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Higher worker co-pays, reduction in coverage, common; some companies dropping medical benefits entirely. Plus: Interpublic to restate a third time, more jumbo debt offerings, and Tyco's shareholders love Bermuda.
Stephen Taub, CFO.com | US
March 7, 2003
Health-care costs in 2002 jumped more than many companies projected.
Although health-care benefit costs have soared for several years now, nearly half (45 percent) of employers reported that their health-care costs exceeded their budgets in 2002, according The Eighth Annual Watson Wyatt/WBGH Survey, released by Watson Wyatt Worldwide and the Washington Business Group on Health (WBGH).
Just 13 percent of the corporate respondents said the cost came in under budget.
Health-care costs are expected to jump another 15 percent this year.
Many employers in the survey are looking to pass those increases on to others. Just 32 percent of the respondents said they are able or willing to absorb increases in medical-benefit costs, compared with 52 percent who said so in 2000.
"Health-care costs are hitting companies' bottom lines hard, and the situation appears to be getting worse, not better," said Maureen Cotter, global group and health-care practice director at Watson Wyatt. "These rising costs are impacting companies' balance sheets, eroding employee satisfaction, and forcing benefit managers to explore new approaches to controlling costs. Unfortunately, for most employers, relief is nowhere in sight."
What do companies plan to do about the recent huge increases in health-care costs?
No surprise here: 83 percent of the surveyed companies indicated they would increase employee premium contributions. Another 80 percent plan to increase employee co-pays/cost-sharing.
And one-third of the respondents said they plan to reduce or eliminate coverage.
Nearly half (45 percent) said they will add or configure coverage.
In another survey released Thursday, half of the employers polled stated that the cost of health insurance influenced recent decisions about their workforce levels. This was reflected either in layoffs or in not hiring additional staff.
What's more, half of employers surveyed said they have recently increased employee health-insurance contributions or employee out-of-pocket health-insurance costs.
And nearly 60 percent of those who responded indicated they had to trim employee health-insurance benefits or changed health plans in the past three years to slow the cost escalation.
This survey was an E-mail poll of SMC Business Councils member companies. SMC is a nonprofit trade association representing nearly 5,000 small-business employers in western and central Pennsylvania.
And yet another health-care-related report released on Thursday seemed to indicate one major reason costs have been skyrocketing.
It seems that 10 percent of employees—those who file occupational or nonoccupational disability claims—drive 55 percent of employee medical costs and up to 66 percent of all medical, disability, and workers' compensation costs combined, according to UnumProvident Corp.
"The key corporate implication reflected by this research is that a strategic approach to return-to-work planning can impact the duration of disability and make a bottom-line difference," said Ralph Mohney, senior vice president of UnumProvident. "However, it is up to employers to direct this impact through a combination of effective benefit plans and defined return-to-work programs that support workplace productivity."
CFOs at Private Companies Seek Better Governance, Too
While investors, regulators, and executives are focusing on how public companies will comply with new accounting and governance practices, chief financial officers at privately held companies are also looking to up their reporting standards.
More than half (58 percent) of 1,400 chief financial officers at closely held companies said they are implementing new practices in response to these regulations, according to Robert Half Management Resources.
For example, 44 percent of the 58 percent said they plan to review or change current accounting procedures.
In addition, 36 percent said they will create or expand internal-audit functions.
Nearly one-quarter (23 percent) said they will hire an independent firm for consulting work, while 8 percent said they will restructure executive-compensation plans.
Thirty-seven percent of the CFOs polled indicated they are not taking any of the above steps, and 5 percent do not know what steps, if any, they would take, according to the survey.
"Although recent changes to accounting regulations have been directed toward public companies, privately held firms are also closely scrutinizing financial processes in the wake of corporate scandals," said Paul McDonald, executive director of Robert Half Management Resources. "Private businesses need to be aware of areas in which vulnerabilities may exist within their organizations."
(To find out how lesser-known provisions of the Sarbanes-Oxley Act could affect both public and private companies, click here.)
Third Time the Charm for Interpublic?
It's a hat trick for Interpublic Group of Cos.
The world's second-largest owner of advertising agencies has restated results—for the third time in a year.
The company said it identified an additional $135.8 million of pretax charges in the fourth quarter. The charges, primarily noncash, relate to asset impairments and other operating expenses at Octagon Motor Sports.
The company's management said that because the events that triggered the impairment occurred in the third quarter, charges of $132.1 million were appropriately recorded by restating the third quarter of 2002. The remaining $3.7 million of charges relate to prior periods from 2001 and 2002.
As part of the company's broad-based review of its balance sheet, $29.9 million of pretax charges not related to Octagon were identified and recorded in prior periods in the years 1997 to 2002, principally reflecting adjustments to intangible asset amortization, purchase accounting, and other items.
"While not material to any individual prior period, these charges would have been material in the aggregate if recognized in the fourth quarter of 2002 due to abnormally low earnings in the quarter," the company's management added.
Back in November the company said it found $61.3 million in expenses that it had not previously accounted for the prior month when it restated results for around $120 million.
In January Interpublic announced that the Securities and Exchange Commission had launched a formal investigation into the company's bookkeeping.
Three Underwritings for $3.65 Billion
With interest rates continuing to creep lower, more and more companies are taking advantage by raising huge sums of money in the debt markets.
On Thursday alone at least three companies launched jumbo bond offerings.
Travelers Property Casualty Corp., the third-largest U.S. property-and-liability insurer, raised $1.4 billion in a three-part private placement.
Travelers issued $400 million of 5-year notes, $500 million of 10-year notes, and another $500 million of 30-year bonds. All of the issues were rated A2 by Moody's and A-minus by Standard & Poor's.
TXU Energy Co., a unit of Dallas utility TXU Corp., raised $1.25 billion in two-part notes in the private placement market, up from an originally planned $700 million.
TXU issued $250 million in 5-year notes, priced at 353.5 basis points over comparable Treasuries, and $1 billion in 10-year notes, priced at nearly 335 points over Treasuries. Both issues were rated Baa2 by Moody's and BBB by S&P.
And The Federal Home Loan Bank system priced $1 billion of three-year notes, priced at par to yield 2.5 percent.
Last week DIRECTV Holdings LLC issued $1.4 billion of 10-year senior notes in the private placement market, while private investment firm BP Capital Markets Plc raised $1 billion in two-part global notes.
In addition, Tyco said four new members were voted to the board of directors. They include H. Carl McCall, former comptroller of New York State, and Sandra S. Wijnberg, senior vice president and chief financial officer at Marsh & McLennan Cos.
The executives reportedly refused to comply with the subpoenas and are apparently trying to delay their testimony until they can coordinate evidence requests stemming from investor suits.
The four accountants will work with the SEC's chief accountant. According to the SEC, the four will be involved in the study and development of rule proposals under the federal securities laws, liaison with the professional accounting and auditing standards setting bodies, and consult with registrants on accounting and reporting matters.