A strong partnership between HR and finance is increasingly important as companies struggle to lower costs and comply with healthcare reform.
Irene McKenna and her team at DirecTV were concerned: The company's healthcare costs were rising more rapidly than anticipated, threatening its ability to provide affordable health benefits to its 16,000 U.S. employees.
Many companies have responded to escalating healthcare costs by raising employee deductibles and copays. But McKenna knew cost-cutting alone was not the answer.
"We put a high priority here on providing great benefits," says McKenna, DirecTV's vice president of compensation, benefits and HRIS. "If we don't get the balance right between managing costs and providing value to our employees, we are not going to achieve our business goals."
Luckily for DirecTV, HR had access to a new, sophisticated data warehouse to help determine why the El Segundo, Calif.-based company's healthcare costs were rising so quickly. The tool helped HR break out costs among different employee groups and geographic regions to identify cost drivers. The findings led it to do some targeted outreach.
"We discovered that many of our call-center employees were using the ER for non-emergency care, which really drives up costs," she says. "We got local medical providers to meet with employees in regions with high non-emergency ER utilization to talk to them about the importance of preventive care. We talked to employees about cheaper alternatives to the ER, like urgent-care centers. We also hired an on-site nurse for one of our call centers."
It's too soon to tell whether these efforts will have a long-term impact on costs. But McKenna is grateful for the fact that the data warehouse has helped the company establish a credible baseline.
"We'd been mining claims data before, but the warehouse lets us receive the information in a more timely fashion, so we can better target our outreach efforts," she says.
The tool was created as a result of meetings between HR and finance to discuss what the company needed to do to track healthcare costs and prepare for the just-passed Patient Protection and Affordable Care Act.
McKenna says the meeting is symptomatic of an especially close partnership between DirecTV's HR and finance departments -- so close, in fact, that job candidates for the HR function are interviewed by finance, and vice versa. Employees in HR and finance are also encouraged to rotate between the two functions on a regular basis.
"We have that common mind-set, where we think of ourselves as one team," says McKenna, who began her own career in finance before moving to HR.
A close partnership between HR and finance -- like the one at DirecTV -- on managing health costs is increasingly necessary, experts say, as companies struggle to comply with PPACA mandates and hold down surging healthcare costs while encouraging employees to get healthier. The stakes are high, not least because surveys consistently show health benefits are second only to paychecks in the value assigned to them by employees.
However, such partnerships can be complicated by the fact that the two functions are often far apart on what priorities the organization should have. HR is often convinced that finance people regard health benefits -- and indeed, employees -- as cost centers, without real value to the business. CFOs and finance, meanwhile, see HR operating in a vacuum, delivering information that has little actual value in terms of what the business needs.
"One of the things we see is that benefits people don't speak the language of finance," says Ania Krasniewska, senior director of compensation and benefits programs at The Corporate Executive Board, an Arlington, Va.-based consulting firm. "They just tend to throw in a lot of information and see what sticks."
Bridging the Gaps
Chief financial officers may be focused on the bottom line, but not necessarily to the exclusion of employees' well-being. A survey of CFOs by the San Francisco-based Integrated Benefits Institute -- titled Making Health the CFO's Business -- found the majority of them believe poor employee health has a significant impact on their organizations' financial success, suggesting that HR leaders who make an effort to understand the metrics most valued by their CFOs will make more headway in getting funding for employee health initiatives.
Another survey, this one conducted late last year by Towers Watson, of 300 HR and finance executives finds that both groups expect the effects of healthcare reform will require greater collaboration between the two departments with respect to total rewards, including health benefits.
Surprisingly, the survey finds that more HR executives (82 percent) emphasize cost in making decisions about healthcare reform, compared to 69 percent of finance executives.
The genesis for the Towers Watson study -- titled Joining Forces: Forging an HR/Finance Partnership to Shape Rewards for the Future -- partly arose from the contradictory viewpoints between HR and finance leaders regarding whether their companies would continue offering healthcare benefits in the wake of PPACA, says Randall Abbott, a senior group benefits consultant at Towers Watson in Chicago.
"I was speaking at various events around the country, to groups of HR people and then to CFOs and, in those meetings, I would take a straw vote of whether they expected to continue sponsoring healthcare benefits in the wake of reform," he says. "The vast majority of the HR folks said their companies would continue sponsoring it, but the finance people tended to say 'No, we're getting out of healthcare benefits.' "
Abbott expected that the survey -- conducted roughly six months after the informal surveys -- would reveal a similar divide between finance and HR. Yet the results showed a "remarkable convergence" between HR and finance on the importance of continuing to provide healthcare benefits, he says.
"I attribute this convergence to the fact that a lot of the finance people had started getting immersed in the health topic and had begun to understand that it's not the black-and-white issue they initially thought it was," he says.
Thomas Parry, president of the IBI, says the data gleaned by his survey also demonstrates that CFOs "get" the importance of a healthy workforce.
"This group of CFOs sees health as really important to their organizations," he says. "They understand that link between health, productivity and business success."
Where the real gap lies, says Parry, is the information that CFOs say they need regarding workforce health versus the data that's actually given them by HR.
"The breadth of the information they said would be useful is staggering," he says.
The CFOs said useful data ranged from statistics on employee productivity, to how health impacts performance to employee-satisfaction survey results. Yet, when the IBI survey asked them what information was actually available to them, they cited much narrower resources.
"They had access to sick-leave information, and that's valuable, but on these other dimensions -- like the impact of health on productivity -- that information is not yet available," he says.
The IBI itself offers some tools to help organizations monitor the impact of employee health on productivity, says Parry, but HR should also not overlook the importance of "self-reported" information, including employee-satisfaction surveys.
Informational quality aside, a close working relationship between HR and finance will only come about when the mutual distrust that often exists between the two functions is eliminated, or at least managed, says Abbott.
"I've actually been in meetings where the CEO will turn to the heads of HR and finance, ask them a question about costs, and it's clear the two of them have not communicated," he says. "I've seen the CEO stop the meeting and say 'You guys figure it out, get a shared view, and then come back to me.' "
"People -- HR people, especially -- tend to think that a meeting with finance means they're going to be asked to cut something," says Krasniewska.
What HR needs to understand, says Abbott, is that finance people tend to have a broader view of the business than HR does.
"Finance is looking across the spectrum -- at financial results, obviously, but also at labor costs within the structure and how all the pieces fit together," he says. "HR is quickly coming to realize that they really need to be engaged in that broader process."
Making the Case
Most CFOs understand that absences can hurt the organization, says Parry. What HR needs to do, he says, is convey the impact that health-related absences have on the bottom line in a visceral way that grabs their attention.
"One of the seminal experiences at IBI was when we worked with one of the Big Three automakers on a health-and-productivity study and found that this company had a 25-percent absenteeism rate," he says. "When we calculated how much revenue 25 percent of your workers could generate, that number was 10 times bigger than their entire group-health spend."
A beverage company the Corporate Executive Board worked with was able to tie improvements in the wellness of its delivery-truck drivers with the number of kegs that could be delivered to convenience stores, says Krasniewska.
"They were able to show that a healthy driver can deliver 10-percent more kegs in one run than a driver who is not," she says.
Another CEB client -- a hospital -- was able to show that more-engaged employees had a direct correlation with better outcomes among hospital patients. "If you can move discussions about health initiatives away from this sort of abstract concept to outcomes that people really care about, like lives saved or beer kegs delivered, it makes the business case go so much easier," she says.
Another thing welcomed by CFOs: HR leaders who are decisive and trust their own instincts, says Brian Kropp, the CEB's managing director.
"What I often hear from finance is frustration that HR leaders will typically say, 'Let me get back to you on that' when they're pressed to make a decision," he says. "HR and benefits executives tend to be a bit too hesitant in their willingness to say 'Here's the decision I would make.' HR needs to realize they are business leaders in the company, that their insight and input is just as important as the CFO's or the general manager's."
CFOs aren't the only important audience for a numbers-based approach to healthcare management. At Cincinnati-based American Financial Group, Assistant Vice President for Corporate Services Scott Beeken says HR and finance worked closely together to assemble data that would convince AFG's employees of the benefits of switching to a high-deductible health plan.
When the company decided to end its traditional low-deductible indemnity health plan and make its existing HD plan (in which 75 percent of its employees were already enrolled) its sole healthcare offering, it was no surprise that many of the affected employees had some reservations.
"There's always resistance by employees to high-deductible plans -- they always predict they're going to get hit by a bus and have these big medical expenses," says Beeken, whose background includes stints in legal and finance.
In reality, the company's data showed that only one out of 20 employees would visit a hospital in any given year, he says.
"If you look at healthcare benefits from a pure financial perspective, the bias you normally have is that account-based plans are the most cost-effective because most employees are not going to have much in the way of claims costs in a given year," says Beeken.
Selling the new plan required lots of education, he says.
"We started out right away being very transparent -- that we're a self-insured company, that we are, in effect, our own risk pool and that if we can stay healthy, avoid the hospital and unnecessary medical procedures, it's a win-win for everyone," says Beeken.
Another tack involved changing employees' perceptions about traditional health plans. "Most people tend not to look at health insurance the way they do other forms of insurance," he says. "They don't put the pieces together: That if you're in a low-deductible indemnity plan, you are -- in effect -- subsidizing your colleagues, who may smoke, over-eat or engage in other risky behaviors."
In a high-deductible plan, Beeken told them, they're still risk-sharing -- but with themselves, not people whose behavior they have no control over.
"Once they get that, it changes their thinking a bit," he says. "They understand they're always going to need healthcare and it's going to grow more important as they get older, but with a health-savings account, they can take money during the good years and save it for when they need it in their later years."
AFG also shared with employees that last year, for example, workers accumulated a total of $5 million in their HSAs between the company's contributions and what they put aside themselves. "Based on my experience, we're pretty far out there in terms of putting this emphasis on the wealth-accumulation side," says Beeken.
A strong relationship between HR and the CFO is more likely to develop when HR does its homework, says Kathleen Federico, chief human resources officer at The Mentor Network, a 27,000-employee organization with operations in 36 states that provide counseling and rehabilitation services to children and adults.
Federico, who spoke at a Conference Board panel on HR/finance collaboration organized by Abbott earlier this year, says her department has a "very strong" relationship with finance.
"It's important that HR show up at the table not abdicating the financial aspect, but owning it, and having a strong understanding of the business' goals," she says. Federico and her team work closely with MENTOR's outside benefits consultant in analyzing the financial ramifications of new plan designs for the organization's "highly distributed" workforce before presenting them to finance and asking them to verify the initial findings.
This numbers-oriented approach is more likely to get buy-in from the organization's leadership, not just finance, says Federico. "It can't just be 'We want an engaged workforce,' " she says. "It's about driving a direct line between what you're proposing and how that will drive performance."