Sliding-Scale Plans Seeing a Renaissance
Providing affordable health coverage to customers is built into the corporate mission statement at Highmark Inc., a health insurance company in Pittsburgh. But like the shoemaker whose children had no shoes, many of the company’s own employees couldn’t afford the escalating premiums.
The irony wasn’t lost on Highmark’s management.
"We wanted to bring the intent of our mission in-house," says Richard Little, director of corporate employee benefits. So, in January 2004, Highmark found a solution: a salary-based employee-contribution program. Workers in higher brackets pay up to 4.2 percent of their salaries (up to 50 percent of total premium for the most expensive option); those who earn less pay as little as 10 percent of premium for that same plan.
Sliding-scale solutions such as Highmark’s emerged about 15 years ago but fell by the wayside over the ensuing years. Now, as companies struggle to manage double-digit increases in health care premiums and sophisticated technology makes the programs less cumbersome to administer, they are enjoying renewed interest. A 2004 study by Mercer Human Resource Consulting found that just 4 percent of companies had implemented compensation-based plans (the number rose to 10 percent in organizations with 500 or more employees), but many human resources experts believe they will become more widespread as health care costs continue to rise.
Yet for some companies, the programs may create more problems with morale, recruitment or costs than they solve.
D. Kevin Berchelmann, president of Triangle Performance, a Bellaire, Texas-based consultancy, is a fan of sliding-scale premiums and says two of his clients have recently launched them. "It’s difficult to explain to someone making $8 per hour why they pay the same for health care as a $200,000 executive," he says. "These programs allow for reasonable sharing of rising costs."
"There have been a few complaints from some people who make a fair amount of mone. But, quite frankly, anytime you do anything with benefits, someone won’t like it."
At one of Berchelmann’s client companies, workers earning less than $30,000 pay $100 per month for a family, while those in the $30,000 to $65,000 bracket pay $195 and employees with salaries of more than $65,000 pay $270.
But such plans have a few inherent pitfalls, says Blaine Bos, a Mercer principal. For example, employees in the middle and higher tiers are likely to resent bearing the increased burden. "A wage earner making $100,000 is not necessarily rolling in dough. That is where you will get your biggest screech," says Bos, chief analyst of Mercer’s 2004 survey on employer-sponsored health plans. "They can make the argument that there is no connection between compensation and health care utilization."
At Highmark, "there have been a few complaints from some people who make a fair amount of money," Little admits. "But, quite frankly, anytime you do anything with benefits, someone won’t like it." He says he minimized employee backlash with a proactive communication plan that emphasized the company’s corporate mission as the basis for the program.
But even if higher-paid employees embrace the sliding-scale philosophy, the programs could make it tough to recruit top talent, says Deborah Marsh, human resources director at TriQuint Semiconductor, a 2,100-employee electronics manufacturer in Hillsboro, Oregon. "You have the issue of trying to remain competitive," she says. "You don’t want to be charging your technical, professional or managerial staff way more than market." At TriQuint, employees contribute a flat percentage of the premium, regardless of salary.
Finally, sliding-scale solutions may not be feasible for many companies from a purely financial perspective. Far from saving money or being revenue neutral, they can end up adding additional expenses if there aren’t enough highly paid employees to absorb the premium adjustment for those at the bottom of the scale.
"It’s not as easy as merely redistributing wealth," Bos says. "At most companies, the compensation structure looks like a pyramid. So if you have 1,000 lower-salaried people at the base and only 10 people at the top, you may end up with an increase in labor costs. Unless your compensation structure looks like an hourglass or square box, your company takes the hit. And the CFO will have your head."
Workforce Management, January 2005, p. 22 -- Subscribe Now!