Not surprisingly, communicating the changes in L’Oreal’s health-benefitsprogram required a great deal of work. Employees had to learn about the shortplan year, the reduced reimbursement rates, and what options they might have tokeep their insurance coverage at levels they were comfortable with.
It was the kind of communication challenge that Wilhelm would have preferredto avoid. And when all was said and done, he was glad when it was over. “Butit wasn’t as bad as I thought it would be,” he says. Why? Because L’Orealcommunicated the changes to employees early, often, and thoroughly. “In theend, very few people chose to change their health plans, which we took as a goodthing. It proved to us that the communication worked.”
In the next few months, many more corporate-benefits professionals will findthemselves facing the same health-cost increases as L’Oreal—if they haven’talready. According to Hewitt Associates, a global human resources consultingfirm headquartered in Lincolnshire, Illinois, employers will experiencedouble-digit health-cost increases in 2003, most likely in the neighborhood of14 to 16 percent. However, because of economic pressures, most employers willonly be able to absorb an 8 percent increase, leaving a cost increase gap of 6to 8 percent. The only containment options available to companies are to cutbenefits or increase employee costs. Worse yet, these increases are expected tocontinue for the next several years, making it entirely likely that corporatehealth costs will double by 2007.
The intensifying cost pressure is placing a tremendous burden on corporate HRprofessionals, who must determine not only how to respond to the ongoingincreases, but also how to communicate the bad news to employees. The challengeis compounded by the fact that employees regard medical benefits as the mostvaluable corporate perk. Push too many of the costs onto the employees’ plateand companies risk harming workplace morale and recruitment efforts. Do toolittle and the bottom line—and overall job security—suffers. What’s acompany to do? How do benefits professionals decide what containment strategy touse? And once that decision is made, how do they communicate that news toemployees 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 theemployees’ out-of-pocket expenses. “In my experience, cutting benefits isnot as good as making plan-design changes,” says Geri Travers, senior vicepresident of communication for Aon Consulting in New York. Some of the changesthat companies might consider are increasing insurance deductibles or co-pays,increasing the employees’ monthly health-insurance contribution, or reducing—asL’Oreal did—reimbursement percentages.
“You have to look at where costs are coming from in your medical plan,”says Tom Grass, a consultant with Watson Wyatt in Irvine, California. “Ifprescription drugs are the fastest-growing portion of your health-care budget,you can look at redesigning the program to have more employee involvement in thecosts.” For instance, companies can increase the prescription co-pay amount,or move toward plans that have prescription deductibles.
But before employers decide on the nitty-gritty plan changes, Grass says,they have to understand their overall approach to health benefits by looking atthree things. “First, they need to look at their competitive posture and howthey stack up against organizations with which they are competing for labor,”he says. A software company is probably going to look at how it stacks upagainst other high-tech or IT organizations. Retailers will look at the labormarket in their geographic region. The point, Grass notes, is to make sure yourhealth-benefits plan remains competitive and that any changes you make will bein keeping with your industry.
The second factor to consider when deciding on containment strategies is yourcompany’s overall health-care philosophy. Some companies may offer health careonly to be competitive. Others, such as nonprofit organizations, may offer ahigh level of coverage, believing it’s the right thing to do. “Yourhealth-care philosophy might also say that employees will never have to pay morethan 20 percent of the cost of coverage, or that dependents will not be covered,”Grass adds. Essentially, a health-care philosophy is something to help guidecorporate health-care decisions.
The third factor to consider is the vendor marketplace. “Any employer thathasn’t aggressively partnered with a vendor and looked recently at what theircosts are probably needs to spend time thinking about how to interact with thatvendor in order to reduce costs,” Grass says.Communicating the changes to employees
Once employers decide how they are going to deal with rising health costs,the work of communicating the news to employees begins. And in today’senvironment, where employees are being asked to share more of the cost burden,that news is not very good. “You can’t assume you can make people happyabout such changes,” says Kathy Kibbe, western division communication practiceleader at Watson Wyatt in San Francisco. “However, you can certainly work toget people to accept the news.”
How? By not making the same bad mistake many companies make, and that iswaiting until a week before a change to talk about it. In fact, some consultantsbelieve it’s a good idea to hold focus groups with employees early in theprocess, not only to decide what kind of benefit change would be most palatableto employees, but also to get input on the communication strategy.
“Too many organizations don’t begin talking about the health-careenvironment with employees soon enough,” says Wendy Rhodes, a practice leaderin outsourcing communication at Hewitt Associates. “It’s entirely realisticfor companies to begin talking with employees about the health-care strategy aslong as 10 to 12 months before a change is implemented.” L’Oreal startedtalking to employees in June 2001 about changes that would take place thefollowing April—10 months later.
Regardless of whether you decide to seek employee input on the changes ornot, all benefits communication should answer four questions:
1) What health-benefits changes is the company making? You should provideemployees with the specifics of the impending change, including how the planredesign works, what the cost structure is, when the change will be implemented,and what the expectations are for employees.
Last year, Gap, Inc., based in San Francisco, was facing double-digit healthcost increases, an increase the company could not continue to absorb. Instead ofcutting benefits or simply increasing employee costs, Gap decided to giveemployees a choice of plan designs. “Previously,” says Bernie Knobbe, seniordirector, compensation and benefits, “we had a fairly rich PPO plan thatemployees made contributions toward. The co-pays were low, and a lot of serviceswere covered at 100 percent, in network.”
To help combat the company’s health cost increase, Gap introduced twodifferent PPO plan options. One offered a higher level of coverage similar tothe previous PPO, but had some cost sharing that wasn’t there previously. Theemployee contribution also was higher. The other was a plan that cost less inemployee contributions, but the benefit levels were also lower.
“Our challenge in communicating was letting people know they now had achoice in health coverage,” Knobbe says. “They could choose to keep theircontributions the same as they were previously and receive a lower healthbenefit level when they received care, or they could increase theircontributions and get a higher level of coverage similar to what they hadbefore.”
2) Why is the company making the changes? Employers must begin to explain thechanges in their health-benefits plan at a very basic level because employeestoday have very little understanding of what health care really costs. “Insome people’s minds, going to the doctor is less than getting a haircut,because of the co-pay system,” Kibbe says. The lack of understanding is sogreat that a 2001 Watson Wyatt survey showed that 63 percent of employeesunderestimate the total costs of health care and 69 percent overestimate thepercentage of costs they pay for.
Because of these misconceptions, every communication campaign must includesome basic education on what the true cost of health care is and why costs aregoing up in every company, region, and industry. Companies may opt to usebenchmarking data to prove that they are not alone in this challenge.
Victor Villanueva, senior communications consultant with Mercer HumanResource Consulting in Chicago, says an employer must also be clear that thechanges to a health-benefits plan are based on tough business decisions thathave to be made to keep the company viable. “It’s important to explainmarket trends and competitive pressures to employees,” he says, “and torelate the importance of managing health-care costs to overall corporateobjectives.”
The Gap, which is in the midst of a trying time in the retail industry, has amajor corporate initiative under way called Expense Management. “We explainedto employees that the changes in our health plan were tied in to ourexpense-management initiative,” Knobbe says. “This helped the programsucceed, because all of our employees know that it’s a tough time in theretail industry.”
3) What does the change mean to employees? All benefits communication must bevery specific about how the change affects employees—e.g., increased co-pays,higher deductibles, or larger monthly contributions. If possible, thecommunication should also compare the costs of different procedures in differentplans.
For example, because L’Oreal was lowering the reimbursement amountsavailable in certain PPO plans, the company showed employees what the cost offour different procedures would be in each of the plans. Wilhelm says L’Orealwas also very clear that employees could move from a PPO with deductibles to anHMO with full coverage. “We also re-emphasized the availability of ahealth-care flexible spending account that could help employees save money fordeductibles,” Wilhelm says, “and we stressed that each plan had anout-of-pocket maximum every year.”
4) What can employees do to keep costs under control? Dennis Ackley, anemployee communication consultant in Dallas says that simply informing employeesthat health-care costs are skyrocketing and the company health plan is changingdoesn’t tell them what they can do about it. “It’s like telling them thatgrocery prices are skyrocketing. Employees have to understand what they can doto help control the cost of the medical plan.”
To help employees understand their role in keeping costs down, companiesshould stress such things as exercise, healthy eating, regular checkups, and theuse of emergency rooms only for immediate, life-threatening care. Many employersare also putting links to health-information sites on the company intranet sothat employees can seek health education on their own.
How to communicate
Once you know what you’re going to say to employees, how you say it is justas important. Here are some rules to follow in communicating bad news:
1) Have the information come from a senior-level executive so that HR doesn’tbecome a scapegoat.
2) Thoroughly educate HR and benefits people about the changes so they cananswer questions.
3) If possible, provide a means for face-to-face communication with employeesso they can ask questions and get immediate feedback.
4) Use a variety of media, including e-mails, newsletters, and letters sentto homes.
5) Make the content clear and easy to read. Provide less information, moreoften.
6) Make the communication eye-catching and memorable, if possible. Employeeshave a lot of messages competing for their attention.
7) Anticipate employee questions. You have to be ready with responses whenemployees start asking questions such as: Why are you changing the benefitsplan? Has the company done enough to decrease costs? And, how can executivestake home millions of dollars every year and still feel good about askinglower-paid workers to contribute more for health benefits?
Finally, whatever medium or approach you decide to use, make sure you don’tsugarcoat the message. “The secret to communicating bad news,” Ackley says,“is doing it the same way you communicate any news: by being straightforwardand honest.”
Workforce, September 2002, pp. 32-36 -- Subscribe Now!