Is Tax Free Health Care a Thing of the Past?

Friday, July 29, 2011

Representative Sandy Levin, a senior Democrat member sitting on the House Ways and Means Committee recently raised the possibility that tax deductions for health care premiums could be eliminated for high income wage earners as a means to help close the Federal budget deficit.

For the last 30 or so years, most workers have enjoyed health care deductions from employer paid wages on a tax free basis under IRC Section 125. In the mid 1980’s, as new benefits professional I implemented many Section 125 plans for my employers under a so called “cafeteria” arrangement. Today you would be hard pressed to find a large employer who did not offer health care benefits that were not tax free. Included in the 1978 tax reform legislation, the intent was to encourage employers to offer health care benefits tax free, and they did by the thousands. As is the case today, employers received and receive a deduction for their portion of health care costs and as well as other employee benefits (up to certain limits) against earnings as a normal part of “doing business”.

The benefit for employers and employees alike are significant tax savings as it applies to local*, state*, Federal, FICA and; Medicare taxes. The employer gets to forgo the employment related taxes on both the employee’s and the employer’s portion of health care premiums. The employee gets to forgo the employment related taxes on just their own portion of health care premiums. And with current health care premiums running into the hundreds and even thousands of dollars per month, the taxes saved to both parties is significant.  In addition, the value of health care benefits received by the employee and any family members is exempt from being taxed as income.  Even a modest health care procedure could have a value of tens of thousands of dollars if included as taxable income.  The downside to this is the loss of tax revenue to the local*, state*, and Federal governments. It thus becomes clear why Congress might want to look at eliminating this tax provision for at least the high income wage earners.

There are some who perceive that by taxing health care benefits, a semblance of control could be extended over the nation’s rapidly rising health care costs. Does this mean that the value of health care received within a given year would be imputed in the same manner that we currently impute the value of employer provided life insurance in excess of $50,000 annually? Or would we merely eliminate the tax exclusion of the premiums and return to the pre-1978 days? What would be the outcome of taxing the value of employer provided health care? Some employers would choose to drop coverage, some employees would choose to forgo enrolling in coverage; thus a public health care option would be created in de facto as coverage is mandated under PPACA.

*Not all local and state governments exempt premiums from local and state taxation.

Employee Engagement in an Era of High Unemployment

Friday, July 22, 2011

What is the impact of high unemployment on employee engagement? You may be surprised by the findings. Anecdotally, you might expect employee engagement to decline as lay-offs are followed by plant closings, followed by frozen 401(k)’s, and declining stock values. However, according to a Center for Creative Leadership report released in July 2010 and sponsored by Booz Allen Hamilton, employee engagement actually rose during the recent recession. According to the report’s authors, Jennifer J. Deal, Sarah Stawiski, and William A. Gentry, employee engagement reached its high point just as the economic conditions reached its low point.

How is it possible that faced with the worst economic conditions since the 1930’s Great Depression, employees are even more involved in their employers business than ever? Is it possible that those hard times brought employees and employers together? Is it possible that the worst of times brought out the best in all of us? Was it pure survival instinct? Was it some self serving interest on the part of employees, i.e., what’s in it for me crowd?

The authors agree that essential to raising and maintaining high levels of employee engagement is the role of the organization’s leadership. The authors go on to note that managers must be developed in a way to support and encourage engagement at all levels. It seems almost self-evident that managers would play a key role in employee engagement. But who are our managers? From where do managers come? Often times they are our best accountants, marketers, engineers, software developers, and technicians. Organizations promote their best talent to leadership roles, their best technical talent that is. Well, you certainly would not want to promote the poor performers, would you? Of course not!

However, mangers have to be developed and good managers have to be developed to be good managers. So where are most managers developed? In “B” schools, of course not. Reviewing the course catalogs for a few of the nations tops “B” schools I see course work in accounting, business law, economics, finance, information technology, and marketing. Wait, there is hope, here is a couple of classes in organizational behavior, human recourses, and management theories. So all hope is not lost after all.

Unfortunately, if that new manager lacks a positive role model, a mentor, a coach or continuing development to underscore the need to build and support engagement, employee engagement will not be high on their priority list. A leader in my own organization recently explained the reason why many company initiatives fall to the wayside, they get lost in the “whirlwind” of everyday phone calls, e-mails and crises. Unless employee engagement, just like quality control or customer service, is not keep in front of both managers and employees it too will become lost in the whirlwind.

Balancing Home and Work Life for Joe

Friday, July 15, 2011

In May 2011, Peter Linkow, Jan Civian, and Kathleen M. Lingle, released an international study of men and work life under the auspices of WorldatWork’s Alliance for Work-Life Progress. Funding for the study was provided by GlaxoSmithKline, Workplace Options, Bright Horizons Family Solutions, Ceridian, Dell, IBM, and WorldatWork. The crux of the study was an attempt to comprehend the obstacles which prevent many men and many organizations from taking advantage of the numerous and varied tools available to balance an employee’s work and life challenges. The study was conducted in November and December 2010 by surveying some 2,312 employees employed in large (500+, ees) organizations in: Brazil, China, India, Germany, the UK and the US. The sample included men and women and was balanced across age.

The authors reported four central findings:

1. Men and women identify equally with their work and family lives.

2. Men and women are both concerned about financial issues and the lack of time.

3. Men and women jointly perceived that they have been “punished” for utilizing work/life benefits.

4. Many business leaders continue to take an “antiquated” view of work/life benefits.

Let’s forgo the warm and fuzzy issues of parental bonding and caring for ill and aging parents; and look at balancing work and life issues from the purely economic standpoint of creating value. In order for organizations to create value for their employees, shareholders, and for society, they require resources. A large portion of those resources for most organizations come in the form of humans. Most organizations demand the best and the brightest of those resources and once organizations have obtained those best and brightest resources; organizations generally desire to retain and motivate them. Failing to attract, retain, and motivate those resources can lead to a significant downward trend in the value organizations create.

Even in today’s rattled economies, the best and the brightest continue to have options. And we are not always talking about Ph.D’s in genetic re-engineering. Skilled machine tool operators and skilled construction trades are in short supply, and these shortages are not unique to the US. So with the competition matching each other’s compensation and benefits; work-life issues could become a competitive advantage or disadvantage. While not every employee is capable of telecommuting or conducive to flex-time arrangements; the best and the brightest will gravitate to those organizations which afford them options.

So what’s the solution? There is no one single answer for every organization. What works for a machine shop may not work for a software developer. What works for a competitor down the street may not work for your organization. What works for one system engineer may not for all system engineers. It is going to take a balancing act between the needs of the organization to create value and the desires of the employee have to balance their personal life with work.

Temp to Perm: The New Employment Model

Friday, July 08, 2011

As organizations have cut back on permanent full time jobs, many employers have turned to “temps” as a means to supplement the remaining positions and to fill in when extra help is needed.  This is really not a new trend; organizations have been using “temporary workers” for decades. What may be new is that “temping” has become a permanent way of life for some.

In an era when all jobs seem to be “temporary”, the proposal that there are individuals who choose to make a career of temporary assignments may not be so absurd. When employed by a large international human resources consulting firm here in Atlanta, I once had an IS development project team which included a member who had chosen to work strictly temporary IS project assignments north of I-285. Between assignments she used the downtime to rejuvenate herself.

In a 2010 report published by the Bureau of Labor Statistics, it is estimated that by 2008 the temporary employment service industry had come to account for some 2.3 million workers. The chart below, taken from the 2010 report shows that over the period from 1990 to 2008 temporary serice workers grew exponentially while total employment gained 20% over that same 18 year period.

In addition, during this same period of time, the nature of temporary assignments changed. In the early days of the temporary service industry, the nature of the work was mainly clerical and industrial. However, by the 1990’s more and more professional roles were to be seen in the ranks of the temporary worker. Attorneys, engineers, physicians, and others could be found as “temps”.

While “Office and Administrative” job classifications continue to make up over 20% of the temporary service industry workforce, “Healthcare practitioners” now make up almost 5% of those 2.7 million workers. It might seem to the outsider that “temp” jobs pay very little, actual temporary wages mirror market place wages very closely. Take for example the average temporary salaries of “Management” workers in the temporary area at almost $98,000 in 2008.

It is true that most temporary work assignment have fewer employee benefits than permanent full time jobs. However, as the demand for temporary workers has grown, some temporary employment firms have begun to offer traditional benefits on a limited basis. Temporary workers with in-demand skills often find themselves working for temporary employment firms for extended periods of time in a similar relationship to any other employment situation.

For some individuals, the value of a temporary assignment is that they get to “try out the job” while at the same time the employer gets to “test drive” employee. The advantage is that organizations which do not fit the employee’s style are weeded out and employees who do not fit into the company’s culture are identified up front. This avoids the uncomfortable situation where a new employee has to be released and lessens the likelyhood that an employee finds themselves back on the street.

Accountable Care Organizations A.K.A. HMO?

Friday, July 01, 2011

“On March 31, 2011, the Department of Health and Human Services (HHS) released proposed new rules to help doctors, hospitals, and other providers better coordinate care for Medicare patients through Accountable Care Organizations (ACOs).” 

“Under the proposed rule, an ACO refers to a group of providers … that will work together to coordinate care for the patients they serve …. The goal of an ACO is to deliver seamless, high quality care for Medicare beneficiaries. … a patient-centered organization where the patient and providers are true partners in care decisions.”

Last year’s Patient Protection and Affordable Care Act (PPACA) provides for a number of policies to assist providers in improving patient safety and quality of care, hopefully making health care affordable. Through the Medicare Shared Savings Program, ACO’s with lower health care cost, and achieving certain performance standards, will be financially rewarded. The goal is to create incentives for providers to work together in a coordinated manner across all health care channels to provide quality and affordable health care to Medicare beneficiaries. If successful, this model could be adopted by other public plans as well as private insurers and employer’s sponsored health care plans.

Some of concepts of an Accountable Care Organization sound very similar to those of the initial attributes of the early Health Maintenance Organizations. Both organizations strive to deliver well coordinated, quality care in a cost effective manner. Philip Betbeze, writing for HealthLeaders Media, in a November 15, 2010 article was quoted as saying “standardized care is better care, and that hospitals, physician practices, rehab centers …will deliver better care if it is coordinated, and if financial penalties or rewards accrue to those organizations producing better outcomes”.  Thirty years earlier, Dustin Mackie and Robert Biblo writing in the American Journal of Law and Medicine in 1980, stated that, “the health maintenance organization (HMO), whose primary goal is to provide quality medical service in a cost efficient manner”.
 

ACO's and HMO's Both organizations have the capability to organize themselves into legal entities to provide end to end health care for individuals as well for public and private health care plans. Such organizational structures include the well known “(IPAs) while others may prefer a physician-hospital organization (PHO)”. Consider that both organizations expose themselves to financial risk by accepting the “accountability” for delivering total patient care. Likewise, HMO’s agree to accept capitation in return for meeting the HMO member’s medical needs.

The initial HMO concept of a “gate keeper” made perfect business sense up to the point when members wanted more personal choice in the selection of their primary care physician, pharmacy, hospital or physical therapist.  Forced to receive their medical care through a single sources, large numbers of employees, and their health care plan sponsoring employers abandoned HMO’s for the semblance of managed care in the form of PPO’s.

Only time will tell the fate of Accountable Care Organizations.