Darla Figoli, vice president, human resources, Xcel Energy
Darla Figoli, vice president, human resources, Xcel Energy

As more and more companies with U.S. operations rethink their retiree health benefits, they face a conundrum. Many retirees have seen their health benefit premiums rise with no appreciable increase in the benefit’s value. Yet they fear any potential change to their retiree health plan — even if the change turns out to be beneficial.

That’s one issue Xcel Energy faced last year when it decided to move from a traditional retiree health benefit plan to a private exchange that would offer retirees a variety of Medicare plan options.

“Until a few years ago, most of our retirees had gone anywhere from 10 to 25 years without seeing changes in their health care coverage,” says Darla Figoli, vice president of human resources at Xcel Energy. “So when the company introduced a new approach to retiree health care, the HR team had to wait patiently to see the response from retirees they’d hoped to see.

“It was difficult to know what to expect,” Figoli says. “We were certain the new approach would reduce financial risks and cost for the company and would allow us to reposition resources to meet the needs of active employees and the business. We also were sure the approach using Extend Health — a private Medicare exchange — provided more choices and better value for our retirees. But at the same time, it brought numerous, complex changes, so we hoped our retirees wouldn’t feel overwhelmed, confused and abandoned.”

Figoli and her team breathed easier when they saw the response from retirees — who engaged in the change and started asking how it could work for them.

A strong change management program, including a well-planned communication campaign, helped Xcel Energy retirees understand that their former employer was still looking out for their health and well-being. Retirees could access competitive medical and prescription drug programs that better fit their individual health and financial situations. The new approach helped them save money, while helping the company reduce overall benefit costs and sustain benefit offerings. Retirees were pleased.

Says Ruth Lowenthal, senior director of total rewards at Xcel Energy, “As an organization, we’re committed to making a positive difference in the communities we serve, and our retirees are very much a part of those communities. We’ve always maintained close connections with our retirees. We’re dedicated to helping them through this time of tremendous health care change and the financial challenges it brings. Our retiree benefit strategy reinforces this commitment.”

Setting the Stage

In 2010, the company faced escalating retiree medical costs. HR leaders reexamined retiree benefit coverage options in the changing market with a goal of offering retirees more cost-effective choices. It was quite a challenge, so Xcel Energy partnered with Towers Watson to develop a multiphase, long-term strategy to provide health care benefits to retirees and their dependents.

“With our long history of mergers and operating in a heavily regulated utility industry, we faced complex organizational challenges, including multiple unions and retiree groups, as well as high benefit costs,” says Hope Hudrlik, manager of health and welfare benefits at Xcel Energy. “We needed help piecing together a strong retiree health care strategy.

“It also was crucial for us to thoroughly understand the evolving health care benefit market and health care trends because we’re expecting about half of our workforce to retire within approximately 10 years. We brought in Towers Watson not only because they understand the industry and they’re change management experts, but also because they appreciate our unique culture.”

The strategy’s goals included reducing financial risks and cost for the company and retirees, aligning retiree benefits with the market and reducing HR’s administrative burden. The latter would allow leaders to reposition HR resources to better serve active employees and the business.

Just as the HR team was beginning to move forward, in March 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law.

“As it was for many other organizations, the health care reform law was a game changer for Xcel Energy,” explains Mark Bilderback, Towers Watson senior consultant. “After we helped them analyze the new regulations in depth, Xcel Energy’s HR leaders realized that the law provided an opportunity to craft new solutions to tackle existing retiree benefit challenges. So to their list of goals they added leveraging two things brought about by health care reform: improvements in the individual insurance markets and changes in Medicare Part D (prescription drug) coverage.”

Kirsten Wick, business partner, compensation, Xcel Energy, (left) with Towers Watson consultants Ann Cordner and Mark Afdahl
Kirsten Wick, business partner, compensation, Xcel Energy, (left) with Towers Watson consultants Ann Cordner and Mark Afdahl

Embarking on Change

Once the strategy was complete and approved by leaders, the HR team got to work implementing its first phase. In place of the company’s existing self-funded dental and vision benefits, the new program offered alternative, fully insured options that would reduce the company’s liability exposure. Also, there were rule changes for adding dependents to certain retiree plans. And to further reduce liabilities, the team modified prescription drug copays on the company’s self-insured retiree plans for some retiree groups.

The next phase — which pertained to the most significant part of the strategy — was exploring the feasibility of transitioning a large group of Medicare-eligible retirees and their dependents to an individual product insurance exchange in 2013. As expected, this phase involved a great deal of internal communication and change management. Members of the HR team worked with their partners in Xcel Energy’s Legal department, as well as the company’s Workforce Relations team, which develops union labor strategy. They reviewed historical documents and contract language to ensure that everyone understood exactly who would be a part of the transition.

“Some of our self-insured plan options hadn’t been designed to coordinate effectively with Medicare benefits, so they didn’t provide the best type of coverage for Medicare-eligible retirees,” says Kirsten Wick, business partner, compensation, at Xcel Energy. “We needed to look at other options, so we looked to the individual marketplace. We needed to partner with an outside vendor specializing in this type of coverage.”

With the help of Towers Watson, the team embarked on a vendor selection process. “In choosing a vendor partner, a primary focus was the retiree experience,” says Amy Burk, Towers Watson senior consultant. “This transition would require a substantial cultural shift for retirees whose premiums had been managed by Xcel Energy or deducted from their pension checks. With this in mind, we looked for a vendor that would best meet the needs of retirees and their families.”

The team decided on Extend Health. “Because of its strong partnerships with numerous insurers that offer Medicare plans, Extend Health could provide us with the most individual insurance plan options,” Wick says. “They offered a wide variety of coverage options for Medicare-eligible retirees and dependents. They also provided one-on-one support to individuals, as well as the tools to choose and enroll in individual medical and prescription drug plans. They advocated for families and helped them make smart benefit decisions.”

Once Xcel Energy had chosen Extend Health, Towers Watson consultants helped HR leaders work through a myriad of premium subsidies that retirees had in place and convert those to the appropriate levels of subsidy in the individual insurance marketplace. They examined benefit costs from both the retiree and company perspectives. The analysis allowed Xcel Energy to continue its commitment to retirees and revealed areas that needed further focus during the change management and communication campaign.

No Retiree Left Behind

“Without question, a strong communication and change management plan is the key to success when an organization makes these types of changes,” Lowenthal says. “We created a comprehensive campaign that targeted our senior leaders and our retirees.”

Hudrlik says, “We needed to engage and educate business and union leaders so they could support the changes. They needed information. So we spent a great deal of time educating leaders about the changes’ positive and negative effects. We used market data, as well as comparisons to other organizations making similar changes, to substantiate our strategy and secure leaders’ buy-in.”

It was important to help retirees understand how the changes would affect them, as well as the rationale for each change. To mitigate any confusion or fear, the team emphasized simplicity and timed the messages appropriately. “We’re a company that communicates with the workforce early and often when something is happening,” Wick says. “In this case, Towers Watson helped us realize that having a long time lapse between our first messages and the enrollment period would increase retirees’ anxiety levels about the transition. So we did everything — the announcement, education and enrollment — within a tight, three-month time frame. That turned out to be a wise decision.”

It was also imperative for the HR team to present Extend Health as the retirees’ partner during the enrollment process and beyond. “They needed to see Extend Health as their advocate, providing personalized support and expertise. We wanted them to put their trust in Extend Health and seek its guidance in choosing benefits,” Wick says.

Because of communication style preferences and computer literacy challenges among members of the retiree population, leaders decided to forgo e-mail as a communication channel and mailed printed materials. The HR team partnered with Extend Health to conduct 27 in-person, informational meetings in eight states to explain the changes to retirees and answer their questions. Nearly 3,000 people attended those meetings, including retirees, their spouses and other family members.

“Conducting face-to-face meetings with individualized coaching was very effective,” Hudrlik says. “Many retirees arrived at the presentations with fears and anxiety, but left feeling calm and reassured. Retirees tend to turn to family members for help in decision making, so we invited families to the in-person meetings. This was very important in helping our retirees fully comprehend the changes we were making and feel comfortable with the transition.”

At the heart of the communication strategy was a commitment to reach out to each and every affected retiree. “Our motto was ‘no retiree left behind,’ and we accomplished just that,” Wick says. “About 4,000 retirees and 2,000 dependents needed to enroll in a new benefit plan before the first of the year, and we reached that goal. That’s an impressive achievement for a population that hadn’t needed to make personal benefit plan selections for years or, in some cases, decades.”

Lowenthal credits the company’s strong connection to its retirees: “Most of our retirees had been long-term employees, extremely committed to Xcel Energy and our predecessor companies. The fact that they stay in close contact with us and each other makes them easy to reach.”

(Left to right) Towers Watson senior consultant Amy Burk; Ruth Lowenthal, senior director, total rewards, Xcel Energy;
Towers Watson senior consultant Mark Bilderback; and Hope Hudrlik, manager, health and welfare benefits, Xcel Energy
(Left to right) Towers Watson senior consultant Amy Burk; Ruth Lowenthal, senior director, total rewards, Xcel Energy; Towers Watson senior consultant Mark Bilderback; and Hope Hudrlik, manager, health and welfare benefits, Xcel Energy

The Road Ahead

Looking back over the past three years, Figoli views Xcel Energy’s retiree benefit strategy and the transition as hugely successful. Retirees are now partnering with a vendor that specializes in individual Medicare coverage, and Xcel Energy has reduced its long-term liability by approximately 5%. And because the HR team received such a positive response from the early phases of the implementation, they shortened the entire implementation process by one full year.

Hudrlik says, “We intended to begin executing the shift to the individual market with a small group of only 300 retirees in 2013, but we changed course midway through and moved 4,000 retirees over to individual plans. Because our company leaders were comfortable with the overall strategy, they approved this change immediately. It allowed both retirees and the company to see cost savings much earlier than we’d expected.”

Feedback from retirees has been very positive. A recent survey of Xcel Energy retirees showed that most are happy with the company’s extensive communication, the health reimbursement arrangement, and Extend Health’s personalized support and numerous offerings.

“We’re very pleased with these accomplishments, but there’s still work to be done on our retiree strategy,” Figoli says. “For our pre-65 retirees, we’ll continue to monitor the legislative environment for further guidance on defined contribution arrangements, and we’ll watch the exchange marketplace in 2014. Then we’ll work on a plan for that population for 2015 or 2016. Concurrently, we’ll be paying attention to our active employees — focusing on attraction, retention and motivation, as well as the impact of health care reform on that group.”

Hudrlik says, “Like so many other companies, we really need to look into the future and understand evolving health care trends. Thanks to our partnership with Towers Watson, we’re in a good place. I feel confident we have the tools and insight to prepare for 2014 and beyond.”

Keys to Success

Xcel Energy leaders offer recommendations for implementing a retiree medical strategy:

  • Start early, and think long term. It’s never too soon to start. And because of numerous plan changes, implementation complications and the need for thoughtful change management, the process can take a long time.
  • Secure leadership support and buy-in. Arm leaders with information, and keep them informed as you go. To support all changes being made, they need to understand the pros and cons, and be comfortable with the approach.
  • Don’t underestimate the role of change management. People often don’t anticipate how difficult change can be — especially when the change involves health care. Medical issues are deeply personal, complicated and constantly evolving. Don’t expect all retirees to understand quickly.
  • Know your audience segments and how best to reach them. Depending on the changes being made, retirees need face-to-face communication, as well as clearly written information about what’s changing and what isn’t, and a detailed explanation of how the new plans will benefit them. Time the messages carefully to prevent unnecessary anxiety and fear.
  • Communicate directly with employees and their families. Health care is typically a family decision. Many employees take care of their parents, so invite the entire family to presentations.
  • Leverage your external partners. Tap into their expertise. They understand the complex, ever-changing market, as well as the ins and outs of change management.