February Newsletter

Our second newsletter provides a quick update on the aftermath of Detroit 3 Automakers – UAW Negotiations along with guidance on How to Reduce Healthcare Costs. I encourage you to share this newsletter with your colleagues and please ask them to sign up for this newsletter on our website at www.hrandlaborguru.com.  

Detroit 3 Automakers – UAW Negotiations Update

Below is a brief summary of the key 2019 Contract Highlights that I developed.

The Center for Automotive Research (CAR) developed an estimate of the impact of the 2019 UAW Agreements on the average hourly labor costs of the Detroit 3 Automakers (see chart below).  The competitive labor cost gap to the U.S. International Producers will likely grow significantly as the competitive benchmark is only expected to grow modestly from $50 per hour in 2019 to $52 in 2023, according to CAR.

The Detroit 3 Automakers did a good job protecting their balance sheets (e.g., no incremental pension liabilities).  In addition, the automakers were able to protect from a downturn by maintaining existing income security provisions (In-Progression employees only have up to 26 weeks of entitlements in the event of a layoff) and retaining flexibility with running their businesses.  However, the parties did very little to address rising health care costs and this will be unsustainable in the future and accordingly, will need to be addressed aggressively in 2023.

How to Reduce Healthcare Costs 

For over a decade, rising healthcare costs have been and continue to be a significant challenge for organizations, particularly in the United States where healthcare delivery is privatized.  This blog is intended to identify the problems and challenges associated with healthcare from a cost perspective as well as offer insights into potential analytics and strategies that may assist in the mitigation of rising healthcare costs.  The content in this paper is designed to appeal to a wide audience ranging from a benefits specialist interested in revamping their company’s healthcare plan design to labor relations executives strategizing for upcoming union negotiations.

The Problem

Rising healthcare costs are extremely difficult to manage as employers have very little control over both the utilization of healthcare benefits and the price of healthcare benefits.  Medical inflation affects costs per employee largely as a result of the introduction of new, more expensive technologies and procedures along with specialty drugs.  In addition, in general, there is either a lack of employee understanding or appreciation with respect to company-paid healthcare benefits and their associated costs. 

The Challenge

Healthcare coverage is typically seen as a “sacred cow” by employees.  Accordingly, reactions by employees and/or unions to any proposed modifications to healthcare plan designs or employee cost share are typically emotionally-charged.  Based upon my observations over the years, unions and employees generally expect the following from their employers:

  • No reduction in the employee’s standard of living via increases in employee healthcare cost share
  • Maintain and/or improve healthcare coverage
  • Maintain and/or improve the quality of healthcare services
  • Maintain employee choice – employees want a choice when it comes to where they obtain their healthcare 

Accordingly, this presents a significant challenge for organizations who are trying to reduce and/or mitigate rising healthcare costs while managing these employee expectations.  The good news is that there are numerous opportunities to do so!

The Understanding

In order to address rising healthcare costs, organizations must have a deep understanding of the multiple plan design considerations, levers and tools that are at their disposal including the following;

 

  • Plan coverage specifications (e.g., eligibility rules, limits, etc.)
  • Employee cost share (e.g., copayment versus coinsurance)
  • Delivery Models (e.g., broad versus narrow networks)
  • Clinical Programs (e.g., drug formularies)
  • Cost mitigation tools (e.g., transparency tools)

The Strategy

As mentioned earlier, since healthcare benefits are an emotional topic with employees and unions, organizations must be careful in how they tackle the issue.  

The first step is to simply communicate the cost of healthcare benefits to employees.  In many cases, the good old “80/20” rule applies where 20% of the employees drive 80% of overall healthcare expenditures for the organization.  If this is true, 80% of your population will not believe you when you say that healthcare costs need to be addressed, because they are all thinking “it is not me”. Perhaps it may make sense to provide employees with an annual summary that highlights their healthcare spend versus the average employee in the organization.  It should be noted here, that in all cases, employers must always respect any relevant privacy laws.

Secondly, any proposed modifications will have a better chance of success if the organization respects the basic guiding principles of employees and unions similar to those noted above.  Accordingly, where possible, management proposals should attempt to;

 

  • Maintain quality of care
  • Maintain employee choice
  • Minimize employee intrusiveness (e.g., increased cost share)

One of the most basic opportunities to solve this dilemma is to design a healthcare plan that encourages “employee consumerism”.   This approach has the potential of being a win/win solution for employers and employees. The organization can reduce healthcare costs while in most cases respecting the desires of employees and unions (i.e., quality of care, choice, minimal intrusiveness).  Also, in many cases, these healthcare modifications and associated cost savings can be leveraged as a quid pro quo for union demands such as incremental wage economics during union contract negotiations.

I have created a strategic model (REDUCE Model) that identifies numerous plan design options, strategic levers and tools that can be utilized to develop a comprehensive strategy to mitigate rising healthcare costs.  Employee consumerism initiatives are certainly one of the fundamental aspects of this strategic model.

The Solution

In order to apply the REDUCE Model effectively, it is important to analyze and drill-down on your healthcare cost data in order to identify appropriate areas of focus.  This methodology will allow the organization to develop a comprehensive solution that can easily address its specific needs. Accordingly, I have developed a 3-Step Analytical Approach with detailed examples along with illustrative solutions that can be utilized for this task.

If you are interested in learning more about how to mitigate rising healthcare costs, the REDUCE Model and the 3-Step Analytical Approach, visit our website at www.hrandlaborguru.com or contact me directly at clightbody@hrandlaborguru.com.  For a deep-dive module on reducing healthcare costs that incorporates the elements outlined above, check out the “Healthcare Analytics” webinar in the HR Analytics series.  For a more general webinar on cost reduction strategies for healthcare, pensions and other employee benefits, check out Part 2 of our Reduce Your Labor Costs series.

Consulting and Training Services 

We have recently developed a one-day onsite Bargaining Preparation and Strategy Formulation session.  This interactive training session is designed to be delivered to your entire labor negotiations team through a mix of lecture, brainstorming and breakout sessions. This format encourages input from multiple bargaining stakeholders (e.g., compensation, benefits, operations), allowing the team to jointly develop the framework for a comprehensive bargaining strategy by the end of the session.  While the content of the session can be modified to meet specific client needs, the general approach and/or topics for discussion include the following:

  • Pre-session telephone interviews with 2-3 key labor leaders from your organization in order to help us to understand the overall bargaining environment and key issues and challenges
  • Bargaining Environment Assessment
  • Internal Governance Process
  • Communications Strategy
  • Union versus Company Bargaining Objectives
  • Labor Cost Reduction Opportunities (including both Compensation and Benefits)
  • High-level overview of Negotiations Costing Models
  • Bargaining Strategy Tools
  • Bargaining Strategy Formulation
  • Post-session Executive Summary of key takeaways

If you are interested, please contact me directly at clightbody@hrandlaborguru.com for more details and pricing.  In addition, please check out our seven on-demand webinars at www.hrandlaborguru.com. I am always available for consulting engagements either in-person or via conference call.  I look forward to delivering our next newsletter.