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Health Care Reform: Connecting the Present to the Future
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Health Care Reform: Connecting the Present to the Future



Is grappling with health care reform making you want to lie down on a gurney? At CPA and advisory firm Doeren Mayhew's 2014 client conference, USI Executive Vice President Mike Turpin provided an ...

Is grappling with health care reform making you want to lie down on a gurney? At CPA and advisory firm Doeren Mayhew's 2014 client conference, USI Executive Vice President Mike Turpin provided an insider’s view on the dark arts, hidden secrets and possible direction of health care today. CEOs and CFOs learned ways to impact cost, practices and dysfunctions that cause plans to be more expensive than they need to be, and ways to hold vendors and your own teams more accountable for low, single-digit medical trends.



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    Health Care Reform: Connecting the Present to the Future Health Care Reform: Connecting the Present to the Future Presentation Transcript

    • Presenter logo Here Health Care and Reform:  Connecting the Present to  the Future  Michael Turpin Executive Vice President at USI Insurance Services Copyright © 2014. All Rights Reserved. 
    • The Stages of Death and Dying and Health Reform Copyright © 2014. 
    • Election 2016 – Charting a Political Course • Hillary in 2016 • Democrats maintain a majority in the Senate (but not super  majority) • Republicans retain control of the House  • 2018 will be interesting as “Cadillac Tax” begins to erode the  deductibility of benefits for the employers offering “rich” benefit  plans • What does it mean?  a. b. c. Repeal is unlikely  Torrent of back tracking and clarifying regulation in the coming years  Legal challenges continue i. ii. d. Challenging pieces of the law as opposed to the entire law States digging in support/undermine   Republicans may try to change smaller pieces of the law through the  legislative process (i.e., negotiations on budgetary issues) Copyright © 2014. 
    • Meanwhile, What’s Happening in the Health Care System? • Healthcare systems will continue to integrate as reimbursement reforms shift from fee‐for‐service to value‐based and bundled reimbursements. • Hospitals will shift to outpatient care and seek to reduce operating costs by as much as 20% through technology adoption and process improvement. • Primary care (PCP) including retail and on‐site clinics, telemedicine, nurse practitioners and physician assistants will serve as gate keepers to triage care. • As new insured enter the system, PCP shortages will occur in rural areas resulting in higher ER use and sparking investments in urgent care. As many as 90m Americans covered under Medicare, Medicaid and individual insurance will make new buying decisions. Our current decade will be touted as “the decade of the consumer.” Copyright © 2014. 
    • Health Reform Will Fundamentally Alter Entitlements • • 169m non‐elderly Americans fall within these FPL boundaries. Over 75% are covered by some form of employer sponsored insurance. Persons in family/household 100% FPL 400% FPL 1 $ 11,170 $ 44,680 2 $15,130 $60,520 3 $19,090 $76,360 4 $23,050 $92,200 5 $27,010 $108,040 6 $30,970 $123,880 7 $34,930 $139,720 8 $38,890 $155,560 For families/households with more than 8 person, add $3,960 for each additional person 2012 FPL for 48 Contiguous States and District of Columbia. Dept. of Health and Human Services  http://aspe.hhs.gov/poverty/12poverty.shtml (as visited 11.7.12). See website for information on Alaska  and Hawaii.  Copyright © 2014. 
    • Connecting With the C-Suite Copyright © 2014. 
    • The Executive Dashboard HR Must Be “Friend AND Fiduciary” Per Capita Medical Costs Healthcare Cost Impact on ABC Company  Annual Premium $14,329,777  (1) Company Per Capita Healthcare Costs (PEPY) $11,473 (2) Peer Group #1 (PE advisor group) Healthcare Costs (PEPY) $14,060 Annual Revenues $ 720,000,000 Peer Group #2 (law firm) Healthcare Costs (PEPY) $13,070 Per Capita Revenues $ 576,461 (1) Peer Group #3 (Consulting Firm) Healthcare Costs (PEPY) $16,065 Per Capita Profit (17%) $97,998 (2)  Average EE Share 21% Average EER Cost 79% Net Employer Per Capita Cost For Healthcare $9,063 Healthcare as a % of Per Capita Profit 9.2% (1) Includes claims, retention and reserves (2) Average per capita cost of ABC Company  • Solutions: • Per Capita Projected Savings (2) • Solutions Savings as a Percentage of Net Employer Costs: •Revenue Required to Drive Additional EBITDA: (1) $ / .17 profit margin $ 1,859,331 $1,488 13% $10,937,241  1) 2) Estimated annual revenue against April enrollment Estimated profit margin against revenues (2) savings estimates / # of employees Copyright © 2014. 
    • Health Plan Priorities Dashboard: “Show Me On One Page” Copyright © 2014. 
    • Your Financial Strategy Drives Your Benefits Structure – Whether You Admit it Or Not Benefit Philosophies will be influenced increasingly by financial performance: • “No disruption”:  Per capita medical spend  < 20% of  per capita profit • “We’re open to doing more”: Per capita medical < 50% of per capita profit • “We need to reduce costs”: Per capita medical < 75% of  per capita profit • “We want out”: Per capita medical  ≥ 100% of PEPY profit There is a growing tension between Finance and HR as the disruption and  administrative hassles of engaging employees clashes with the financial realities  of a low organic growth economy.  What is the cost of not taking more aggressive  action? Copyright © 2014. 
    • Radiology – Selling $18,000 of shovels to pay for one point of service decision • Employee A receives MRI at 90% of $3000 while employee B receives a  $1000 MRI also at 90% at an outpatient facility. • Employer pays $ 2700 for A and $900 for B. Company operates at 10%  profit margin which means they must sell $18,000 of goods and to cover  Employee A’s decision to fly ‘first class’ at point of service. Copyright © 2014. 
    • You Want Trends Equal Or Lower Than Your Rate of Revenue Growth? Have a Plan…. 1. Cost shift to employees through contributions, and/or benefit reductions – “Peanut butter spreading” does not work. 2. Reduce insurance cost through aggressive negotiations and thorough underwriting practices – How much risk do you want to retain and how much will you transfer? It is more expensive to transfer risk than retain it. The average insured premium in 2014 will be 8% higher than its self funded equivalent due to taxes, fees and risk charges. 3. Reduce unit cost of services –review network discounts, adopt narrow networks to exclude outlier providers, engage employees for ambulatory services to become better consumers through high deductible plans, utilize cost transparency tools and engagement incentives. Outsource and unbundle discreet services such as RX, Stop‐loss and Care/Disease management. Are you really doing all of these things? If not, why not? Copyright © 2014. 
    • You Want Trends Equal Or Lower Than Your Rate of Revenue Growth? Have a Plan… 4. Reduce intensity of services during an episode of care through review and management (focus on reducing waste and overtreatment) – Insurers have not done a strong job at managing the intensity of services while individuals are hospitalized. Intensity will continue to rise. Who is rally providing care advocacy? How do you measure and intervene? 5. Reduce consumption of healthcare by improving employee and dependent health – focus on promoting primary care, finding asymptomatic illness, reducing potential for at risk becoming chronically ill, stabilizing chronically ill through gaps in care management to prevent catastrophic claims. Adopt incentive‐based biometric plans. that includes health risk assessments. What’s harder? Implementing biometric testing and population health  management incentives … or firing ten people because earnings are flat?  Copyright © 2014. 
    • So, What’s Your Plan? • 1. Engagement ‐ You bend medical trend ‐ ( Aggressively manage insurance  and unit costs and seek to reduce consumption and improve health. Make  your team accountable to achieve low single digit trends WITHOUT making  benefit cuts and increasing contributions OR • 2. Define  Your Contribution – You look for a way forward using a single  carrier or group exchange ( Cap contributions, offer at least eight plan options  and have the discretion to subsidize rising annual costs based on corporate  performance) OR • 3. Disengage – Look for a way out by migrating people into public exchanges.  (Do the math and gravitate to the lowest cost option which may include  dropping coverage or failing the ACA affordability test to make employees  eligible for subsidies) Copyright © 2014. 
    • Insurance Profit 101 – The Mushroom Theory Copyright © 2014. 
    • Strong HR Fiduciaries Manage Healthcare Trend Without Increasing Contributions or Cutting Benefits • Find and Engage Asymptomatically Ill a. Improve preventive visits – focus on age/gender‐specific goals b. Make biometrics mandatory c. Reduce ER usage by increasing PCPs • Reward Engagement a. Implement wellness and smoking cessation engagement incentives b. Focus on closing gaps in care for prevalent disease states c. Discuss “at risk” population (i.e., hypertension or diabetes) • Encourage Consumerism a. Introduction to consumer tools b. Focus on high utilization ambulatory services such as imaging and orthopedic  c. Introduce HDHP with Health Savings Account Copyright © 2014. 
    • Achieving Trend Improvement Without Takeaways (Cont.) • Improve Chronic Disease Compliance a. b. c. d. • Ensure Competitive Unit Cost a. b. c. • Emphasis on Rx compliance Focus on gaps in care and improved condition compliance Set performance parameters for DM vendor and measure Focus on hypertension, diabetes and muscular issues Re‐price your insurer’s claims Review narrow network alternatives and ACO models as they emerge Underscore consumer tools and highlight unit cost disparities in communication. Understand That No Change Means No Change a. b. c. The hassle of moving carriers versus the hassle of higher costs The fear of self funding and the administrative complexities of new solutions Rethinking your advisor – have you intellectually outgrown them? Copyright © 2014. 
    • The Five Pillars of Zero Trend Unit Cost Accountability •Understand network  economics •Consider differences in  carrier networks •Ask about % of contracts  that use capitation and  bundling vs. fee‐for‐ service reimbursement •Young average age  populations should be  less obsessed with a  500bp difference in  network economics  subsidize   •Employees: ‐ Reduce consumption    by improving  ambulatory  consumerism ‐ Introduce HDHPs and  HSAs ‐ Enforce  the notion of a  social contract •Dependents: ‐ Reduce consumption through Biometrics/  age/gender‐based tests •Providers: ‐ Pick fights when  necessary ‐ Open access  PPO’s and  co‐pays must die Population Health •Biometric Testing at  PCP, not on‐site Care Management •How does carrier  intervene with  chronically ill? •Find asymptomatic ill •Force chronic disease  compliance to close gaps  in care with at  chronically ill and  unstable •Manage “At Risk” by  forcing engagement •Are base line biometrics  improving? •Consider third‐party  vendors to drive  improved engagement  and close gaps in care Transparency •Use third‐party  consumer tools •Use HDHP Plus HSA as  default plan •Consider RBRVS  schedule for elective  procedures •Convert to PEPM fees  for all vendors •Charge smoking  surcharges and use  maximum incentives for  activity and compliance  based wellness designs  •Vendors: ‐ Performance  guarantees focused on  results Are you motivated and properly resourced to commit  to achieving zero trend?  Engaged employers average as much as 10% lower annual trend Copyright © 2014. 
    • Preventive Care Utilization: Find The Asymptomatic Illness • Significant increases in percentage of adult well visits.  Mammograms for Ages 40 and up Preventive Services Total Monitored Healthy People Compliance Rates Members 2020 Target* Cervical Cancer Screening 533 76% 93% Breast Cancer Screening - Mammography 474 66% 81% *from Healthy People 2020 HHS Strategies Wellness Visits Well Baby Visits Well Child Visits Age 1-4 Age 5-11 Age 12-17 Well Adult Visits Age 18-39 Age 40-64 Age 65+ Total Wellness Visits Females Males www.healthypeople.gov/2020 Current 92.7% 66.0% 82.8% 68.3% 60.6% 56.6% 45.3% 63.1% 55.0% 59.0% 60.8% 57.3% Trend +9.8 -0.4 +3.0 +0.2 -1.0 +18.9 +10.8 +23.0 +26.2 +15.0 +7.7 +21.5 UHC BOB 88.7% 50.6% 72.7% 48.4% 42.4% 31.1% 27.5% 34.7% 27.3% 36.6% 45.8% 27.3% Current Period: 1/1/12 – 12/31/12 (Paid through 2/28/13)  Prior Period: 1/1/11 – 12/31/11 (Paid through 2/29/12) Norm:  UHC Book of Business Copyright © 2014. 
    • Population Health: “People don’t eat  their carrots, so bring an orange stick” 2014 GOAL: reduce consumption through maximum consequences for non‐compliance.  Enforce a bi‐ lateral social contract. Wellness Proposed Program Health assessment ( everyone lies) Annual physical and biometrics (ONLY through a PCP) Non‐tobacco certification OR completion of Quit Power BMI target or completion of Healthy Weight ( Lose or lose ) Completion of program requirements = 30% premium differential (Drive non  compliant members to exchanges?) 2015 Program Options:  • Additional biometric targets (blood pressure, glucose) • Monetary deposits into employee HSA Copyright © 2014. 
    • Unit Cost: All Networks Are Not Created Equal • Many insurers maintain more than one PPO network. Some give their inferior economics to self funded clients using third‐party administrators or to smaller self‐insured customers. How do you know you have the best economics? • Narrow network plans should save more money. Criteria for high‐performance networks vary based upon complex algorithms of optimization over an entire “service episode of care” and “unit cost.” Are higher unit cost providers in your High Performance Network? • Some major hospital systems make it contractually difficult for insurers to exclude them as two star providers in their high performance networks. Every insurer obfuscates their actual discount percentages and efficiency criteria making it difficult for employers to understand where quality is truly occurring. Copyright © 2014. 
    • Unit Cost: The Games People Play • Pushing “In‐network” benefits is not always good: Hospital facility charges are often in‐network while outpatient surgical centers are often non‐network. Example: A colonoscopy performed in a non‐network setting will cost employers less than in‐network at a hospital. In this case, the plan pays the hospital a $3,000 facilities fee at 90%, versus paying 70% of $1,500 for the outpatient facility. Many outpatient groups will waive balance billing. • Carriers may misrepresent their average discounts by increasing allowed charges to create a greater spread on billed versus allowed charges. Some insurers will remove capitated claim costs and claims exceeding the stop‐loss from their discount calculations. Others refer to average discounts instead of specific by facility trends. Copyright © 2014. 
    • Unit Cost Isn’t Everything When Demographics Are Good • The lowest average discount is not always best: Younger populations have lower inpatient  consumption. While an inferior PPO plan will lag in hospital, RX and behavioral unit costs,  a  young population won’t use these benefits at normative levels  Discount at  Hospital Spend as a % of Claims Actual Cost (1) Cost of other  insurance +  admin (2) National  Carrier A 50% 20% $4M $6.8M TPA & Rental Network  Carrier B 40% 20% $4.8M $4.8M (1) $40M spend on billed charges, $8M spend on in patient facilities charges, 4000 lives (2) Carrier A admin is 17%, Carrier B admin is 12% Copyright © 2014. 
    • Self Insure: Cost-Shifting will be More Prevalent Under Insured Plans • Self insurance could significantly grow in popularity as employers seek: 1. Greater transparency of claims 2. Question bundled insurer practices a. b. c. d. 3. 4. 5. 6. Capitation payments to subsidiaries such as pharmacy and behavioral health Capitation payments to providers Efficacy of disease management and medical management Discounts Avoidance of fees passed on by insurers Avoidance of state premium taxes Avoidance of state mandates Ability to contract directly with ACO’s? We believe the simple act of self insurance may reduce fully insured costs by as much  as 10% by 2014. Employers need to get over their fear of financing their own risks. Copyright © 2014. 
    • Stop Loss: Games People Play Buying stop loss insurance can be tricky! There are claim exposures and  hidden costs that should be evaluated to make sure the company has the best  coverage at the best price. Here are just a few games we see in the market. • Specific lasers on large ongoing claims • Non renewal for bad claim experience • Increased margin requirements with national carriers (CUBA) • Immature Aggregate/Specific (12/12) written in consecutive years • Pharmacy excluded from specific stop loss coverage • Layering – Who really holds the risk on your large claims?  Copyright © 2014. 
    • RX Economics: A Prescription for Profit • Opaque Pricing Rules Most RX Plans: The amount the PBM pays the pharmacy for a drug is lower then what is charged as a claim to the employer. The discount off avg. wholesale price (AWP) from the PBM determines the spread made by the pharmacy manager. • Focus should be on lowest net cost per script, not rebates. Getting a rebate check is the equivalent of habitually overpaying the IRS each year and then expressing delight with your refund. Many RX purchasing coops include non disclosed fees and rebate based reimbursement. Employer fixation with rebates has led to mark‐up/discount sleight of hand. • Talk About Heartburn: $ 260 per script Proton Pump Inhibitor cost of “Nexium” versus over the $15 over the counter “Omeprazole.” • Your insurer will use RX rebates to “buy‐down” administrative fees to give the appearance of competitive pricing – essentially using your money to appear more aggressive. Insured employers typically cannot unbundle RX. • Employers should utilize a PBM with pass‐through pricing that includes no spread. Copyright © 2014. 
    • What is More Disruptive: Engaging Employees or Firing Them? • Who Is Really Disrupted When You Make Change: 20% of employees drive 80% of claims. 70% spend less than $500. If you need to find savings, what’s more disruptive – firing workers or focusing on reducing claims consumption by changing behavior? • Your large claims will arise out of: 1. Asymptomatic illness going undetected. 2. Chronically ill employees not receiving treatment to stabilize their conditions. 3. At‐risk employees continuing lifestyle decisions that deposit them into chronically ill bucket. In a period of low organic growth and double digit profit expectations,  expenses  will be realized through lower per capita healthcare spend or lower FTE counts Copyright © 2014. 
    • Health Care Reform Copyright © 2014. 
    • Strategic HR/Finance Planning Questions/Considerations 1. Does HCR represent a challenge or an opportunity for our organization? 2. Will HCR require us to make significant changes? • • • • • • How we offer benefits? To whom we offer benefits? What benefits we offer? How much the benefits cost? How we administer benefits, payroll, employee communication … ?  How will our employees and families be affected? 3. How do the revisions required by HCR fit within our own benefits philosophy/strategy? How  does the rate of growth of healthcare track with our rev and EBITDA assumptions?  4. What do we expect other players in our industry will do with the respect to HCR? • • What impact will there be to our competitive position? Do we manage to effect superior results?   5. Should we consider changes to our benefits strategy and overall compensation model?  6. Are we prepared internally to support the changes needed?  7. Do we understand how public exchanges will develop in our state and for all our locations?  Will plan designs vary dramatically from current commercial plans?   Copyright © 2014. 
    • Who Will Receive The Subsidies? Premium Tax Credit Methodology and Eligibility Criteria • Government pays some of the  premium for exchange‐based  Household  coverage: Income  FPL a. Sliding scale depending on  income  Up to 133%  b. Based on silver coverage  • Available to individuals between 100% ‐ 400% of FPL who: a. Are not eligible for minimum  essential coverage or  b. Are eligible for minimum  essential coverage through an  employer, but that coverage is  unaffordable or does not  provide a minimum value Initial  Premium  Percentage Final  Premium  Percentage  2% 2% 133% up to 150% 3% 4% 150% up to 200% 4% 6.3% 200% up to 250% 6.3% 8.05% 250% up to 300% 8.05% 9.5% 300% up to 400% 9.5% 9.5% Copyright © 2014. 
    • Risk Mitigation vs. Opportunism – Avoiding Penalties or Arbitraging Reform? • Restructure work schedules as permitted. • W‐2 safe harbor – offer self‐only coverage does not exceed 9.5% W‐2 wages. • Reduce main medical offering to penalty avoidance level. a. Base and buy‐up structure. Auto enroll into base plan. b. Dependent participation drives an additional 11% of annual healthcare costs. Cover single employees and offer coverage to dependent children. • Implement coverage that may be unaffordable for some or all FTEs – triggers a lower $3,000 penalty – only for those who go to exchanges. Use aggressive wellness incentives to drive non compliant employees to public exchanges. • Explore use of defined contribution designs to cap your liability. Copyright © 2014. 
    • A Word Regarding Public Exchanges • Public exchanges will offer community rated metallic plans that will be tightly regulated and priced. Expect public fights between insurers and regulators. Plans are backstopped the first few years. False positives in early years followed by reality. • Insurer plan designs will differ from traditional employer‐sponsored plans – using gate keeper, narrow networks and other mechanisms to reduce rates. Major carriers are participating on a limited basis within exchanges. • There is risk associated with adverse selection. Who will be first to join exchanges? It appears that a larger percentage of first buyers are older Americans. Will the penalty for failure to buy insurance drive healthier individuals into exchanges? As of 1/1/2014, 2.2M have joined exchanges across the US ‐‐ well below the Administration’s target. • Individuals will need significant education and guidance to make buying decisions in the public exchanges when migrating from private plans. Most employers are waiting until 2015 or 2016 to judge the viability of the exchange benefits, pricing and consumer experience. Copyright © 2014. 
    • Defined Contribution Plans and Exchanges: Back to The Future With Better Technology Its our belief that the majority of employers will adopt some form of defined contribution basis of financing their benefits by 2020. A certain percentage of larger employers ( over 5000 employees) will consider joining private exchanges in lieu of managing their own single carrier multiple option plan. Copyright © 2014. 
    • Private Exchanges: Consultants becoming brokers, brokers becoming consultants and clients confused • Aon/Hewitt: Fully insured, group underwritten exchange attempting to extract best in class pricing from multiple insurers over twenty discreet markets. Hypothesis is true competition can only happen when risk is transferred. • Towers: Purchased Extend Benefits for Retirement and larger employers plans. Purchased Liazon Benefits to offer private labeled solutions to the middle market employers and their advisors. • Mercer: Multi‐carrier exchange for employers of all sizes. • National Advisory Firms: All launching or announcing some version of a defined contribution enrollment capability or a multi‐carrier exchange. Expect insurers to launch their own “stores” in 2015.  Employers will have to try to navigate a  crowded dance floor of self interested advisors and vendors – all wanting to promote their B2B2C  purchasing facility.  Everyone will be using the term “exchange”…. Copyright © 2014. 
    • Considerations For Defined Contribution Plans 1. Cafeteria plans failed in the 1980’s and 1990’s due to administrative complexities and adverse selection that eroded choice over time. 2. Technology through on‐line enrollment and decision support has reduced administrative complexities. Employees like choice – just not too much choice. 3. Adverse selection risk is still real as low utilizing, young employees opt for lower cost options, savings are redirected to take home pay, 401(k) or alternative benefits. Fewer medical premiums to offset same claims can result in spiraling cost of plan choices. 4. Employers may lose interest in affordability and advocacy. The rising cost of healthcare could be viewed as an economic fact of life similar to inflationary cost increases in energy. and food. Who will intervene on behalf of unhappy employees? Copyright © 2014. 
    • Defined Contribution and Private Exchanges – A Trend or Hype Cycle? An exchange is the nail, your strategy is the hammer – not the other way around. Source: Gartner Group Hype cycle indicators model adapted to exchange cycle Copyright © 2014. 
    • Resources Required to Run the Race: It’s Not Your Daddy’s Benefits Plan Anymore • • • • • • • • • Communications – SBC requirements, exchange notification, reform education, plan changes ‐ what is your theme? Employee advocacy, engagement and education – Enrollment, plan changes, issue resolution and support – Who will intervene on their behalf? Actuarial / underwriting – Contribution setting for plan options, scenario modeling, plan option forecasting, budge assumptions and funding analysis – Do you know what your trend goals are and how costs impact profits? Do you understand self insurance? HR Administration – Do you want to outsource, co‐source or contract elements of HR administration to third parties – Are you stuck being tactical when you need to be strategic? Pharmacy – Carrier and large PBM models are broken. Insurers using rebates to offset their own administration costs – What is your true Rx trend? Compliance – HR and employment laws will continue to become more complex. ERISA will change and be challenged – Who is your legal resource? Healthcare reform modeling and scenario planning – Discovery of risk exposures, review of financial exposures, modeling based on employment and design changes – Will reform happen to you or for you? Clinical – What are the controllable utilization trends in your health plans? Is your carrier fulfilling their administrative duties to impact consumption trends? What current and forecasted cost arising from? Population health – Premium differentials, incentive plans – Can I change behavior? Copyright © 2014. 
    • Human Resources and Finance: Hang Together or Hang Separately! • • • Force your C‐Suite execs to engage. Communicate to your entire senior management team on what you are doing and why – they are often your biggest utilizers, complainers and point of contact for employees. Don’t waste a crisis – use the ACA and reform as air cover to drive fundamental changes necessary to “preserve” your ability to offer employer sponsored benefits. Create a roadmap and set goals. set goals: a. Question the value of your vendors and hold them to measurable standards. In a period of low healthcare consumption, a 6% increase is nothing special. Your goal should be zero trend! b. Your rate of medical cost growth cannot increase faster than your revenues or you will have margin dilution that is often offset by headcount reductions. c. If your growth is flat and margins are under pressure, remember that it is more disruptive to fire employees than it is to make changes to your plans that will force employee engagement and overdue accountability for anyone responsible for managing your plans. Copyright © 2014.