In a previous post I made the following comment: “Trend always abates during periods of layoffs and downsizing. Why? Because such things impact older workers especially.”
That comment generated some questions so I thought I’d explain this phenomenon.
Why do layoffs lead to lower trend for a company? Three reasons. First, layoffs almost always hit older workers hardest. Since a 60 year old worker on the average spends about 4X more on health care than a 22 year old worker, a small reduction in older workers leads to a big drop in trend.
Second, during periods of job insecurity in a company, many times people will defer elective surgery out of fear, a very normal reaction. If a small number of people defer expensive surgery it can make a company’s trend look lower. (Remember most surgery is “elective”, meaning non-emergent.)
Third, layoffs tend to impact the less productive workers, who are often very heavy spenders on health care.
If a company has done “right sizing”, layoffs, down sizing, staff reductions, etc, then for the next several years such companies will very probably experience a period of low increases in cost of their health plans.
Inasmuch as many HR and benefit executives do not understand this well, they can sometimes attribute the lower trend to whatever other cost control mechanisms they have coincidentally implemented, such as a new wellness vendor. When a company tells me they have experienced very unusually low trend, the first thing I ask is if they have had staff reductions in the past few years.
Of course the reverse can be true too. If a company has low turnover and is not growing and hiring, it can have higher than average trend.
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If you pre-order now you’ll receive your copy first.
Tom Emerick is the President of Emerick Consulting, LLC, and Partner and Chief Strategy Officer with Laurus Strategies, a Chicago-based consulting firm, and co-founder of Edison Health. Prior to starting his consulting career, Tom was with Walmart Stores, where his last position was Vice President, Global Benefit Design, which involved designing and managing benefits for over 1.3 million employees in the U.S., and 300,000 plus in international. For about six years, Tom also headed up Walmart’s Six Sigma and process improvement initiatives. Prior to Walmart, Tom had positions with Burger King Corporation, British Petroleum, and American Fidelity Assurance Company. In 2009, Tom was named by Healthspottr as one of the top 100 innovators in healthcare in the US for his work on medical ethics. In December 2012, Tom was listed in Forbes.com as one of 13 unsung heroes changing healthcare forever.