By Anna Wilde Mathews And Theo Francis
Amid signs of a tightening labor market, Aetna Inc. plans to
boost the incomes of its lowest-paid workers by as much as a third
in a bid to draw top prospects and reduce turnover.
The move by the big health insurer highlights larger debates
over the pace of the economic recovery and the compensation of
people toward the bottom of the wage scale. Around 12% of Aetna's
domestic work force will see a raise to a floor of $16 an hour,
primarily employees in customer service and billing-related jobs.
Aetna, which also said it will cut health-care costs for many of
the same employees next year, follows Gap Inc., Starbucks Corp. and
others in raising the lower limit on workers' wages.
Aetna Chief Executive Mark T. Bertolini said the company's shift
reflects changes in the insurance industry, which is increasingly
selling coverage to individuals. "We're preparing our company for a
future where we're going to have a much more consumer-oriented
business, " he said, and Aetna wants "a better and more informed
work force."
Economists and policy makers have been on the lookout for signs
of growth in workers' pay, which has lagged behind other markers of
improved economic activity, including rising employment and
economic output. While many economists say wage inflation remains a
remote concern, some point to scattered signs of pressure as an
indicator that the recovery may be accelerating and spreading its
benefits to a wider group.
"We are getting closer and closer to the inflection point where
we will see broad wage pressure," said Torsten Sløk, chief
international economist at Deutsche Bank. "We are getting to the
stage where companies can no longer find the right workers."
Aetna's decision also comes amid a broader conversation about
the incomes of those toward the bottom of the wage scale. State and
local governments around the country have moved to raise minimum
wages, often generating pushback from business groups. Some
companies--mostly in the heavily low-wage retail and restaurant
industries--have come under fire from labor groups over their pay.
And the Securities and Exchange Commission is crafting a rule
requiring publicly traded companies to disclose how much their CEOs
make relative to their average worker.
Aetna said it appeared that none of the approximately 5,700
workers set to benefit, who include part-timers, are currently
making the minimum wage in their localities. Starting this April,
their hourly wage will be raised to $16, an 11% increase on average
but an increase of as much as 33% for some workers.
Job ads from Aetna and its competitors, along with wage reports
on job-hunting websites, suggest that low-level health-insurer
workers in customer-service, billing, claims-processing and similar
positions, including both seasoned workers and entry-level
employees, are often paid $13 to $15 an hour.
Next year, the company will also let workers with household
income below a certain threshold choose health coverage with lower
out-of-pocket charges without paying more in monthly premiums, a
shift it said could save a worker with a family as much as $4,000 a
year. The company said that as many as 7,000 employees may be
eligible. Like a growing number of its employer clients, Aetna
offers only high-deductible plans to employees.
Mr. Bertolini said Aetna expects to offer a benefits program to
employer clients that's similar to the one it's rolling out to its
own workers.
The total cost to Aetna for both changes will be $14 million in
2015 and approximately $25.5 million next year, the company said.
Aetna has projected operating revenue for 2015 of at least $62
billion, with operating profit of at least $2.4 billion. Overseas
Aetna employees won't be affected nor will those working for
third-party contractors that provide janitorial, security,
cafeteria or other services.
Mr. Bertolini said Aetna hopes to reduce its turnover costs of
around $120 million a year and improve the quality of job prospects
and the engagement of workers who interact with consumers and
health-care providers. He said he isn't certain the changes will
pay for themselves in purely financial terms, but the cost is small
relative to Aetna's size. "I'm willing to make the investment to
see whether or not this happens," he said.
Mr. Bertolini, who said he had recently asked Aetna executives
to read economist Thomas Piketty's book on wealth inequality, also
framed the move in more idealistic terms: "It's not just about
paying people, it's about the whole social compact," Mr. Bertolini
said, adding, "Why can't private industry step forward and make the
innovative decisions on how to do this?"
Mr. Bertolini said the timing was partly tied to the economic
recovery, which, he suggested, will heighten the competition for
employees "now that there are more places for them to go."
So far, even as the economy and the labor market have improved,
wages have grown slowly. On Friday, the Labor Department said
unemployment fell to 5.6% in December from 5.8% in November, and
employers added 252,000 jobs, capping the best year of job growth
in nearly 15 years. By contrast, average hourly earnings fell
slightly--likely reflecting seasonal part-time holiday
hiring--bringing 2014's increase to 1.7%.
Still, the agency's employment cost index, which measures total
pay and benefit costs for civilian employers, had ticked up in the
third quarter to an annual rate of 2.2% from 1.9% a year earlier.
And figures for voluntary job departures hit a six-year high in
October, suggesting workers are finding it easier to change
jobs.
Raj Bal, a former insurance-industry executive who is now a
consultant, said he hasn't seen other health insurers make changes
like Aetna's. Indeed, many back-office functions involving billing
or claims processing have been moved overseas to trim expenses, he
said. Efforts to improve service by consumer-facing workers could
make sense, he added, if they increase customer retention.
Economists said Mr. Bertolini's bet could pay off. "There's a
very strong relationship between wages and turnover," said Lawrence
Katz, a Harvard University economist. There is also evidence that
workers who are paid more feel better about their jobs, which
"seems to translate into better performance," he added. "The
question is whether it's enough to pay for the increase in
compensation."
More companies are making that bet. Starbucks, which has for
years boasted of better-than-average wages and benefits, said this
past fall it would roll out pay increases for its 135,000 U.S.
baristas and shift supervisors. About half saw the raise in the
paychecks they received Friday, and the rest will see it this
week.
Early last year, Gap said it would raise the minimum wage it
pays U.S. store employees after six months of work to $9 by midyear
and to $10 this coming June. The move was expected to raise pay for
about 65,000 of the company's 135,000 U.S. employees.
In October, Wal-Mart Stores Inc. said it would ensure it paid
all its workers more than the federal minimum wage, without
specifying a time frame. Fewer than 6,000 of its 1.3 million U.S.
workers were paid the minimum wage at the time. Also last spring,
Container Store Inc. started seasonal workers at $13 an hour, and
Hobby Lobby Stores Inc. raised its starting part-time wage by 50
cents to $10 an hour.
Write to Anna Wilde Mathews at anna.mathews@wsj.com and Theo
Francis at theo.francis@wsj.com
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