either cut benefits or make plan-design changes that increase the employees' out-of-pocket expenses. "In my experience, cutting benefits is not as good as making plan-design changes," says Geri Travers, senior vice president of communication for Aon Consulting in New York. Some of the changes that companies might consider are increasing insurance deductibles or co-pays, increasing the employees' monthly health-insurance contribution, or reducing-as L'Oreal did-reimbursement percentages. …