Delivering the Tough Benefit News

    Not surprisingly, communicating the changes in L’Oreal’s health-benefits program required a great deal of work. Employees had to learn about the short plan year, the reduced reimbursement rates, and what options they might have to keep their insurance coverage at levels they were comfortable with.

    It was the kind of communication challenge that Wilhelm would have preferred to avoid. And when all was said and done, he was glad when it was over. “But it wasn’t as bad as I thought it would be,” he says. Why? Because L’Oreal communicated the changes to employees early, often, and thoroughly. “In the end, very few people chose to change their health plans, which we took as a good thing. It proved to us that the communication worked.”

    In the next few months, many more corporate-benefits professionals will find themselves facing the same health-cost increases as L’Oreal—if they haven’t already. According to Hewitt Associates, a global human resources consulting firm headquartered in Lincolnshire, Illinois, employers will experience double-digit health-cost increases in 2003, most likely in the neighborhood of 14 to 16 percent. However, because of economic pressures, most employers will only be able to absorb an 8 percent increase, leaving a cost increase gap of 6 to 8 percent. The only containment options available to companies are to cut benefits or increase employee costs. Worse yet, these increases are expected to continue for the next several years, making it entirely likely that corporate health costs will double by 2007.

    The intensifying cost pressure is placing a tremendous burden on corporate HR professionals, who must determine not only how to respond to the ongoing increases, but also how to communicate the bad news to employees. The challenge is compounded by the fact that employees regard medical benefits as the most valuable corporate perk. Push too many of the costs onto the employees’ plate and companies risk harming workplace morale and recruitment efforts. Do too little and the bottom line—and overall job security—suffers. What’s a company to do? How do benefits professionals decide what containment strategy to use? And once that decision is made, how do they communicate that news to employees 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 the employees’ out-of-pocket expenses. “In my experience, cutting benefits is not as good as making plan-design changes,” says Geri Travers, senior vice president of communication for Aon Consulting in New York. Some of the changes that companies might consider are increasing insurance deductibles or co-pays, increasing the employees’ monthly health-insurance contribution, or reducing—as L’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. “If prescription drugs are the fastest-growing portion of your health-care budget, you can look at redesigning the program to have more employee involvement in the costs.” 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 at three things. “First, they need to look at their competitive posture and how they 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 up against other high-tech or IT organizations. Retailers will look at the labor market in their geographic region. The point, Grass notes, is to make sure your health-benefits plan remains competitive and that any changes you make will be in keeping with your industry.

    The second factor to consider when deciding on containment strategies is your company’s overall health-care philosophy. Some companies may offer health care only to be competitive. Others, such as nonprofit organizations, may offer a high level of coverage, believing it’s the right thing to do. “Your health-care philosophy might also say that employees will never have to pay more than 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 guide corporate health-care decisions.

    The third factor to consider is the vendor marketplace. “Any employer that hasn’t aggressively partnered with a vendor and looked recently at what their costs are probably needs to spend time thinking about how to interact with that vendor in order to reduce costs,” Grass says.

    How? By not making the same bad mistake many companies make, and that is waiting until a week before a change to talk about it. In fact, some consultants believe it’s a good idea to hold focus groups with employees early in the process, not only to decide what kind of benefit change would be most palatable to employees, but also to get input on the communication strategy.

    “Too many organizations don’t begin talking about the health-care environment with employees soon enough,” says Wendy Rhodes, a practice leader in outsourcing communication at Hewitt Associates. “It’s entirely realistic for companies to begin talking with employees about the health-care strategy as long as 10 to 12 months before a change is implemented.” L’Oreal started talking to employees in June 2001 about changes that would take place the following April—10 months later.

    Regardless of whether you decide to seek employee input on the changes or not, all benefits communication should answer four questions:

    1) What health-benefits changes is the company making? You should provide employees with the specifics of the impending change, including how the plan redesign 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 health cost increases, an increase the company could not continue to absorb. Instead of cutting benefits or simply increasing employee costs, Gap decided to give employees a choice of plan designs. “Previously,” says Bernie Knobbe, senior director, compensation and benefits, “we had a fairly rich PPO plan that employees made contributions toward. The co-pays were low, and a lot of services were covered at 100 percent, in network.”

    To help combat the company’s health cost increase, Gap introduced two different PPO plan options. One offered a higher level of coverage similar to the previous PPO, but had some cost sharing that wasn’t there previously. The employee contribution also was higher. The other was a plan that cost less in employee contributions, but the benefit levels were also lower.

    “Our challenge in communicating was letting people know they now had a choice in health coverage,” Knobbe says. “They could choose to keep their contributions the same as they were previously and receive a lower health benefit level when they received care, or they could increase their contributions and get a higher level of coverage similar to what they had before.”

    2) Why is the company making the changes? Employers must begin to explain the changes in their health-benefits plan at a very basic level because employees today have very little understanding of what health care really costs. “In some 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 so great that a 2001 Watson Wyatt survey showed that 63 percent of employees underestimate the total costs of health care and 69 percent overestimate the percentage of costs they pay for.

    Because of these misconceptions, every communication campaign must include some basic education on what the true cost of health care is and why costs are going up in every company, region, and industry. Companies may opt to use benchmarking data to prove that they are not alone in this challenge.

    Victor Villanueva, senior communications consultant with Mercer Human Resource Consulting in Chicago, says an employer must also be clear that the changes to a health-benefits plan are based on tough business decisions that have to be made to keep the company viable. “It’s important to explain market trends and competitive pressures to employees,” he says, “and to relate the importance of managing health-care costs to overall corporate objectives.”

    The Gap, which is in the midst of a trying time in the retail industry, has a major corporate initiative under way called Expense Management. “We explained to employees that the changes in our health plan were tied in to our expense-management initiative,” Knobbe says. “This helped the program succeed, because all of our employees know that it’s a tough time in the retail industry.”

    3) What does the change mean to employees? All benefits communication must be very specific about how the change affects employees—e.g., increased co-pays, higher deductibles, or larger monthly contributions. If possible, the communication should also compare the costs of different procedures in different plans.

    For example, because L’Oreal was lowering the reimbursement amounts available in certain PPO plans, the company showed employees what the cost of four different procedures would be in each of the plans. Wilhelm says L’Oreal was also very clear that employees could move from a PPO with deductibles to an HMO with full coverage. “We also re-emphasized the availability of a health-care flexible spending account that could help employees save money for deductibles,” Wilhelm says, “and we stressed that each plan had an out-of-pocket maximum every year.”

    4) What can employees do to keep costs under control? Dennis Ackley, an employee communication consultant in Dallas says that simply informing employees that health-care costs are skyrocketing and the company health plan is changing doesn’t tell them what they can do about it. “It’s like telling them that grocery prices are skyrocketing. Employees have to understand what they can do to help control the cost of the medical plan.”

    To help employees understand their role in keeping costs down, companies should stress such things as exercise, healthy eating, regular checkups, and the use of emergency rooms only for immediate, life-threatening care. Many employers are also putting links to health-information sites on the company intranet so that 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 just as 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’t become a scapegoat.

    2) Thoroughly educate HR and benefits people about the changes so they can answer questions.

    3) If possible, provide a means for face-to-face communication with employees so they can ask questions and get immediate feedback.

    4) Use a variety of media, including e-mails, newsletters, and letters sent to homes.

    5) Make the content clear and easy to read. Provide less information, more often.

    6) Make the communication eye-catching and memorable, if possible. Employees have a lot of messages competing for their attention.

    7) Anticipate employee questions. You have to be ready with responses when employees start asking questions such as: Why are you changing the benefits plan? Has the company done enough to decrease costs? And, how can executives take home millions of dollars every year and still feel good about asking lower-paid workers to contribute more for health benefits?

    Finally, whatever medium or approach you decide to use, make sure you don’t sugarcoat the message. “The secret to communicating bad news,” Ackley says, “is doing it the same way you communicate any news: by being straightforward and honest.”