Aon to buy Hewitt for $4.9 billion
Insurance giant adding human resources consultant as health reform phases in
By Bruce Japsen, Tribune reporter
7:51 p.m. CDT, July 12, 2010
Chicago-based Aon Corp. will purchase human resources consulting firm Hewitt Associates of Lincolnshire for $4.9 billion in cash and stock in a move to expand its offerings to global employers navigating the complexities of health care reform and employee financial benefits.
Aon, an insurance brokerage and consulting giant, will figure large in uninsured individuals' and small employers' ability to purchase health insurance once federal government subsidies are available in the next four years. Meanwhile, Hewitt's business focuses on advising Fortune 500 companies in the areas of benefits consulting and outsourcing.
Health reform passed by Congress and signed into law four months ago by President Barack Obama will bring 32 million uninsured Americans medical care coverage. That will mean millions of new customers to insurance companies, as well as give small employers who have not provided health benefits the ability to add or enhance their employee health coverage.
"Aon will be the global leader in risk and human capital solutions," Greg Case, chief executive of Aon, said during a conference call with analysts and investors Monday. "This makes us a leader in human capital solutions."
Hewitt will be run by current Hewitt Chairman and Chief Executive Russ Fradin, who will become CEO of a unit called Aon Hewitt.
"This combination allows us to provide even more services for our clients and greater opportunities for our associates," said Fradin. "It gives us more products to cross-sell."
Fradin said Hewitt had already been looking to bolster its presence in the brokerage area. Hewitt has one of the world's largest businesses advising global employers in the area of health and financial benefits.
The companies expect the deal to begin benefitting Aon earnings next year.
Aon will pay $50 per share for Hewitt. That price is a 41 percent premium over Hewitt's closing price Friday of $35.40 on the New York Stock Exchange. Aon closed at $38.34 on Friday. The companies expect the deal to close by mid-November.
Aon's stock closed down 7.1 percent Monday, at $35.62 a share. It was among the biggest percentage losers on the New York Stock Exchange on Monday.
An Aon spokesman said the companies just announced a leadership integration team, and therefore it's too early to say how many local jobs will be lost. Aon's consulting arm has about 400 Chicago-area workers, and Hewitt has about 4,000.
But Aon did say the transaction is expected to generate $355 million in annual cost savings across Aon Hewitt in 2013, primarily from reduction in back-office areas, public company costs, management overlap and technology platforms. That represents about 10 percent of the combined company's operating expenses, Aon said during a conference call.
Hewitt has more than 4,000 workers on two campuses in Lincolnshire and is the village's biggest publicly traded company, said Village Manager Bob Irvin.
"Hewitt's presence, though less than it was at its height, is significant in terms of the number of employees that are using Lincolnshire businesses and services," Irvin said. "If there's a reduction in employees, that would have an impact, but if they decide to move employees from Aon here, that could be a plus."
At its peak, Hewitt had more than 6,000 workers in Lincolnshire, Irvin said.
The companies have been working on the deal for a "reasonably long period of time," Aon said.
Hewitt's stock closed up 32.2 percent, at $46.79.
Some analysts believe Aon's shares are diluted and see the timing of Hewitt deal as not good.
Despite those worries, Fitch Ratings issued a statement Monday saying Aon's financial outlook is "stable." "Fitch believes that in the long term, Aon's acquisition of Hewitt will result in positive business and operational synergies, with reasonable integration risk," it said.
Tribune reporter Becky Yerak contributed to this report
bjapsen@tribune.com
http://www.chicagotribune.com/business/ct-biz-0713-aon-hewitt-20100712,0,3880339.story
Friday, July 23, 2010
Tuesday, July 13, 2010
Wednesday, July 7, 2010
Healhcare Reform Q&A: Will employees 'Get It'?
Before we dive into the health care discussion, I understand you served as a key health care advisor to President Obama's former law firm for many years?
Yes. My benefits consulting firm, Benefits Solution Group, and its affiliated company Tandem HR (an HR outsourcing firm) helps administer health insurance and employee benefits to 300 companies with over 20,000 employees mainly located in the Midwest. One of the companies that we serviced for nearly 17 years was President Obama's former law firm.
What lessons do you think his law firm could teach him about health care reform?
These firms, like many midsized businesses we work with, are no different in the struggles they face of delivering cost effective coverage to their employees. With the rising cost of health care we've seen a trend in companies increasing the contribution for which employees are responsible.
By putting some of the ownership on the employee for their costs and coverage, it has incentivized the employee to utilize the plans more appropriately.
Can you give me an example of this?
With employee contribution plans in place, we have seen many employees opting out in favor of taking their spouses coverage. Mr. Obama for example, like many, delegated the health care issue in his family to his wife Michelle. He continually waived coverage with his firm, opting to be a dependent on his wife's policy. Funny, he also opted out of auxiliary benefits such as long-term disability or life insurance, both 100% employer paid. We see this often with employees who never bother opening a benefit booklet. How are these same employees going to understand the most complicated bill ever passed in the history of this country?
-
What did Obama's law firm do to control costs?
Like many mid-sized firms, they have been able to establish programs such as health reimbursement accounts and wellness programs. The success of these offerings requires a shift away from the status quo of reactive health care (employees get sick and go to this doctor) to a more proactive view of one's health involving prevention and the promotion of healthy lifestyles. In the community based rate system suggested in the current health bill it is unclear what incentive individuals will have to responsibly manage their health care costs.
How do you incentive employees?
Without employee engagement there will be no way to effectively control the costs of healthcare. However, we are seeing things like generic substitution, lower usage of emergency rooms and an increase in healthy lifestyle decisions. We've also seen improvement when employees are given a financial incentive. The end result is an overall decrease in health care costs and premiums both to the employer and the employee. We are also seeing some companies push the envelope and try things line on-site medical clinics and the use of international medical providers for certain specialized treatments. Would a government program be this creative?
Do wellness programs really work?
We have a steel company with over 3,000 employees that implemented a wellness program. For employees who participated in the program, there was an overall decrease in major markers (cholesterol, high blood pressure, etc.) and a significant cost savings due to the increased use of generic drugs. Participants were given a rating each year and recieve a deduction in premium costs as their score improves each year. Rewarding the employee who takes responsibility for their health really works. This year, that firm's healthcare costs decreased.
Do you see the government challenging employees to do these types of things?
It will be very difficult for the government to control or motivate employees. As we have seen with the recent passage of the Senate healthcare bill, there was a lot of "cattle trading" to get the deal done. This included withdrawing many controls seen in previous bills, such as taxes on overly rich medical plans and provisions to keep drug companies from stalling the transition of brand name drugs to generic drugs.
Government can and should be a strong referee to regulate and level the playing field. I even see a role whereby government is the insurer of last resort or in such cases of catastrophic or chronic illness of a debilitating nature. We currently see this with diseases such as kidney failure and the burden placed on Medicare.
Isn't the problem just with the greedy insurance companies?
I never understood when debating the merits of real questions on the healthcare bill why some pundits would throw out easy adages like the outrageous salaries of the CEOs of the insurance companies are causing the downfall of the current system. Come on, let's be reasonable. Those salaries are measured in the millions where healthcare reform is measured in the trillions.
What about the argument that "bigger is cheaper"?
This is one of the many myths we heard spouted at the heathcare town hall meetings across the country all fall. The truth is many big companies, like General Motors, pay more per employee in similar type benefits than many of the smaller companies represented by my firm.
Bigger is not cheaper! It is not that complicated.
It all comes down to usage and claims. people have to get used to the hard answer of responsibility and being frugal with utilization.
Unfortunately, many people who are high-end users will call our firm and ask to join a larger pool in order to "hide" their high cost "habits." That is one of the prevailing reasons I feel a government controlled system will ultimately break the bank.
We all want to improve the current system, but truly the questions need to be "how do we accomplish this and at what cost?" Those are the valid questions we need to focus on.
The current bills as they stand in the House and the Senate could easily see costs increasing 30-40% and literally put our economy back in a tailspin. The end goal might be justified, but what's wrong with taking smaller bites? If we try to eat too much too fast, we will easily see a day with ration coverage (two month waits to see a medical provider) and a complete breakdownin the doctor-patient relationship.
Did the experience with President Obama's law firm teach any lessons that might enlighten his current debate?
I don't like to focus on just the President's former firm, and truthfully I have kept quiet about it all through the debate. But here is just one glaring example, which I think tells a lot. When Obama was a state senator he would do a lot of community organizing, always giving a shout out to everyone and always receiving a lot of applause. His stump for healthcare was generous and unspecific- unlimited healthcare for everyone at no additional cost.
While in the state senate, a number of bills came up which were often outrageous. For example, mandating In vitro fertilization to women regardless of age or number of children she may already have. When President Obama was in the state senate he voted for nearly every mandate that came before him.
As far as I know he never sought the advice of his former law firm, or me, for feedback or to discuss what the implications might be of how these legislative mandates might affect actual businesses. The Senator seemed to have an attitude of "don't confuse me with the facts and figures", which is what scares me the most about the current debate.
What is it you find scary?
It is easy (and heartbreaking) when someone that is suffering in the current health care system makes front page news. they become bait for politicians who then passed forced benefit mandates.
Do you mean to tell me this would never happen in the proposed government option?
We all know it will. My point is, let's not focus on emotional manipulation and blackmail. We need to discuss details and real costs. We should take legislative mandates at a slower, more thoughtful pace. I feel this would create real change that won't bankrupt our country.
Yes. My benefits consulting firm, Benefits Solution Group, and its affiliated company Tandem HR (an HR outsourcing firm) helps administer health insurance and employee benefits to 300 companies with over 20,000 employees mainly located in the Midwest. One of the companies that we serviced for nearly 17 years was President Obama's former law firm.
What lessons do you think his law firm could teach him about health care reform?
These firms, like many midsized businesses we work with, are no different in the struggles they face of delivering cost effective coverage to their employees. With the rising cost of health care we've seen a trend in companies increasing the contribution for which employees are responsible.
By putting some of the ownership on the employee for their costs and coverage, it has incentivized the employee to utilize the plans more appropriately.
Can you give me an example of this?
With employee contribution plans in place, we have seen many employees opting out in favor of taking their spouses coverage. Mr. Obama for example, like many, delegated the health care issue in his family to his wife Michelle. He continually waived coverage with his firm, opting to be a dependent on his wife's policy. Funny, he also opted out of auxiliary benefits such as long-term disability or life insurance, both 100% employer paid. We see this often with employees who never bother opening a benefit booklet. How are these same employees going to understand the most complicated bill ever passed in the history of this country?
-
Like many mid-sized firms, they have been able to establish programs such as health reimbursement accounts and wellness programs. The success of these offerings requires a shift away from the status quo of reactive health care (employees get sick and go to this doctor) to a more proactive view of one's health involving prevention and the promotion of healthy lifestyles. In the community based rate system suggested in the current health bill it is unclear what incentive individuals will have to responsibly manage their health care costs.
How do you incentive employees?
Without employee engagement there will be no way to effectively control the costs of healthcare. However, we are seeing things like generic substitution, lower usage of emergency rooms and an increase in healthy lifestyle decisions. We've also seen improvement when employees are given a financial incentive. The end result is an overall decrease in health care costs and premiums both to the employer and the employee. We are also seeing some companies push the envelope and try things line on-site medical clinics and the use of international medical providers for certain specialized treatments. Would a government program be this creative?
Do wellness programs really work?
We have a steel company with over 3,000 employees that implemented a wellness program. For employees who participated in the program, there was an overall decrease in major markers (cholesterol, high blood pressure, etc.) and a significant cost savings due to the increased use of generic drugs. Participants were given a rating each year and recieve a deduction in premium costs as their score improves each year. Rewarding the employee who takes responsibility for their health really works. This year, that firm's healthcare costs decreased.
Do you see the government challenging employees to do these types of things?
It will be very difficult for the government to control or motivate employees. As we have seen with the recent passage of the Senate healthcare bill, there was a lot of "cattle trading" to get the deal done. This included withdrawing many controls seen in previous bills, such as taxes on overly rich medical plans and provisions to keep drug companies from stalling the transition of brand name drugs to generic drugs.
Government can and should be a strong referee to regulate and level the playing field. I even see a role whereby government is the insurer of last resort or in such cases of catastrophic or chronic illness of a debilitating nature. We currently see this with diseases such as kidney failure and the burden placed on Medicare.
Isn't the problem just with the greedy insurance companies?
I never understood when debating the merits of real questions on the healthcare bill why some pundits would throw out easy adages like the outrageous salaries of the CEOs of the insurance companies are causing the downfall of the current system. Come on, let's be reasonable. Those salaries are measured in the millions where healthcare reform is measured in the trillions.
What about the argument that "bigger is cheaper"?
This is one of the many myths we heard spouted at the heathcare town hall meetings across the country all fall. The truth is many big companies, like General Motors, pay more per employee in similar type benefits than many of the smaller companies represented by my firm.
Bigger is not cheaper! It is not that complicated.
It all comes down to usage and claims. people have to get used to the hard answer of responsibility and being frugal with utilization.
Unfortunately, many people who are high-end users will call our firm and ask to join a larger pool in order to "hide" their high cost "habits." That is one of the prevailing reasons I feel a government controlled system will ultimately break the bank.
We all want to improve the current system, but truly the questions need to be "how do we accomplish this and at what cost?" Those are the valid questions we need to focus on.
The current bills as they stand in the House and the Senate could easily see costs increasing 30-40% and literally put our economy back in a tailspin. The end goal might be justified, but what's wrong with taking smaller bites? If we try to eat too much too fast, we will easily see a day with ration coverage (two month waits to see a medical provider) and a complete breakdownin the doctor-patient relationship.
Did the experience with President Obama's law firm teach any lessons that might enlighten his current debate?
I don't like to focus on just the President's former firm, and truthfully I have kept quiet about it all through the debate. But here is just one glaring example, which I think tells a lot. When Obama was a state senator he would do a lot of community organizing, always giving a shout out to everyone and always receiving a lot of applause. His stump for healthcare was generous and unspecific- unlimited healthcare for everyone at no additional cost.
While in the state senate, a number of bills came up which were often outrageous. For example, mandating In vitro fertilization to women regardless of age or number of children she may already have. When President Obama was in the state senate he voted for nearly every mandate that came before him.
As far as I know he never sought the advice of his former law firm, or me, for feedback or to discuss what the implications might be of how these legislative mandates might affect actual businesses. The Senator seemed to have an attitude of "don't confuse me with the facts and figures", which is what scares me the most about the current debate.
What is it you find scary?
It is easy (and heartbreaking) when someone that is suffering in the current health care system makes front page news. they become bait for politicians who then passed forced benefit mandates.
Do you mean to tell me this would never happen in the proposed government option?
We all know it will. My point is, let's not focus on emotional manipulation and blackmail. We need to discuss details and real costs. We should take legislative mandates at a slower, more thoughtful pace. I feel this would create real change that won't bankrupt our country.
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