Benefits Buzz

The Pefect Storm - Reporting ACTUAL Liabilities for Municipal Retireee Health Benefits...

If you've been in HR for more than 5 years, you've been a part of what I'll call the "Great Benefits Crunch", which has forced your company to reduce overall benefit levels and/or pass along greater costs to employees.

You don't have to explain it to me.  I've had to explain those decisions to employees, and I'm aware that you didn't create the economic problem that is the "state of health care".  Sadly though, if you're in HR, you're left to explain the realities to a set of employees that doesn't feel great about costs being shifted their way.

You and I can understand that, because we're employees too.  Just because you manage the plan doesn't mean your health insurance is free. 

With all that said, a crazy day of reckoning is probably on the horizon for city employees nationwide. From the Whittier Daily News:

"For the first time ever, cities in the San Gabriel Valley are providing realistic estimates on the future costs of retirement benefits for their municipal employees - and the amounts are in the hundreds of millions of dollars.  But in the San Gabriel Valley and Whittier areas, only 12 of the 24 cities that responded to public records requests seeking retirement cost estimates know what their actual anticipated employee retirement obligations are.

Of those 12 cities, only four have started socking away money in preparation for the increasing costs, which total more than $200 million in the two eastern county regions.This year alone, 24 cities in the Valley and Whittier area will spend nearly $11 million on retiree health benefits. That number is expected to grow exponentially as the number of retirees grows, life expectancy rates increase and health premiums continue to rise.

"Up until this point, no one knew how big these unfunded obligations were," said Dean Mead, research manager for the Governmental Accounting Standards Board (GASB), a nonprofit board that sets financial reporting standards for public agencies.

That changed three years ago, when the standards board implemented regulation GASB 45, which requires public agencies to report what retirees' health benefits will cost before they retire."

Just so you know, here's what the public meetings look like when the city in question comes to the conclusion that in order to survive the real cost structure, they need to reduce retiree benefits.  Watch it and ponder...

When Sticker Price in Medical Insurance Reminds You Of Buying a GM Car...

Bought a new car recently?  If so, you know sticker price is for suckers... Do two things - wait for the juicy rebates always offered by Detroit automakers, then head to the lot and try to dicker the sales people down even further.  That's right, the marketing machine of US automakers has conditioned us not to move until there's a $5K rebate involved off the top. 

Health care is similar in some ways, but different in some critical aspects.  First up, there's a sticker price that hospital facilities quote to the general public related to what different procedures cost. Think of that as their "sticker price".  Here's the big difference - rebates aren't available to everyone, just to the folks with quality health care plans.  The Blue Cross networks (as well as other big insurance providers) are able to extract HUGE discounts from doctors and facilities alike through the power of their network.  If doctors/hospitals want BCBS patients, they've got to be a part of the network, and to be part of the network they've got to agree to the fee schedule touted by BCBS. 

That's where the discounts/rebates come into play.  The rebates can be huge when compared to the sticker prices touted by hospitals.  Here's a new record in my world I just came across.  Employee goes in for a procedure, with the company billed 19K for the entire bill.  Sticker price from the hospital before BCBS got ahold of the claim and went all Tony Soprano on it?  $152K.  That's right - the sticker price was over 7 times the actual cost ultimately allowed by BCBS.

Which makes me think two things.  First, I'm glad we have a good provider that can extract deep discounts off of sticker price.  Second, the common guy out there who's not covered by a plan like ours and is trying to go without insurance is a car wreck away from a lifetime of bills he can't pay and a probable personal bankruptcy.

There's something wrong with health care when sticker price on medical procedures makes buying a car look like a "one price, no haggle" experience...

Bought a new car recently?  If so, you know sticker price is for suckers... Do two things - wait for the juicy rebates always offered by Detroit automakers, then head to the lot and try to dicker the sales people down even further.  That's right, the marketing machine of US automakers has conditioned us not to move until there's a $5K rebate involved off the top. 

Health care is similar in some ways, but different in some critical aspects.  First up, there's a sticker price that hospital facilities quote to the general public related to what different procedures cost. Think of that as their "sticker price".  Here's the big difference - rebates aren't available to everyone, just to the folks with quality health care plans.  The Blue Cross networks (as well as other big insurance providers) are able to extract HUGE discounts from doctors and facilities alike through the power of their network.  If doctors/hospitals want BCBS patients, they've got to be a part of the network, and to be part of the network they've got to agree to the fee schedule touted by BCBS. 

That's where the discounts/rebates come into play.  The rebates can be huge when compared to the sticker prices touted by hospitals.  Here's a new record in my world I just came across.  Employee goes in for a procedure, with the company billed 19K for the entire bill.  Sticker price from the hospital before BCBS got ahold of the claim and went all Tony Soprano on it?  $152K.  That's right - the sticker price was over 7 times the actual cost ultimately allowed by BCBS.

Which makes me think two things.  First, I'm glad we have a good provider that can extract deep discounts off of sticker price.  Second, the common guy out there who's not covered by a plan like ours and is trying to go without insurance is a car wreck away from a lifetime of bills he can't pay and a probable personal bankruptcy.

There's something wrong with health care when sticker price on medical procedures makes buying a car look like a "one price, no haggle" experience...

Wondering What Your Budget's Benefit Load Should Be For 2009? Here's the Tip Sheet....

If you're an HR executive at any level with budgeting responsibilities, you've dealt with the pleasure of the Benefit Squeeze. 

What's the Benefit Squeeze?  It's the magical number that's attributed to the budget model for all your benefit and payroll tax costs.  In the golden days, the number was pretty fat and you never saw a lot of pressure on the number.  Unfortunately, with healthcare costs up 200% in the last decade, the number takes on a lot more importance.

So, the game goes like this - if you're fully insured, you have a good idea of what your entire benefit load is.  However, if you're self insured, there's some variability in the model that you want to protect yourself against.  Unfortunately, no one else in the organization cares about your needs.  They just need the number you give them to be two things - skinny and predictable. 

The U.S. Bureau of Labor Statistics recently gave some quality stats across the public and private sectors that can help.  The average cost to employers for employee pay and benefits was $28.48 per employee hour worked in June, the U.S. Bureau of Labor Statistics said today.

"The cost of wages and salaries averaged $19.85 an hour, or nearly 70 percent of employers’ total compensation costs.  As usual, there was a pay and benefits gap between average compensation costs in the public and private sectors.

Total compensation costs to employers in the private sector averaged $26.78 per work hour, compared with $38.30 an hour for state and local government workers. The report did not include federal employee compensation costs.  The cost of wages and salaries averaged $18.92 per employee hour in the private sector, versus $25.19 for state and local employees. The cost of employee benefits averaged $7.86 an hour in the private sector, compared to $13.11 an hour on the public side.

Overall, the 30 percent of total payroll costs that went to employee benefits broke down this way:

•$2.39 per employee hour worked for health, life and disability insurance.

•$2.25 an hour for legally required benefits, including Social Security, Medicare, unemployment insurance, and workers’ compensation.

•$1.99 an hour for discretionary paid leave benefits, including vacations, holidays, sick leave, and personal leave.

•$1.25 an hour for employee retirement and savings plans.

•76 cents an hour for supplemental pay, such as shift differentials, premium pay for overtime and weekend or holiday work."

Helpful stats to be sure.  At first, the total cost for health insurance seems light, until you do the multiple and see that the numbers mean a budget of around $5,000 per employee - not a bad figure.

So, take a look and use this in your budgeting sessions to justify your benefit spend number.  Just don't be alarmed when you take a 10% haircut to your budget as an across the board treatment to get to the earnings target.  It's all part of the budgeting process...

Why Wal-Mart Doesn't Treat Employees As Well As Costco, and Why You Don't See a Difference in Service Anyway...

Like many of you, I've been to Costco.  Like all of you, I've been to Wal-Mart.  On the employee PR front, it's not hard to find articles that say Wal-Mart is terrible at taking care of their employees.  If you pay attention, you'll also see information that heaps a good amount of praise on Costco for their treatment of employees.

So what's the difference, and does it result in better service to you?   Let's examine pay, benefits and retention at Wal-Mart and Costco, then think about whether the customer sees the difference.  From Slate:

"It's not hard to make a case that Costco pays employees more. The most relevant comparison is between Costco and Sam's Club, Wal-Mart's membership warehouse, since both business models rely on membership fees for a large percentage of revenues. A Sam's Club employee starts at $10 and makes $12.50 after four and a half years. A new Costco employee, at $11 an hour, doesn't start out much better, but after four and a half years she makes $19.50 an hour. In addition to this, she receives something called an "extra check"—a bonus of more than $2,000 every six months. A cashier at Costco, after five years, makes about $40,000 a year. Health benefits are among the best in the industry, with workers paying only about 12 percent of their premiums out-of-pocket while Wal-Mart workers pay more than 40 percent.

Another theoretical benefit is that Costco employees, being better paid, are less likely to leave the company. Again, some data back that up: Greenhouse points to Costco's low turnover rate, which is 20 percent and, among employees who stay at least a year, 6 percent. Wal-Mart's is about 50 percent (no separate data for Sam's Club). But is this a business advantage for Costco? While some point to the costs of training and hiring new employees, a widely leaked 2005 memo from Wal-Mart offers a different perspective. In it, Wal-Mart's senior vice president of benefits argued that the company's turnover rate was too low. After all, she explains, long-term employees are more expensive and not necessarily any more productive. Such reasoning—though sinister—may actually help explain why Wal-Mart's profit margins are twice as high as Costco's (3.36 percent compared with 1.75 percent).

Costco's revenues per employee are about five times as high as Wal-Mart's. (No separate financials are available for Sam's Club.) Then again, it's also the case that Costco sells more expensive stuff—high-end French wine, triple-cream brie, and Cartier watches, all of which presumably have high margins—along with the cheap toilet tissue."

So, what conclusions do you draw from that, both as a HR/management pro, and a customer?  I'll take the HR side first and say the obvious - Costco looks like they care about retention, both with the aggressive pay plan and the benefits.  That's a good thing. 

The difference in pay (assuming good performance) is startling, and while it's difficult to know the details around their benefits, enough bad stuff is out regarding Wal-Mart and benefit eligibility/employer contributions that it's easy to call it vastly superior.

Here's where it starts to get tricky from a business perspective.  Costco has revenues per employee five times as high as Wal-Marts, but Wal-Mart's margins are twice as high as Costco.  Here's why Costco's revenue per employee is higher - they have a dramatically different staffing model, and don't need nearly as many employees.  When's the last time you saw a Costco employee before you hit the checkout line?  Never - and the "try this snack people" at every isle don't count, they're contractors. 

As a result, I can't say the customer service I get from Costco employees is significantly better than Wal-Mart's, because there isn't really any service.  They roll it in on palettes, I throw it in a big cart, then go to a checkout line modified to handle the big cart, usually without a "how are you today?" from the checkout person.  All the manpower is focused on checkout/security, and the overall staffing per store is as lean as possible, and much leaner than a typical Wal-Mart.

As a result, Costco has the ability to treat their employees well.  Wal-Mart could do some of the same, but will never catch up.  It's economics, they need too many people per store because they don't roll it in and display it on palettes. 

So, I'm glad Costco treats their employees that well, and I think it's obvious that the business model allows them to staff lean and treat the employees they do have well.  That's cool.

I just wish I could feel the retention as a customer, because I can't...

Update - found the following staffing analysis for staffing levels at Sam's Club vs. CostCo at staffing.org.   Still looking for normal WalMart metrics.  "In 2004, a well publicized study of Wal-Mart's Sam's Club and rival Costco compared the HR policies of the two companies. The particular significance of this study lay in the fiercely competitive low-end market they both serve, where strict cost-control, a Wal-Mart specialty, was thought to be essential to success. The comparison showed that despite much more generous salary and benefit packages, Sam's Club's cost of labor and overhead as a percent of sales was 17%, almost double Costco's 9%. Added to that, Costco's sales were much higher on a per-store basis as it generated nearly as much total revenue with one-third fewer employees. Consequently, profit per employee at Costco was $13,467 compared to only $11,039 at Sam's Club."