Social Security Reform Revisited

This past week, President Bush resurrected the issue of Social Security Reform. As part of this political season, it seems he wants to flex some presidential muscle by attempting to re-establish his core initiatives which have stalled in congress over the past 6 years. Clearly, the war on terror has made a robust domestic agenda difficult.

On the topic of Social Security Reform, much has been written - particularly on privatization. I wrote something in a comment on SystematicHR back in April before becoming a regular contributor. The general SystematicHR readership has grown since then. For some, posting it here again will be a repeat, but many of the readers of this blog get only the daily subscription and do not visit the site to read the comments, so for them this will be new.

So in recognition of the resurrection of Social Security Reform I give you:

Social Security - Private Ownership, Government Control

In 2004, the California Public Employees’ Retirement System (“CalPERS”) sought to oust the Chairman of Safeway foods, who happened to battle against the large union group represented by the CalPERS president. Columnist Dan Walters stated “What’s happening with CalPERS….is part of a larger, nationwide effort by labor unions to gain leverage with corporations by wielding investment power of public pension fund.”

I was able to learn this from the website of the California State Senate Republican Caucus. It seems they are concerned about “activism” in the management of monies for a public trust fund. And apparently with good reason; the “responsible investing” money management style which CalPERS follows may actually cause earnings to drag, and cost the people of California more in the long run.

CalPERS has a long history of using its political clout to pressure corporations to abide by CalPERS criteria that have nothing to do with investment returns. Clearly, the threat of divestiture of any particular company’s stock and the resultant decline in the stock value is powerful leverage for CalPERS.

According to the California Republican Caucus, CalPERS uses this power to “promote social and political agendas such as affordable housing, international human rights, affordable healthcare, and environmental activism.” This is, evidently, counter to the California Republican Party platform.

So how, exactly does CalPERS have so much power? Through two primary means CalPERS is able to influence corporate policy. Without getting too complicated, CalPERS can either threaten to divest it’s investment in a company (sell all their stock and drive the price down as a result), or through the voting of the “proxies”, remove board members or the chairman him/herself.

CalPERS is able to do this because as of the end of 2004, The CalPERS trust fund was valued at almost $190 billion dollars. A staggering amount to be sure.

This brings me to the primary point of this article: Social Security. The current proposals to “save” Social Security allow for individual accounts which would be invested in a mix of stock and bond funds. Individuals investing in this manner would not have direct ownership in individual company stock, but rather a “pool” of investments. The money managers of these funds would decide in what companies to invest. The money manager would also be responsible for the voting of the company stock shares or “proxies.” This is pretty much how it currently works if you invest in a mutual fund either individually or through a company 401(k) plan.

Maybe you can see where this is headed.

As applies to the Social Security Trust fund, these funds would be managed not by private mutual fund companies, but by government employees: no doubt political appointees. Well certainly, the Social Security trust fund couldn’t exercise as much clout as CalPERS, could it? I mean, CalPERS has amassed billions over the years.

In a word, yes. The Social Security trust fund could exercise that much clout, and more. To put it into perspective, the additions to the trust fund in 2004 as a result of payroll taxes was $472 billion. That’s 2.5 times the entire CalPERS fund added to Social Security in only one year.

Different current proposals for SS reform provide for different rules. For example, one proposal would allow approximately 2/3 of total employee contributions to be invested in this way. The proposal is silent on the employer portion, but let’s assume that the employer portion will not be invested in stocks. A quick calculation reveals that conservatively, $158 billion a year would be invested in stock and bond funds. That’s nearly the equivalent of a CalPERS being created every year. Talk about the potential for political and social activism!

Oddly, there is precious little detail in the proposals being bandied about. The hook seems to be simply “It’s your money, shouldn’t you be in control of it?” It seems that with this mantra, detail isn’t really needed.

One thing is clear, however, regardless of the details, through the Social Security trust fund, the Federal Government would become the single biggest investor in the stock market on the planet. OK, well, technically I suppose you could say the government would not be the owners, rather the American people: the account holders. So let’s amend the above statement:

The Federal Government would be the single biggest controller of business on the planet.

Private Ownership, Government Control

Regardless of your political leanings, is this what you want; the potential, nay the probability, that the Social Security trust fund would be used for activism at the whim of the controlling party?

“Fascism should more properly be called corporatism, since it is the merger of state and corporate power.” Benito Mussolini is credited with that quote. And he should know.

About the author – Donald Glade is President and Founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service partnerships through relationship management, financial analysis, and process improvement.

Hewitt’s Lessons Learned

From time to time companies exhibit moments of organizational maturity not often enough seen in the market. This week’s moment comes to us courtesy of Hewitt Associates’ Mike Wright, global HRO sales co-leader, during his presentation last month at the Conference Board’s 2006 Human Resource Outsourcing Conference in Chicago.

Thank you (again) to Jessica Marquez at Workforce.com for bringing this to our attention with her fine and timely reporting in a piece entitled Hewitt Shifts Course After Recent Missteps. I write about it today not merely as a follow up to my previous articles here and here, but rather because Mike Wright’s comments are shocking in their clarity and instructive anyone looking at the HRO business today.

The article and Wright’s comments actually provide material for me to do a multi-part series over the next two months, but come to think of it, much of what is said I’ve already written about. In any case, it’s refreshing to see a service provider to recognize these lessons that Hewitt has seemingly learned (that’s learnt for those of you across The Pond):

• Clients need to be intimately involved in the conversion process
• Aligning goals and expectations (managing expectations) is also crucial to success
• Clients need to take a close at the staffing and delivery model in the Retained Organization to maximize economic benefit
• The “lift and shift” model doesn’t work!
• Full customization is a rat hole; think “one to many” or “flexibility in a box”
• HRO should be more about a two-way dialogue and less about “Yes, we can do that”
• Service providers could do well with a dose of humility every now and again

I’d like, now, to take a closer look at each of these lessons.

Client involvement

Wright acknowledges that in the past, Hewitt has had a tendency to try to plow through problems encountered in an insular way. After all, as the leader in outsourcing they could figure out the solutions, right? Now, Wright stresses the importance of involving the client in the process more, including having customers visit its service centers and offer ideas on how to address problems.

For many of us, this is not a revolutionary idea. In fact, as a standard, I recommend that clients retain legacy staff long enough into the “post-implementation shake out” to have staff at the vendor service center for at least a month after go-live just to walk the floor. They should be listening in on phone calls, recommending improvements to process, reviewing help text, performing culture training, etc. This is true client involvement that can help ensure a successful relationship from the beginning.

Aligning Goals and Expectations
As I’ve written before, managing expectations is critical to success. After all, at its root success is defined as a function of the attainment of expectations, isn’t it? It’s about more than just hitting the SLAs that have been agreed to. It’s about determining the SLAs in a collaborative way. It’s about determining roles and responsibilities. It’s about defining the future state and being nimble enough to make adjustments to it.

Unfortunately, I don’t think it’s about putting language in the contract mandating staff reductions at the client in the post implementation world as Mike Wright suggests. This draconian measure will do nothing to foster collaboration, review, trust and understanding. Perhaps more helpful would be to agree to independent post implementation review to assure that an end to end structure that is “set up for success” has been created.

No client wants or should be expected to agree to staff reductions before the new environment has been entered in to. In fact, many times it is the second or third year when the environment is stabilized and staff reductions are fully realized.

Post Implementation Staffing

To elaborate further on the prior point, one of the primary ways in which clients fail to attain the financial goals set out in outsourcing is to make the necessary changes to the internal environment after outsourcing has been implemented. Too many times staff and functions are retained which create redundancies in process, add cost and increase risk.This basic concept has been noted and highlighted in the cost findings of TCO studies I have conducted. Collaboration and clear definition of roles and responsibilities are the way to address this, not mandated staff reductions.

The “lift and shift” model doesn’t work!

From the Marquez article: “Probably the biggest lesson learned for Hewitt is that the “lift and shift” model, whereby it would just take over a buyer’s HR processes and attempt to do them cheaper, doesn’t work, Wright said.”

Ummmmmmm……I’m shocked! Really? Can this be so? You mean you can’t do it better / faster / cheaper on day one for 20% less than it costs me now? Say it ain’t so!! You mean you won’t bring me additional cost savings / scale / leverage / best practices in year two?

OK, I am showing my bias here. This has been my belief for years. Ever since I saw PwC try to implement lift and shift years ago for an unnamed Atlanta based client (some of my readers are cringing as they remember the fiasco, I’m sure). The approach is rife with inherent weaknesses and problems. Also, as we are seeing throughout the market, it also dooms the service providers to deep financial losses. So what is the answer:

One to Many Processing

For providers to make money, and clients to get the best service and best practice that is promised, it is my belief that the “one-to-many” model is an absolute must. Flexible, scalable, and leverage-able systems and process that isn’t reinvented with every client can allow for true improvement in process and does not make every system enhancement or upgrade a one-off fire drill for every client. How can a service provider claim economies of scale if every implementation is a one off, unique environment?

As I said a few weeks ago, for Hewitt to turn the corner (if they aren’t on the auction block), I believe the answer is flexibility in the Cyborg box. It is a risky venture, but one I believe can be the best answer to ADPs as yet un-challenged Enterprise-based outsourcing model.

HRO is not about “Yes, we can do that”

Of course, when we begin talking about a one-to-many model, over-customization is just not possible. Trade offs will be made, and the vendor will have to say no. The Culture of Accommodation can begin to be broken!

Service providers could do well with a dose of humility every now and again

Again, from the Marquez article: “I come to you pretty humbly this morning,” Wright told attendees, noting the troubles the company has had.

Anyone who knows Hewitt realizes that this could not have been easy for Mike. In fact, it would not have been easy for representatives of most service organizations. I can only imagine that the commitment to speak at the conference was made before the very public “challenges” Hewitt has recently faced.

Humbled is one way to think of it. In her subtitle, Marquez says “older and wiser.” I actually like that. But whatever you call it, if Mike’s comments and position are shared by others in the organization, we will see Hewitt attain the next level of what I like to call organizational maturity. If so, let the competition beware!

About the author – Donald Glade is President and Founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service partnerships through relationship management, financial analysis, and process improvement.

100% Claims Audits Revisited

Nearly one year ago, Double Dubs graciously asked me to be a regular contributor on this most amazing blog of his. I think all of us can agree that what he has built here is impressive. He has created a reference tool for HR professionals (both in and out of the technology space) to come research and learn. He provides links and footnotes for us to delve as deeply as we care to delve into his posting of the day.

When he asked me to contribute, he wanted me to comment on items such as vendor management and total cost of ownership (TCO). He wanted his readers to be able to learn about getting the most out of their vendor relationships. He wanted to explore the financial aspects of HR service delivery as well.

For me, the perfect opportunity to do this is provided in the area of health claims administration. I believe we are seeing an almost “perfect storm” scenario: out of control costs, questionable independence in placements, ineffective vendor management of claims processing, lack of accountability/auditability, risk management challenges, Sarbannes/Oxley, HIPAA etc.

The fact is, from a TCO and vendor management perspective, most companies don’t know what inaccurate claims are costing them, and ineffective vendor management is the rule rather than the exception. I assume you can tell by my last three postings that I am generally dissatisfied with business-as-usual claims audit from an effectiveness, independence, and general utility perspective. I have been impressed with the recognition by individuals in the market place of a driving need for claims audit services which provide real value to companies by helping to quantify and contain costs and provide the tools to better manage vendor relationships.

Last week’s post highlighted a company doing just that. This blog, I believe, should be a place people can come to learn about trends in the market, services being provided, technologies being developed, and yes, vendors providing the services. This is why last week’s post highlighted a specific company which is demonstrating “the intersection between HR Strategy and HR Technology.”

HR Best Practices is demonstrating that intersection, and my purpose in highlighting them last week was not, in the words of Romain, for “marketing/commercial intentions.” As they say, I’ve got no dog in that hunt. As for responses to posts by vendors, I would hate to think that this would become a place of edited or censored comments. I believe the source should be considered any time a comment is made. I also believe those in the vendor community can provide great value by commenting here themselves. It enables us to learn straight from the horse’s mouth, so to speak. Of course, we wouldn’t want the space to be filled with rumor and innuendo posted by anonymous screen names. That would result in a devolvement in all we hope to accomplish here.

All that being said, I did get a private e-mail response to last week’s post alerting me to another company providing seemingly similar, if not identical services to those highlighted last week. A representative of Independent Healthcare Initiatives contacted me, and after rescuing the e-mail from a seemingly overaggressive spam filter, I learned quite a bit that the readers here can probably benefit from.

I visited their website, and viewed the testimonial video. The IHI messaging is very similar to HR Best Practices. IHI also provides an ROI guarantee: actually waiving fees if they can’t demonstrate cost savings. I am looking forward to receiving a presentation over the web.
For me, this is what it’s all about: identifying a need in the marketplace and filing it! Here now are two companies who have done just that. They also stand by their services with ROI guarantees. For a company wanting to contain costs and better manage their vendors it certainly wouldn’t hurt to consider the 100% audit approach.

I’d love to develop a roster of companies providing these services. Again, as I requested last week, please drop me an e-mail or respond directly to this post to let us all know about what is going on in this space!

About the author – Donald Glade is President and Founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service partnerships through relationship management, financial analysis, and process improvement.

A Technological Approach to Claims Audit

The last two weeks I wrote about the ineffectiveness of traditional claims audit and the inherent conflict of interest some companies face when they perform such audits. This week I’d like to introduce a company that brings a different approach to the industry: HR Best Practices.

HR Best Practices was founded by Howard Gerver five or six years ago. I first met Howie 3 years ago at the 2003 HRO World Conference. From the beginning, I could tell he was one of those people who just plain “get it”. Since then I’ve found out more about his company and approach to health care claims audit. I believe it’s unique. If anyone reading this knows of other companies taking a similar approach, I’d love to know about them.
Essentially, HR Best Practices employs proprietary financial management and reconciliation tools to perform 100% audit of claims for three primary purposes:

• Cost Recovery
• Cost Containment
• Cost Avoidance

For Howie, claims audit is ROI driven. In fact, depending on the situation, I’ve seen HR Best Practices offer something I haven’t seen anywhere else in the industry: an ROI guarantee. The flexibility of the approach makes it applicable to all types of claims data. The audits can be geared towards areas such as point-in-time eligibility, dependent audit, coordination of benefits, subrogation, disease management, cost benchmarking, etc.

There are a couple of White Papers available on thier Website here and here which give some really good information and further insight on the approach and application of the technology.
As I look at it, I definitely believe it is the approach of the future, making the traditional claims audit obsolete. I assume there are other companies taking this approach, but haven’t run across them yet. As I said earlier, if there are others offering this comprehensive approach, let us know.

For now, it seems a no-brainer that this is the way to go to get a guaranteed return on investment and demonstrable cost recovery, containment and avoidance as a result.

About the author – Donald Glade is President and Founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service partnerships through relationship management, financial analysis, and process improvement.