November, 2010

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Article Index

The Value of Consumer Driven Health Plans
Article by: Mick Hannafin

As medical plan costs continue to increase, employers large and small are looking for solutions to rein in expenses. Many employers have turned to Consumer Driven Health Plans (CDHPs) in hopes of mitigating the burden of health care costs.  While these plans have grown in popularity, buyers are still looking for clarity in deciding which plans are the proper fit for their organizations and employees.


To hire or not to hire. That is the question.
Article by: Kelly Rietow, P.H.R., MBA

As we emerge from the recession, many employers are still cautious, while others are “dipping a toe in the water” for key investments.   People are one of the most significant investments an organization makes, and often the differentiator in determining the customer experience. 


Lean Leader of the Month: Mary Jo Kline
Article by: Mary Jo Kline

Nystrom, a trusted name in the commercial construction industry for more than six decades, specializes in providing complementary commercial building products and services - those miscellaneous and specialty items that are not normally of highest priority but are essential components in any building project.


Book Review: Velocity*
Article by: John Hehre

You can drive a screw with a hammer, but a screwdriver will probably work better. You may even need to drill a pilot hole so you don’t split the wood or break the screw. Using the right tool for the job applies to improvement methodologies as well.


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The Value of Consumer Driven Health Plans

As medical plan costs continue to increase, employers large and small are looking for solutions to rein in expenses. Many employers have turned to Consumer Driven Health Plans (CDHPs) in hopes of mitigating the burden of health care costs.  While these plans have grown in popularity, buyers are still looking for clarity in deciding which plans are the proper fit for their organizations and employees.

There are two components to effective strategy when planning or administering a CDHP.  First is the insurance mechanism; this called a High Deductible Health Plan (HDHP) in which the employer purchases a plan design with a large up-front deductible, with insurance coverage after the deductible is satisfied.  The second mechanism is the funding of the deductible; this may be done with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). Either method may work well for your organization, and will be outlined in greater detail below.  To know if a CDHP may be right for your company, consider the advantages and disadvantages:

Advantages

  • Designed with a high deductible that must be satisfied first, premiums for CDHP plans compare favorably when compared to traditional plans with a co-payment structure.  This lowers your premium (or premium equivalency) which allows you to pass on savings to your employees via payroll deductions.
  • CDHP plans are designed to promote consumerism. As a plan participant better understands the true cost of medical goods and services, the hope is that participants will begin to make different (and better preventive) choices about their health and health care usage. This can result in lower claims cost and a mitigated need for future financial increases.
  • CDHP plans often include added incentives for those companies wanting to promote a wellness agenda.  Since the employees and their families are now engaged financially, the message that the employee can save money by getting healthy tends to resonate more clearly.

Disadvantages

  • We all have heard the theory that 80% of the costs in any given population come from only 20% of the participants.  Therefore, if those 20% of unhealthy/unlucky folks do not change their utilization patterns and the claims costs continue on the same trajectory, you may be setting yourself up for larger than average increases. 
  • Change means education and communication.  Think of the concept of bottled water; every day, people go out of their way to purchase water that is otherwise free if you were to use the faucet in your house or place of work. In many ways purchasing health care is similar for most employees.  They want their plan to be easy and convenient (a $20 co pay each time they visit the doctor).  Having a deductible, then coordinating that deductible with an Explanation of Benefits statement and filing this with a third party takes both education and communication.
  • While the opportunity to enhance wellness efforts works well in principle, this plan may have detrimental effect on those with little or no expandable cash.  Individuals struggling to make ends meet may have to make choices; will I choose to feed my family or purchase my prescription medication?  How long do I wait before paying for essential tests over the need for car repairs? 

The second mechanism of a successful CDHP is funding the deductible, creating the financing or banking arrangement that supports the HDHP.  The two most popular vehicles are a Health Savings Account (HSA) and a Health Reimbursement Arrangement.  Both of these programs have advantages, but both have long term implications as well, so it important to understand each and choose a program that can be supported long term.

Health Savings Accounts

  • In order to offer an HSA, the plan must be offered in concert with a qualified HDHP (for 2011 the minimum deductible is $1,200 for single coverage and $2,400 for family coverage).
  • All services must be directed to the deductible before insurance begins.  This means no prescription drug card, as the cost for prescriptions would need to be applied to the deductible.
  • The HSA account must be managed in a tax-favored trust, usually through a financial institution or bank.
  • All contributions and interest earned may be withdrawn on a tax free basis as long as it is to pay for medically qualified expenses.  If funds are not used for medically qualified expenses, the employee faces a 20% penalty in 2011.
  • Either the employer or the employee (or both) may contribute to the fund up to the maximum allowable of $3,050 for single and $6,150 for family.  A catch-up contribution of an additional $1,000 annually may be made for those 55 and older.
  • Contributions to the fund are tax deductible for either the employer or employee depending on who is making the contribution.
  • Employer contributions to the fund immediately become the employee’s money.  The fund is also portable for the employee as the employee owns the funds. If the employer deposits $1,000 to the fund on January 1 and the employee terminates employment on January 2, the employee keeps the money.
  • As the employee’s money, consumerism kicks in. As employees attempt to build equity in the HSA, many find they are more engaged in making health care decisions.

Health Reimbursement Arrangements

  • HRAs allow for more flexible plan designs, with a lower deductible. This may be attractive for an employer who would like to move in the direction of a CDHP but does not want to move to the high deductibles required with an HSA.
  • This plan is a commitment to pay for claim if it occurs.  This means that unused funds can be absorbed back into the plan assets of the employer. 
  • These plans are not portable as the ownership of the fund stays with the employer. If a participant terminates, COBRA for this plan must be offered, but if COBRA is elected and paid for by the employee, the contribution stays with the employer
  • The employer may offer a plan that allows a prescription drug benefit to employees other than strictly coinsurance after the deductible is met, which is required with an HSA. 
  • Because employees understand that this is really not their money, increased consumerism may not be quite as effective. 
  • For employers with higher turnover, HRAs may be a preferred model due to the ownership of unused funds staying with the employer.
  • Funds applied to the HRA by the employer are treated on a tax favored basis.

There are a number of advantages CDHP programs offer an employer seeking to manage medical cost expenses.  However, the decision to move into these programs does need proper due diligence as a long term solution.  Once you switch, returning to a traditional co pay model may become a very expensive proposition.  Future health insurance reform will most certainly have an impact on these programs.

The 2011 Manufacturers Alliance Compensation & Benefits Survey participation window will open on Decmber 20, 2010. Look for an invitation in your mailbox soon or call us at (763) 533-8239 to make sure you aren't left out. Copies of the 2010 survey are still available click here for more information.

Mick Hannafin is an employee benefits consultant with David Martin Agency and has over 20 years of experience in employee benefits. He can be reached either at mhannafin@davidmartinagency.com or 952.848.1305.

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To hire or not to hire. That is the question.

As we emerge from the recession, many employers are still cautious, while others are “dipping a toe in the water” for key investments.   People are one of the most significant investments an organization makes, and often the differentiator in determining the customer experience. 

Before implementing a full recruiting plan, take time to consider whether to use contingent labor or a full time employee for various business needs.  Contingent Labor options include temporary employees, independent contractors, consultants, interns and other short term service providers.  

Factors to consider include:

Business Volatility:  If you serve a relatively stable client base and diverse markets, there is less risk in committing to a full time employee.  Conversely, if your industry is less predictable and subject to significant business fluctuations, you may want to consider using contingent labor to cover peak periods.  This reduces the need for reductions in force, which in turn can lead to legal claims from those that believe they were unfairly selected for the RIF.

Duration of Assignment: If the position or assignment is expected to last less than six months, you may want to consider a temporary employee or independent contractor. Assignments lasting more than six months place the employer at risk for creating an employer/employee relationship.   If the position will perform ongoing services for the organization, a full time hire may be more appropriate if there is a full time need.  If the need is ongoing, but not full time, consider a part-time employee or outsourcing.

Specialization:  If you require a specific area of expertise to service your core business, an employee is probably the best option.  For example, an FDA-regulated company should probably have their own Quality Department well versed in the intricacies of FDA requirements. They will be called on regularly to address customer or operational issues, participate in audits, etc.  Alternatively, if you need someone to help you establish an SEO (search engine optimization) program or help you identify the best location for a new plant in Eastern Europe, a consultant may be a better option. You need their expertise today, but not tomorrow.

Scarcity of Skills:  If the skill set is rare but can easily be “bought”, consider using an agency with quick quality placements, or a consultant with particular expertise.  If the skill set is rare, but critical to your business, it probably makes sense to hire this rare gem (and to work very hard to retain her).  Is having this skill set on staff worth the pay premium, even if the person won’t use a particular skill set regularly?  In some cases the answer is “yes.”  Remember to consider cross-training or a backup plan in case this rare gem leaves the company. 

Core business activities:  Traditional wisdom holds that if a function is core to your business it should be a staff position.  This makes a lot of sense for a production supervisor, customer service representative or R&D Engineer.  This also tends to make the most sense for centralized functions such as Finance, Marketing and Human Resources.  Today this paradigm is being challenged by outsourcing organizations such as B2B CFO, and yes, Roo Solutions.  Consider what degree of expertise is required on a regular basis.  If a Finance employee is focused on typical accounting activities it probably makes sense to have this Accountant or Controller on staff.  But what about a CFO?  You may only need a person for risk analysis, financial planning, etc.  a few hours per month or per year.  In this case, consider a consultant.  You may have a marketing staff needed for traditional marketing activities such as trade show management, collateral development and basic website maintenance.  It probably makes sense to have some of this capability in house.  If you are upgrading your website and have a tight deadline, or need different skill sets, consider an IT agency or contractor.

Finally, the most important factor is your time.  How much is it worth? I often think about this when I am banging my head against the computer trying to update my website.  I spend 3-4 hours per month doing something an expert could accomplish in a matter of minutes.  A similar phenomenon occurs in businesses.  I recall a situation with a company that needed to place more emphasis on marketing, but did not have a marketing department.  So what did we do?  We put together a cross-functional team that met every week to move our marketing initiatives forward.  Was it worthwhile?  Yes, ….  We put a system in place for press releases and a basic structure for newsletters and a production calendar.  but…we spent hours researching how to write press releases, develop a social media presence and create a company newsletter format.  6 or 7 people, half of whom were executives, dedicated 1 hour every Monday morning figuring out how to market.  This doesn’t include the countless hours researching and working on our individual assignments.  While the direct costs might not be significant, the soft costs can be huge.  What could we have been doing with that time?  Remember to consider the opportunity cost.  Time cannot be recovered… In many cases our intern got us farther, faster than a group of us working together.  We could have gone even farther by hiring an intern or consultant.  If time to market or production is critical, consider an outside expert.   If you are working on a non-mission critical project with no firm deadline, a cross-functional project team can be a great way for staff to develop new skills working on a relatively “safe project.”

By intentionally considering these factors, you can make the right investments in people and move forward with key initiatives quickly.  Wishing each of you a prosperous 2011.

Kelly Rietow specializes in creating practical systems and tools that fit the culture, engage the workforce and develop organizational capabilities. For details Contact Kelly at 763.228.8496 or roosolutions@comcast.net

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Lean Leader of the Month: Mary Jo Kline

Nystrom, a trusted name in the commercial construction industry for more than six decades, specializes in providing complementary commercial building products and services - those miscellaneous and specialty items that are not normally of highest priority but are essential components in any building project.

Whether you need roof hatches, smoke vents, expansion joints, access doors, floor doors, louvers, fire safety, safety railing systems, entrance mats and grilles, stair nosings, or wall protection – Nystrom is your single source solution. Architects, specifiers, general contractors, and contractors not only rely on Nystrom for a direct, hassle-free experience – but for the pride in workmanship and service that comes with each and every customer we serve.

Nystrom has the right products, at the right place, at the right time.

Where did you receive your Lean training/experience?

The majority of my training was from Manufacturers Alliance workshops, The Lean Enterprise Institute, and Manufacturers Alliance monthly educational programs. Shortly, after providing Lean concept training that included the Toast Kaizen video I was making toast in our company cafeteria.  One of the production workers approached me and suggested I clean the sink rather than waste time while waiting for the toast.  A little embarrassed I agreed he was right and proceeded to clean the sink. Clearly, I learned the lesson of needing to walk the talk. 

How long have you been personally responsible for Lean Implementation?

In a previous position, I had been responsible for implementing ISO at several locations across the US as well as being a lead auditor.  My first exposure to Lean was about five years ago while managing Customer Support.  I moved into my role as Continuous Improvement Operations Manager two years ago.

What were the lessons learned from leading or training your team on a Lean project?

On one of our projects, we were making a change from batch processing to one-piece flow.  By flowcharting the process it was very easy to show the wasted motion, handling the same document three and four times as well as wasted time looking for documents.

I have found that listening to the individual’s objection and finding an acceptable solution was important to move forward. It was important the objector was involved with the solution.  Even when all objections had been uncovered, a few would surface. By demonstrating, the process change resulted in making their daily tasks less stressful by freeing up time the major paradigm shift began to occur.   Once all roadblocks had been removed, we had a successful implementation.  

What are the next steps in the Lean journey for your company?

Our next steps on our Lean journey will be bringing lean to the sales quoting process.  We plan to minimize the amount of time to create a quote, eliminate double entry by moving to one system, automate pricing and develop standard work.

How would you describe peer-to-peer education & training to your colleague?

Peer-to-peer learning is an opportunity to share ideas, learn and expand how we think. It is easy to be caught up in not being able to see the forest through the trees.

Interested in becoming a Lean Leader? First learn how to lead and train others in Continuous Improvement in the Manufacturers Alliance Lean Leader Certification then share your experiences with us by emailing kirbys@mfrall.com.

Mary Jo Kline is the Continuous Improvement Operations Manager at Nystrom in Brooklyn Park, MN.

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Book Review: Velocity*

You can drive a screw with a hammer, but a screwdriver will probably work better. You may even need to drill a pilot hole so you don’t split the wood or break the screw. Using the right tool for the job applies to improvement methodologies as well.

There are many well intentioned, impassioned advocates for each of the three big improvement philosophies: Lean, Six Sigma, and Theory of Constraints. Practitioners will each tell you with absolute conviction that theirs is the only true path to successful and continuous improvement. They are all wrong; different problems may need different solutions. Which one should we use? Are our current problems compounded by our choice of methodologies and tools or are we just not trying hard enough? This issue is frequently compounded by people who refuse to believe that after all the time and effort (and money) invested, they should change direction and try something else.

Velocity provides us with a variety of situations where one of the three methodologies is more appropriate than another. The book is written as a business novel. One of the authors, Jeff Cox, was one of the co-authors of The Goal, the well known novel about Theory of Constraints. Most business novels like this have some form of conflict that must be resolved by the end of the book. In this case, the conflict is created primarily from the misapplication of Lean and Six Sigma Tools. A fictional company, Hi-T Composites, has been purchased by a firm with an almost zealous devotion to Lean and Six Sigma. Hi-T had been successful before the acquisition, with improvements credited to using Theory of Constraints. Then, the new owners bring someone in to implement Lean and Six Sigma tools. Many very successful projects are completed, but the performance of the company starts to decline through ever- increasing inventories and higher operating costs. In the end, the key managers begin to understand situations where each of the tools are appropriate to use, and adjust their improvement activities accordingly.

Not surprisingly, the authors imply that Theory of Constraints is really the most important of the three; the book is written by folks from the Goldratt Institute – primary adherents of TOC. Nonetheless, the book does a very good job discussing the differences between, and unique strengths of each methodology. The situations described in the book provide insight into how the methodologies can be used to support each other and when one might be more appropriate to apply than another.

The book is well written and easy to read. The story lines between the characters provide a pleasant diversion for the reader without being a distraction. The book is appropriate for any organization wrestling with making a choice between improvement methodologies.

*Dee Jacob, Suzan Bergland and Jeff Cox: Velocity: Combining Lean, Six Sigma and the Theory of Constraints to Achieve Breakthrough Performance. New York, NY: Free Press, 2010

John Hehre is a senior operations executive and provides interim management and project based consulting to mid-sized private companies in need of transformative change. He can be reached at jhehre@cprocess.com.

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