Hospitals and a Sky is Falling Economic Prediction

The headline from today's CFO Journal published by the Wall Street Journal was stark: "Sour Economic Outlook Weighs on CFO Spending, Expansion Plans. Let's leave off the lack of expansion plans, but focus on spending.

Consider a low-margin industry that employs highly-skilled workers in short supply -- hospitals -- in particular. Talk to heads of HR in the hospital sector. Most have nearly identical top concerns: how do I attract and retain skilled professionals? What they are obviously referring to are physicians, nurse practitioners, nurses, technologists, and technicians. These are all careers that require very specific, often extensive, education. They are all in short supply and feeling burnout. What is there to keep them around?

Direct cash is not a good option. First, as the WSJ piece suggests, CFOs just won't part with the levels of cash necessary to attract and retain. Second, and while data demonstrating this phenomenon are difficult to find, people live to their levels of income. In other words, if you have a doctor earning $200,000 per year with annual savings in his 401(k) only, if you give him a $50,000 pay increase, his savings in many cases will remain 401(k) only.

This is not good. Some day that physician is going to burn out. He may tire of a profession that has changed from being highly personal to largely impersonal. He may tire of insurers telling him how to practice medicine. He may tire of government intervention.

In any event, if he tires, he is going to do so without being prepared for retirement.

Therein may lie the key.

Prepare your skilled staff for retirement. Do it not by increasing your costs, but by reallocating your labor costs.

Most people live to (or above regardless of pay or nearly to) their paychecks. And, they want pensions.

Give them what they want. Give them a pension that checks all the boxes:

• Secure
• Lifetime Income Options Without Subsidizing the Profits of Large Insurers
• Portability
• Easy to Understand
• Professionally Managed Investments
• Stable, Predictable, and Manageable Costs

The time is now. Act while the economy is still strong and prepare yourselves and your employees for when it's not.

Using Retirement Benefits to Solve the Challenge of Hospital Sector Employment

One of my colleagues sent me an interesting article last night. It reminded me that hospitals, perhaps more than any other classification of employer in the US have particularly interesting challenges when it comes to attracting and retaining their employees, mostly professionals. And, as hospital organizations have become a primary employer of physicians, the difficulties only increase.

Let's consider the employee population of a hospital or hospital system. We can start with physicians. From a retirement compliance standpoint, they are probably all highly compensated employees (HCEs) meaning that their compensation, roughly speaking, exceeds $120,000 per year. But, not all physicians are paid the same. The general practitioners and internists, for the most part, are among the lowest paid of the group. At the other end, surgeons, cardiologists, anesthesiologists, and a group often referred to as critical care physicians are among the higher paid. Despite their pay, supply of these specialists may be less than demand. In order for a particular hospital system to meet their own demand, they need something that appeals to those physicians.

Let's turn our focus to nurses. They're often thought of as the life-blood of the hospital. They are skilled professionals, not all that highly paid, and they have a high turnover rate due to burnout. Informal survey data shows that retention of nurses is often due to one of several factors including a great work environment and great benefits.

Then there are the technicians. To someone just collecting data, they may look a lot like nurses. But digging deeper shows that they are not. They have different skill sets and different mindsets. Their pay may be similar to that of nurses, but their jobs would appear to have different stress levels. As a result, their turnover rates due to burnout seem to be lower.

And, there are the true blue collar staff in the hospitals. While they may have learned specific skills and duties that make them more valuable to hospitals than they are in other industries, in many cases, they can find other employment outside of the hospital industry. These people are generally among the lower paid in the systems and probably value straight pay and their health benefits as much as anything.

Finally, we'd be remiss in not mentioning all the other staff from the people who run the hospital systems -- the top executives -- to the administrative staff. All have usually developed specific skill sets that make them particularly valuable in a hospital system where they might not be in other industries. They tend to want to stay with a good organization, but they expect a lot before they would call that organization good.

Moreso than many other industries, what we've pointed out here is that this is a really diverse population. As a group, they are intelligent and well-educated. As a group, they have high-stress jobs. That combination leads to a need for retirement benefits.

But, how do we provide them? The top executives want to be treated as top executives. The physicians have large tax burdens and providing for their heirs that they worry about. The nurses may have relatively shorter careers and, according to data, do not always make saving for retirement a top priority early in their careers.

The current method of choice is to use a deferral sort of arrangement perhaps with a match. So, that would be a 401(k) plan or a 403(b) for some tax-exempt hospitals. There are problems galore there. The physicians complain because they just can't defer that much (maybe even less if nondiscrimination testing is a problem). The nurses who don't focus on retirement suddenly see that between their high-stress, high-turnover jobs and their neglect of their retirement plans early in their careers that retirement may never be an option. Behaviors will likely vary among the other staff.

We need other methods. Those other methods are there.

Suppose we tell the doctors that they can defer more -- a lot more. Suppose we tell the nurses and the technicians that they will still have an opportunity to defer, but that we are going to give them something akin to their matching contribution even if they forget to pay attention to retirement. Suppose we tell the executives that all that nonqualified money that's not secure and not tax-effective can be.

We might have people dying [yes, a very bad pun] to work for our system. When you become the employer of choice, work shortages are less of an issue for you, unwanted turnover is less of an issue for you, and yes, patient satisfaction and therefore profitability will improve.

You need a solution that meets all of these criteria:

• Costs are stable
• Ability for very high-paid people to defer significantly is there
• Nondiscrimination testing is easy to pass
• Benefits are portable
• Both lump sums and wholesale priced annuities (annuities from the plan as compared to from a mutual fund provider or insurer) are available

The solution lies in designs like these. Costs can be controlled through proper design. Physicians wanting larger deferrals will happily pay for their own enhancements. Because these plans test so well, nonqualified money can often be qualified. Benefits will be portable for everyone and annuities will be available without lining the pockets of insurers for any participants who want them.

it really should be the best of all worlds for hospital systems.

Attracting and Retaining -- The Role of Employer-Provided Health Care

I read the results of what I found to be an interesting survey this morning. The ADP Research Institute did a survey entitled "The Role of Employer Benefits in Building a Competitive Workforce." The good news about the survey summary is that it provides some excellent insights related to employer-provided health care benefits. The bad news is that either that's all the survey covered, or that's all the authors of the report found interesting.

In any case, according to the survey, nearly half of employers think that the health care benefits that their company provides to employees can be a differentiator when it comes to attracting and retaining employees. Fewer than 10% think that the health care benefits they provide are not particularly important in this regard (smaller employers are far more likely to say this).

Similarly, nearly half of employers think that the health care benefits that they provide to their employees are better than other companies in their industry. Only about 10% think they are worse.

Once upon a time, I was a student of high-level mathematics. I taught math at the college level. I passed actuarial exams on mathematical topics, generally with high scores, on my first attempt. The math here just doesn't work.

Perhaps when one becomes an HR leader (respondents were intended to be HR leaders), one is awarded with a pair of rose-colored glasses. If I were to take a similar survey, but ask employees rather than employers, I think that more than half of employees would say that their employer's health care plan is worse than average.

Why? Frankly, most plans have gotten worse for employees in recent years. Co-pays have increased. The employee's share of the premiums has increased.

I'm not saying that I can blame employers. Health care inflation has far outstripped general inflation and many companies, especially in a weak economy, cannot afford to pick up the inflationary increases in costs.

All that said, I am going to draw my own conclusions. I do this based on a single data point; that is, I draw it based on what I have learned in recent years by being in a health plan, talking to other people in health plans, talking to employers who sponsor health plans, and reading survey results like those from the ADP Research Institute.

In most job classifications, the primary differentiator in influencing a potential employee's decision to work for a company or not is compensation -- cash and cash-like (think equity compensation). Beyond that, it is the impression that the potential employee has gotten about what it's like to work for the company. If it's a great place to work, pay matters a little bit less. If it's a horrible place to work, you have to pay a lot. After that comes benefits. But, think about it. What do most potential employees ask about a benefits program before taking a job?

• When do I get health care benefits?
• Do you have a 401(k) plan that I can participate in?
• How much vacation time do I get?
• How much sick time do I get?

Most potential employees are not sophisticated enough to ask about the health care plan design. Even if they ask, they probably won't understand the answer. Many employees think all 401(k) plans are the same (I never believed this, but I started asking people and that is what I learned). 

Where I think that the difference in health care plans is large is in retention and in word-of-mouth recruitment. If a company has a great health care plan, its employees will talk to their friends about it. They will not be inclined to leave the company and give them up. On the other hand, if the health care plan is not good, water cooler talk will predominate. This may actually cut into productivity and those employees will certainly not recommend the company to their friends.

It's a tangled web, and clearly, HR leaders have not figured out how to untangle it. It's just my opinion, but in my blog, my opinion gets to be front and center. If your opinion is different, leave a comment, or write your own blog.