Health Care sample  considerations for HSA add on or replacement

SUMMARY

The purpose of this report is to set forth the findings of Johnson Capital Strategies, “JCS,” regarding the Health Care Benefits offered at the Hovey and Beard Company (the “Company”). The Hovey and Beard Company was selected for analysis because it presents two key issues for consideration by the HR practitioner: the need for a strategic alignment of HR with Business Operations, and the need for a

Health Care assessment. The report findings are based on our review of the Company documents, 5 year trends data, an organizational climate survey,’ interviews of Company personnel, field bulletins and guidance from the Department of Labor, insights from subject matter experts, and relevant subject matter research. It is our judgment that the company’s Health Care management system is under performing and resulting in higher cost and decreasing competitive value to the company and the plan participants.

Further, the effectiveness of the HR, Human Resources department has been hampered by a lack of involvement.

1. The Company is a medium sized highly mechanistic organization with 2,000 employees producing commercial paint products for a variety of industries (597). Decisions have been centralized at the top management level and a “one best” way approach to decision making has been employed.

Management adopts the first satisficing decision (selection of the first alternative that meets minimum requirements), an initial cost comparability was the basis for the selection of the current traditional copay health benefit plan. Producing a lack of connectivity with the goals of the company and the health coverage needs of the employees.

‘ 82 item instrument that yields sub dimension scores, derived from a multiple choice format.

Taylorism- Frederick Taylor named the father of the “Scientific Management” – Job redesign “one best” way to do the jobdo

a study first.. Stressed the non-human aspects of the job.

2. The company’s emphasis on short term cost containment and the lack of involvement of the core group, the Human Resources department directly responsible for the implementation and administration of Health Care Benefits; points to the larger problem of sub-group c onflict associated with the “dual core model” of organization. The burden and rationale for any Health Care Plan modifications should be uniformly shared and at least supported by Upper Management, Sub-committee Members, Human Resources Department, and Benefits Managers. Past performance suggest that gaining collaboration among these groups will be a difficult task. Without the buy-in and support of the HR Department, the communication with and the education of plan participants in the past has been minimal. The demographics of the company continue to shift toward increasing numbers of ethnic and minority employees it only adds to the need for greater communication.

3. Prompted by continued and projected increases in health care cost, the company is now seeking alternatives to decrease cost and improve strategic business alignment. “As long as health benefit costs continue to increase, employers will seek ways to reduce these costs,” agrees Paul Fronstin, a senior research associate at the Employee Benefit Research Institute, based in Washington. For the HR practitioner it is a matter of determining where cost containment is needed and where is it most likely to be successful within the organization?

LITERATURE REVIEW

While preparing this proposal I discovered a wealth of resources available to address most of the

concerns presented in this document. The most valuable resource was the web site of the Society For Human Resource Management located at http://www.shrm.org . Has a member of  SHRM, I had access to relevant articles, white papers and subject matter expertise who helped me formulate many of the concepts developed in this document.

Dual-Core model -organizational goals comes from the top down, change goods and services comes form the bottom upward.

Organizational Change (627)

Of particular benefit was an article from SHRM, HR Magazine April 2004, “Assessing the Health Savings Option,” by Jay Green. This article focused on the assessment process for HR departments in determining how HSA, Health Savings Accounts can be added with existing plans. The article pointed out some unanswered questions in terms of the details of how the FSAs, Flexible Spending Accounts would work alongside HSAs. Further, the article touched on the possible shortcomings of HSAs in terms ofadverse selection due to the appeal of HSAs to the young and the Healthy.

In the same issue SHRM, HR Malrazine April 2004, “Unequal Health Care” a question of demographics and cultural impact on health care utilization and prevention was discussed in an article by Allison Stein Wellner, freelance writer based in New York City. With ever increasing changes in the demographics of the workforce, HR departments need to address the disparity in care received by members of different ethnic groups. The potential impact of hidden undetected health risk can adversely affect the plan and add costly procedures and premium spikes.

In response to my research question to the SHRM forum, about health care design issues, I was directed to http://www.kff.com/insurance/ehbs2003-abstractctfhm is the web site of Kaiser Family Foundation:

2003 Employer Health Benefits Survey. The survey is a comprehensive study of small to jumbo size Employer-Sponsored Health Benefits covering 7 years of trend data from 1996 to 2003. The information is categorized, for example, by region, firm size, industry, average wage, importance of plan features, and shown on user friendly charts for ease of comparison. I used much of this data to complete the frameworkof my case study of the Company.

The Kiplinger Letter, Vol. 81, Issue 14, Apr 2, 2004 “You CAN do more to cut health costs, though it’s not easy.” There are no cure-alls. But firms that adopt innovative strategies will see health bills rise “just” 7% this year, on average, vs. an overall hike of about 12%. This article covers an assortment of cost saving measures, notably turning employees into customers of health care services by educating them and establishing cost incentives for appropriate care selection.

“Offer incentives for physicians and hospitals, rewarding them for the most cost-effective care. Anthem Blue Cross and Blue Shield, in Ohio and Indiana, pays more to doctors who have good track records.”

Give workers more choices. Basic benefits the norm, upgrade if they pay the additional cost. Humana’s  Smartsuite lets workers choose their deductibles and co-payments.

Manage drug costs aggressively. Some companies double co pays or make employees pay a percentage of the price … typically 20% to 30%.

Emphasize disease management, focusing on the 20% of workers who account for 80% of health care costs.

Incentives can encourage those with chronic problems to sign up for close monitoring to get healthier.

Medical Mutual of Ohio gives free supplies to workers with diabetes.

Urge employees to fill out risk questionnaires to spot problems before they become serious. At Gillette, anyone who fills out such forms is given cash. Procter & Gamble offers lower premiums for nonsmokers, and women who take prenatal classes get free baby monitors and car seats.

Study your claims data. Firms such as Ingenix and Medstat analyze payments to identify common problems and high-risk locations so trouble spots can be addressed. The practice doesn’t violate privacy as long as the data are aggregated and individuals are not identified.

The article also supports the use of HSAs to lower over all coverage cost for both the employer and the employee.

From the PR Newswire via News Edae Corporation: Washington, March 19,2004 “Engaging Workers in Health Benefit Decisions Appears to Yield Significant Cost Savings.” According to the 9th annual National Business Group on Health Watson Wyatt health cost study. Companies can expect a median 7% increase in health care cost. This is considerably lower than the anticipated 12% to 13% increase projected by employers. “Employers are beginning to recognize there’s a new reality that requires new choices,” said Helen Darling, president of the National Business Group on Health. Employers must help employees become educated consumers.

HR CONSIDERATIONS

The best course of action would be the utilization of a normative decision model to achieve high quality decisions regarding the future of the Company. Vroom and Yetton suggest the use of a decision tree format to work through the flow of potential alternatives to arrive at the most effective approach.

The “Vroom-Yetton model” can be applied to each of the situations outlined in the former section. Current Management capabilities would warrant the use of outside consultants with expertise in Health Care Assessment, and Vendor Selection. Johnson Capital Strategies is happy to provide advisory services in connection with the Health Care feasibility and cost saving study.

4Vroom,. H., & Jargo, A. G. (1978). On the validity of the Vroom-Yetton model of leadership. Journal ofApplied

Psychology, 67, 532-537. (Taken from Notes. of Work Sited).

Johnson Capital Strategies will establish a task force to review and formulate options for addressing the critical strategic and health benefits challenges facing the Company.

Benefits Committee or Task Force – functions to provide the coordination to support the framework established by the organization’s long term goals and strategies, and limitations established by long term facility and capital budget decisions. The business plan guides the planning process of each functional area, marketing, operations, legal, finance, and including engineering, human resources, and materials management. The Committee allows for a coalition representing the core groups to process and select desired outcomes.

The scope of this plan is intentionally limited in order to address the company’s immediate development needs in a timely fashion. In particular the plan encompasses the following considerations for the HR practitioner:

AWARENESS An approach known as unfreezing, is needed to mobilize the Company into accepting the need for change (to melt down rigid schema). Schema strongly affect what information we notice, what information enters into memory, and what information we recall later when we evaluate information and make decisions. In fact, schema’s are so powerful that people sometimes confidently “remember” events which never occurred. Clearly, these cognitive frameworks are a key factor in social perception and in its impact on organizational processes (adapted from class notes). One technique of unfreezing is the introduction of a common threat or enemy that requires the collaboration and the putting aside of petty differences ( dooms day management). What is most effective is the employment of both an internal and external threat. The desired result of unfreezing is the development of new schema to produce greater alternatives and ideas.

GROUP DYNAMICS Managed conflict can result in the greater exploration of alternatives and help to increase understanding of different views. Intervention by a third party acting as a facilitator or mediator can enhance communication between opposing sides. In particular these guidelines should be followed: 1, create super-ordinate goals that stress the long-term relationship between parties, 2, separate the people from the problem, 3. focus on interests, not on positions because positions are demands; interests underlie demands or positions – shared or different interests may underlie incompatible positions, 4. invent options for mutual gain and try to expand the resource pie and 5. use objective criteria and focus on what is fair (equitable) standards, not on who will win (this requires all parties to be reasonable and open.)5

With this in mind, conflict can facilitate change, enhance organizational commitment, enhance group loyalty, and lead to better decision.

Further, this group will act as the support base to influence and facilitate change (acceptance). Techniques can be employed to improve group functioning (meaning decision quality) through controlled processing- perceivers are aware that they are processing information. Generally these techniques are more accurate, but also consume more time and effort.

The Delphi technique which utilizes the opinions of experts as a starting point to form a joint decision, the normal group technique “NGT,” is a method of structuring group meetings to gain input from all members for evaluation and the stepladder technique which systematically adds new individuals to decision-making groups, one at a time, requiring the presentation and discussion of new ideas. These methods reduce evaluation apprehension and group conformity pressures. In addition, these methods reduce ambiguity and the likelihood of political activity.7

The draw back to these techniques is the high discretionary power of the group leader.

COMMITMENT Must be irrevocable and backed with financial and technical support. Confidence in the strength of management’s commitment will be tested by subordinates due to management’s history (historical inertia) of introducing fad-changes that have come and gone. Management must tell, sell and educate the organization on the new way of doing business (be redundant.) Similarly, it is necessary to provide feed back to the employees in order to reinforce desired behaviors (refreezing) and, or to reduce the occurrence of undesired behaviors. This is commonly referred to as the “Law Of Effect” where behaviors that are reinforced tend to reoccur at a higher rate than those that are not reinforced. Stress the long range 5~daptefdro m: Fischer, R., & Ury, W. (1981). Getting from No to Yes. New York: Houghton-Mifflin Positive effects of conflict. Noted by Tjosvold. conflict encourages the consideration of new ideas and approaches.(435). view and the need for intermediate goals (change implemented in phases, small wins) to move the Company toward that vision.

INVOLVEMENT Possible methods of data collection are suggestion boxes, surveys, and health assessment programs that require feed-back as well as participation (delegation). This type of participation with input from those members who utilize the health care services, increases the level of commitment and goal acceptance within the organization. Classic study by Latham and Buldes conducted at

Oklahoma lumber camp in the early 1970s shows a particularly dramatic demonstration of specific aoal assignment.

(Source adapted from Latham and Baldes, 1975.) Further supported by the article from the PR Newswire via

News Edge Corporation: Washington, March 19,2004 “Engaging Workers in Health Benefit Decisions

Appears to Yield Significant Cost Savings.” The greater the complexity of the decision, the greater the need for increased participation, as long as the decision is not new and a creative innovation.

ENVIRONMENT What are representative companies doing and what results are they achieving. Further; consumer needs, market elasticity, resources: labor, raw materials, technological advances, changes in governmental regulations, legal and financial constraints, factors of production, and

plant capacity must be considered and incorporated into the development plan. Public policy and ethical

limitations must be considered as well. Data obtain from the Kaiser Foundation: 2003 Employer Health

Benefits survey revealed that the monthly and annual premiums for workers in Conventional, HMO, PPO

and POS plans have under gone a cost convergence with a cost variation of $30 to $75 dollars. The major

driving force influencing health care is governmental regulations specifically the Medicare Modernization

Act and the U.S. Department of Labor’s, DOL Employee Benefits Security Administration (EBSA) has

released a Field Assistance Bulletin providing enforcement guidance to field investigators on health savings accounts (HSA).

The guidance says that while private-sector employer-sponsored high-deductible health plans (HDHP) are group health plans subject to federal Employee Retirement Income Security Act (ERISA) reporting, disclosure, fiduciary responsibility and other requirements.

Murray found that the most likely areas of political activity were those in which clear policies were nonexistent or lacking. Similar findings from survey by Allen. Influence, Power, and Politics in Organizations. ERISA-covered employee benefit plans. The guidance says that an employer can make contributions to the HSA of an eligible individual without being considered to have established or maintained the HSA as an ERISA-covered plan, provided that the employer’s involvement with the HSA is limited.

HSAs, created by the Medicare Modernization Act signed by President Bush on Dec. 8, are designed to help people pay for current health expenses and save for qualified health expenses on a tax-free basis. To be eligible for an HSA, an employee must be covered by an HDHP. Since enactment, a number of questions have been raised concerning whether HSAs constitute employee welfare benefit plans governed by Title 1 of ERISA.

The bulletin is part of the department’s compliance assistance program to help employers, plan

officials and service providers comply with ERISA.

The legal and political environment surrounding Health Care Benefits is complex and costly for

both employers and their employees. The assessment of risk and the determination of future benefits cost

are becoming increasingly difficult. The introduction of new legislation, pending interpretations and

guidance from the D.O.L. and others add to the uncertainty and risk in projecting the future landscape of

potential benefits cost and advantages.

MANAGEMENT Current management lacks the expertise and knowledge to make effective quality decisions. The decision models introduced herein can be helpful but will require time and outside expertise. Grid training (developed by Blake and Mouton) is aimed at improving the total organization on a long-term basis. Grid training is based on the premises that most organizational problems stem from poor cornnlunication and inadequate planning (644). (limited use one size fits all approach) It can be beneficial in initiating structure and opening lines of communication throughout out the organization.

Organizational analysis focuses on the organization as a complete system, including the external

environment in which it operates. Thus HR must reflect the organizational goals and realities, as well as, answer the question, “Where is cost containment needed and where is it most likely to be successful

within the organization?” The success of any health care program in organizations depends on three basic elements: (1) systematic determination of Health needs, (2) careful design to facilitate linkage and

transfer of value back to the participants, and (3) systematic evaluation of the Health program.

Implementation

Management by objectives (“MBO”) is one among several approaches employed by JCS, it is an effective method of planning and implementing strategic change for organizations. The MBO process meets most of the requirements defined within this report. It must be stressed , that one approach will not . . .