Interview with Bert Marchio
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio video between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and Bert Marchio, Finance and Strategy Executive.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
Healthcare Reform and Its Implications
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I’m here today with Bert Marchio, finance and strategy executive with over 18 years of experience in the life sciences industry for both public and private equity sponsored companies. Mr. Marchio is here to talk us today about the healthcare reformat and its impact on business. Bert, it’s nice to see you today. Thanks for being here on CFO Studio.
Marchio: Thanks for having me Andy. It’s good to be here.
Zezas: Bert, let’s talk about healthcare reform. Recently, the House voted to repeal healthcare reform act and the act that was passed last year. There’s a lot of turmoil about this topic and it’s on everyone’s mind. Where do you see healthcare reform going from this point?
Marchio: Well, the House voted to repeal, but the Republicans don’t control the Senate and we have a democratic president. So, this is going nowhere. What you’re likely to see, after this sort of political grandstand of voting for repeal, is more targeted votes that would call for elimination of the requirement that everybody have health insurance or the proper funding for Medicare advantage programs. But, the act itself is not going to be repealed. You’re also more likely to see Republicans trying to influence control of the House with how they fund programs and their view of regulations. So, although much of health-care reform was delegated to the regulatory process, that gave the administrative branch the ability to fill out the fine print, so to speak. But, they have to go in front of the committee and it’s the House that controls the funding. So, you’re not going to see it repealed. But it’s going to change, and because it’s going to change, you need to stay tuned.
Zezas: I can appreciate your perspective and the challenges from a democratic and republican perspective. So, what should companies be thinking? What should finance executives be thinking about this morass?
Marchio: Well, one thing, doing nothing from a government standpoint isn’t going to address the problem that healthcare expenditures are now 17% of the gross domestic product and they’re rising. So, you’ve got this problem that isn’t going away. Baby boomers are getting older. So, everything is just going to drive healthcare to be a greater and greater portion of the economy. Executives can’t sit back and just tinker around the edges, which is what I think we’ve been doing so far.
Zezas: What do you mean by tinker?
Marchio: Raising co-pays, raising deductibles.
Zezas: Making minor adjustments here and there.
Marchio: Making minor adjustments around the plan, but really just coming to the healthcare renewal process each year and saying, “Okay, how do we minimize the cost?” Executives need to step back and look at this strategically. What is healthcare becoming as part of my total compensation? You’ve got a shop worker who’s making $40,000 a year. His healthcare benefit can be worth $20,000 for his family. So, now I’ve got base pay that has nothing to do with performance, healthcare, which has nothing to do with performance. This is a huge pay package that has not tied into how the company performs. Companies are going to need to step back and look at all the components of compensation.
Zezas: So, not just salary bonus and raise, but how the compensation aspect of health-care affects not just the employee, but the company itself in terms of its total cost.
Marchio: Exactly, if healthcare costs are going up 10% year, the answer may be, “well, we can’t give you a raise in cash because you’re getting a raise in your healthcare benefit.” And, this involves communicating with employees and helping them understand the total picture. People forget that healthcare is a big dollar item, because it doesn’t show up on your W-2. It’s a tax free benefit, currently.
Zezas: When you say it doesn’t show up on the W-2, do employees understand the impact of healthcare costs on their employers?
Marchio: I don’t think they do. I think they value the benefit, because they understand the problems of being without healthcare. I don’t think they value the costs involved with the benefit and they don’t necessarily see how it ties into the overall health of the company. And that’s where, when I talk about looking at this strategically, what’s the compensation strategy? How much do you want your employees? And, the answer can be different, predict different segments of your employee population. Shop workers may be different than salesmen, who may be different than executives. So, you really need to break it down by groups and look at what’s the right answer for the different groups.
Zezas: What’s the right answer, while still being consistent in what you offer to your entire employee base.
Marchio: You’ve got to watch discrimination issues in terms of different groups. But it’s got to work from a business perspective.
Zezas: Okay, so employees don’t necessarily get it from a cost perspective-from the employer’s cost perspective, while at the same time, many employees, given what’s customary in this country, many employees actually see healthcare almost as an entitlement.
Marchio: They see it as an entitlement and unfortunately the fine line that employers have to walk, especially with one of the requirements of healthcare reform, is that the cost has to be affordable to the employee. And, that’s defined as a percentage of income. So, if it becomes too expensive, you fail that test. If it becomes too expensive, employees will drop coverage, which is a bad thing.
Zezas: Bad for everybody, of course.
Marchio: Bad for everybody. If you’ve got to keep it affordable, then you really need to start treating it as part of base pay and communicating it that way, that this is really part of the compensation package.
Zezas: It’s not just…”here’s the compensation and you get the healthcare”… it’s all part of the compensation package.
Marchio: It needs to be addressed in a way where people understand it and that if this is going up by 10% a year, you need to look at the cash piece and say, “you’re getting your raise here as opposed to there.”
Zezas: Yeah, it’s not just “I want a raise and I want you to pay for the rest of my healthcare.” Okay, so this is not just a finance issue, this is an HR issue. How do finance and HR get together to make this work-to change?
Marchio: It needs to start well before the annual renewal process. It’s not just a conversation with your broker, who may be helping you with renewing your health policy. You really need to have a strategic discussion about the compensation pie and how much of it is incentive, what’s the base, what do we need to retain people. There’s a lot of right answers here. So, you really need to talk about what’s the right answer for your company.
Zezas: Okay, so we’ve got about a minute and a half left Bert. Tell me what companies should be thinking about from a strategic perspective. I know that there are some states that are friendlier than others, which you mentioned to me in the past. How do you deal with an employee base that might be spread out around the country and we’ve got about a minute left.
Marchio: Employers need to hold on to their wallet. You watched Illinois just raise taxes by about 50%.
Zezas: State taxes?
Marchio: State taxes by 50% and employers need to keep an eye on what’s going on in the states in which they’re doing business. They need to keep an eye on their tax provision, because states are going to be very aggressive with audits and they’re going to be looking to raise money without raising taxes. So, auditing is one way to do that. You need to stay tuned, pay attention.
Zezas: And, be proactive.
Marchio: And, be proactive.
Zezas: And, watch what’s going on.
Zezas: Bert, listen, this is great stuff. I really appreciate you being with us here on CFO studio. Thanks for coming.
Marchio: Thanks for having me.
Zezas: This is Andrew Zezas with Bert Marchio at CFO Studio. Thank you for watching.
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