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Rethinking Benefits, Consumerism and Incentives Strategies with Wendy Lynch
 

Rethinking Benefits, Consumerism and Incentives Strategies with Wendy Lynch

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Are your benefit dollars buying better health and performance? After decades of corporate investment in wellness and condition management, healthcare costs continue to rise and few employers report ...

Are your benefit dollars buying better health and performance? After decades of corporate investment in wellness and condition management, healthcare costs continue to rise and few employers report having a healthy, productive workforce. Is the answer MORE spending on wellness or health management? Or is it time for a different approach to both health and performance?

Every business has finite resources to dedicate to labor costs, and every dollar spent on benefits is a dollar not spent on training, compensation, technology, and other productivity-enhancing investments. What is the optimal mix of rewards and health investments? The answer may come as a surprise to many.

This program will help employer manage costs and optimize performance, regardless of the design of health coverage. Strategies include aligning performance goals and increasing transparency.

Wendy Lynch, a nationally recognized expert on health and human capital, will show how compensation and benefits designs may have as much influence on employee health (and personal health management) than any health education or behavior change program. Attendees will hear examples about how to connect pay, time-off, consumer-directed plan design and performance measurement to optimize business outcomes and motivate employees. Using illustrations of incentives and benefits design, Wendy will explore how the current employer-sponsored healthcare system creates perverse incentives that actually discourage healthy behaviors and encourage benefits utilization. Participants will also learn how a performance-based approach shifts incentives such that they enhance employee health, productivity, performance and business outcomes.

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    Rethinking Benefits, Consumerism and Incentives Strategies with Wendy Lynch Rethinking Benefits, Consumerism and Incentives Strategies with Wendy Lynch Presentation Transcript

    • 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 Gain1
    • © 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) LikelihoodofHavinga(Non-Pregnancy)STDClaim 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, 20 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 Gain1 Shared Responsibilities Something to Lose2 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 SharedRewards Shared Responsibilities Aligned Pampered Partners Entitled Disengaged AlignedMisaligned Misaligned 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 < $200KOptimal RiskTransparent rates & negotiation New (better) design transparent Difference $375K moreOptimal 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?
    • Amazon.com Print and Kindle versions Contact: Wendy@lynchconsultingltd.com 303-949-7666