This Company Raised Wages to $16 an Hour. Two Years Later, What Happened?

NewCo Shift Forum 2018

Aetna President Karen Lynch runs 95 percent of the company’s core businesses. Since her firm’s novel move, productivity is up 15 percent. Next up? An industry shifting merger with CVS.

Karen Lynch during NewCo Shift Forum 2018

Given NewCo Shift Forum’s theme of “Business Must Lead,” it was a pleasure to welcome Karen Lynch, President of healthcare industry leader Aetna to the Forum stage earlier this year. Lynch discusses her company’s decision to raise minimum wages for thousands of its employees, an “ecosystem” approach to the healthcare business, and the role companies must now play in social issues beyond their core stakeholders. Read the full transcript below, or watch the interview, conducted by Makers and Takers author Rana Foroohar.

John Battelle: Please join me in welcoming my friend, Rana Foroohar, who has written extraordinary book about the financialization of the economy in conversation with the president of Aetna, Karen Lynch. Welcome to “Shift Forum.”

[applause]

Rana Foroohar: Thank you. Good morning. Thank you, Karen, for coming all this way in the middle of all kinds of deal-making and interesting things that are going on that and then we’re going to talk about. Karen runs about 95 percent of the business.

Karen Lynch: That’s right.

RF: You are a busy woman. One of the reasons you’re here, actually, and one of the reasons that John and I have been talking about Aetna for a couple of years now as a great company to have at this forum is a conservation that I actually had with your CEO, Mark Bertolini, a couple of years ago.

I was working my book, Makers and Takers, which was looking at the pressure that companies face from Wall Street, face from the financial system, and how they can make better choices, longer-term choices, really support the economic ecosystem.

He made an interesting observation. He said that a lot of CEOs, because of pressure from the Street, think about marshaling cash, but they don’t think about human talent as something that should be an asset rather than a liability on the balance sheet.

He started looking into that at Aetna, found that some of your frontline people needed a pay hike, raised them to $16 an hour at a time when not too many people were doing that. How’s that going for you? Where are you with that?

KL: It was a really important initiative for us, and you’re seeing a lot of companies do it now with the effective tax reform. When Mark went and talked to the frontlines, what he found was that some of our employees were on Medicaid and they were distracted. We did a couple of things beyond the $16-an-hour wage hike.

We actually changed the way we approached benefits. What we did was we offered at certain income levels a richer benefit for lower cost. For certain level employees, we offered 100 percent education reimbursement. How’s it going for us? We have seen a 15 percent increase in overall productivity.

We have seen an increase of employee engagement. Generally speaking, it’s been successful for us, but we don’t look at that social compact just on wages and benefits. We actually extend that social compact to how we interact with our member. What we’ve done is we’ve extended our service frontline leaders to have more decision making when they’re on the frontlines.

We’ve also extended that to the communities. What we’ve seen is a lift in employee engagement in that social compact, because we’re making a difference in the communities. For example, what we’ve done is we’ve really put a hard line in how we’re working nationally on the opioid crisis.

We’ve also been investing in what we call our Healthy Cities Challenge, where we’re taking funds and improving safety. We’re doing it here in actually San Francisco, where we have bicycles and bike safety for kids.

What we’re seeing is that social compact, when we’ve extended it into the community, in addition to wage and growth, we’ve seen a lift in just employee satisfaction and engagement. It’s been quite successful.

RF: It’s interesting, because what you’re talking about is an ecosystem approach, rather than, say, just a shareholder value approach.

KL: Exactly.

RF: That’s a big conversation right now. Larry Fink, head of BlackRock, largest asset manager in the country, came out famously a few weeks back and said, “Every company needs to be a purpose-driven company.” It’s interesting. As I go around in my job and I talk to CEOs, everybody says, “That’s great. We agree, but what are the metrics now?”

As you’re thinking about all the different things that you’re doing — and we’re going to get to the CVS merger in a minute, which I know is part of this — as you’re thinking about the decision making, how do you think now?

I mean, shareholder value, it may not have been correct, but it was easy. [laughs] All you have to do is boost the share price quarter-on-quarter. That’s easy. How do you think now? What’s the metric? How do you make that come to life in the real world?

KL: The metric piece is elusive at this point. We really need to think more broadly about what that metric is. The purpose-driven is not just what the company stands for. It’s also about that corporate social responsibility.

You saw it today. You heard John talk about what Dick’s is doing. I think that companies have an opportunity now to take a leadership role in the communities and making a difference in how we’re showing up to, in our world, support the health in the communities and support that holistic approach.

You’re seeing companies do it all the time. You saw Chobani, for example, take a big stand on immigration. It’s important for all of us to have that social compass, because you’ll get better shareholder value, because you are making a difference, because you’re purposeful, and because you’re standing for something.

What we’re seeing is the millennials want to engage with companies that have that social purpose. Millennials want to work for companies that have that social conscience.

RF: That’s interesting. That gets to the point about how we’re in a world that’s awash in capital right now.

KL: That’s right.

RF: Human talent is what’s really important, particularly talent that can be as flexible and adaptable as you need to be in this environment. To that point, let me ask you. One of the reasons that you couldn’t come last year is that you were in the middle of a potential deal with Humana, which didn’t go through.

You’re now in the middle of another deal with CVS — fingers crossed — which is looking more likely. Talk a little bit about these deals and what they say about where the healthcare industry is right now. Why is there all this consolidation happening?

KL: I think you have to think about where health…Healthcare is 18 percent of the GDP right now. It’s expected to grow to 25 percent of the GDP by 2025. If you think about healthcare, it’s right for…to be revolutionized.

You’re seeing every single other industry having consumers demanding a difference. The healthcare industry is no different. Consumers are demanding something different. They’re demanding affordability. They’re demanding access. They’re demanding transparency.

As you think about the healthcare industry, everybody’s trying to go after those pieces. You saw the Amazon, Berkshire Hathaway. Everyone believes there needs to be fundamental change in healthcare.

You said an interesting word. It’s an ecosystem. It can’t just be one. It can’t just be the insurers. It has to be the consumer. It has to be the pharmaceutical companies. It has to be the payers. It has to be the providers.

We all have to share in that ecosystem to make a big difference. When you think about what CVS and what Aetna can do, that is a big change. That can revolutionize the industry. One of the things that we’ve been really pushing for as a company is to move from a payer to a partner, to moving from distant to local, to moving from only worrying about chronic illness to worrying about holistic health.

We’ve really made a conscious effort to say, “We need to move from the exam table to the kitchen table.” CVS gives us that different ability to be in the communities. If you think about your health, 60 percent of your health is driven by your zip code and not your genetic code.

RF: That’s interesting. Tease that out for me.

KL: It’s really about what community you’re living in. It’s really about your nutrition. It’s about safety. It’s about isolation.

If you’re not eating right, you’re not going to be healthy. If you can’t get out of your house, you can suffer depression. If you’re not in a safe community, you’re not secure. All of that drives up blood pressure, for example. All of those things have an impact on your overall health.

RF: Interesting.

KL: If you think about what CVS can do for us, it’s really a new front door to the healthcare system. It’s another access point.

RF: That’s interesting. Let’s talk a little bit about, since we’re at NewCo Shift, what part technology will play in all that.

I want to definitely get your thoughts on Bezos, Buffett, and Jamie Dimon, God, talk about the triumvirate of business leaders — coming together to say, “Hey, we want to transform the healthcare system.” You can imagine, just Amazon alone, what could be done with data and technology, but there are also risks. This is healthcare.

I was in Washington recently. I had a policymaker say to me, “I think if there’s going to be an Exxon Valdez moment around tech and data, it’s going to be in the healthcare area, because this is the most sensitive, and people’s medical records, and what’s being done with them.”

KL: Exactly right. Obviously, their coming together is an indication that they’re pushing for change. My belief is if they can bring us technology or something different to change the landscape of healthcare, I’m all for it. I think that data, and analytics, and artificial intelligence will be the watershed of what we can do in healthcare.

If you think about today, every other industry has changed because of technology. Think about Uber. You think about the technology in the banking system and how the finances are changing. We haven’t seen that technology advancement yet in healthcare, and it’s necessary and it’s needed. Just think about all the information we have that’s available to help you.

I’ll share with you how I think about CVS and how we imagine CVS and how technology might play a factor in that. First of all, you have to spell when you walk into a CVS store today, you see all these things and you probably wonder to yourself, how is that going to be a health place?

You have to step back and think about the pharmacy will still be in the back of the store. We’ll have data about you.

RF: Which will be collected how?

KL: We’ll get it through claims, we’ll get it through interactions that you have with these things. We’ll see it through your enrollment activities. We’ll see it through how you’re navigating the health system. Think about CVS pharmacy in the back of the store. The pharmacists can work to the top of their license.

Adherence is a major driver in why people aren’t improving their overall health, they’re not adhering to their medication. They’ll be able to have those conversations. You can also imagine what a MinuteClinic might evolve to, where you might be able to now have more blood pressure, you might be able to have lab tests.

You might have a nurse concierge in a CVS. That nurse concierge can think about open-source healthcare. That nurse can help you navigate the healthcare system, not just in the CVS, but maybe out in the community.

For example, with Medicare, as you age, we might be able to have a conversation when you’re in the store with us to talk about what’s going on in your life. You’re not going to answer that on the phone, but somewhere in the community, you might have that conversation with them.

RF: It’s interesting, because what you’re sketching, actually, sounds a lot, to me, what I experienced when I lived in the UK for 10 years, where in a nationalized health system, you have much more of a preventative approach. You have community clinics where people are coming in. There’s a lot that can be done in one place relatively cheaply.

You’re not seeing a specialist, you’re not going to the ER, you’ve got nurses but, of course, that’s a state system. The data is held by the state.

In many ways, what I hear you talking about and other practitioners, other companies talking about is developing some of that more sensible, more practical, more cost-effective healthcare, but in the context of a private company. Yet, that leaves you with a lot of responsibility, for privacy, for data.

The regulations around this might be changing. How’re you guys thinking about all that?

KL: One of the most important things that we think about every day is cyber security and protecting the data of our individuals and our members.

We invest significant capital to make sure that we are securing…that’s relevant, and it’s important, and that’s a place where we’re focused on. You and I have different personal health ambitions. We want to make sure we’re protecting my health ambitions versus your health ambitions.

I think it’s something that’s front and center. We all need to pay attention to.

RF: Let’s talk a minute about AI. I had a really fascinating conversation, actually, when I was at the World Economic Forum in Davos this past January, with an investor who had just invested in a Chinese company that was putting sensors in medical devices.

Of course, there’s no data privacy, because this is in China, so I don’t know what limitations are there, but it was fascinating.

It opens up an entirely new arena for healthcare. Where are you guys on this? Where do you think this is going to go in the US in the next five years?

KL: You’re going to see a lot more data in the home, if you think about where things are shifting, they’re shifting into the home. More care will be in the home. What we’ve recently seen which is fascinating, diabetics — every day, you have to prick their finger to do their blood test.

What we’ve now seen, which is fascinating, is they can put something on their arm, and they can just wave their phone across it and it tells them what they need to know.

I think that that will change the way we get information, it really drives our thinking around where healthcare is shifting to in the home, using technology and data to change how everyone’s approaching their health in a very different way.

You’ll see a lot more advances around that. A doctor, your physician, can get that data immediately. You’re going to see a lot more advances and you’ll see a lot of improvement around that over time.

RF: Are we at the point, given the amount of incredible useful, but very sensitive data that can be collected, not just in the healthcare industry, but in every industry about what we’re doing…I’ve spoken to folks in insurance that say you’re going to be able to write completely personalized policies if you allow sensors in the home, in the car.

That could be great. It could also have unintended consequences.

Are we going to need to move to some kind of data bill of rights, or some kind of more explicit bargain, maybe of the kind that Europe is thinking about right now, with the general data privacy regulations that they’re coming up with?

What do you see coming down the pike and what are you guys talking about in the boardroom in terms of that?

KL: We’re going to have to continue to make sure that we’re advancing privacy and data. That’s where we’re just talking about in the boardroom. As we advance to that personal…people will demand that their data is protected.

We need to continue to make sure that we invest properly and we drive towards that. When I first started, the customers were demanding new things from us, they will continue to demand that we protect their privacy.

RF: I have a bunch of more questions, but in the 5, 10 minutes or so we have left, let me open it up. There’s some mics on either side if folks want to ask a couple of questions. Just introduce yourself, please.

Lamia: Hi, My name is Lamia. I have a preventative healthcare startup. My question is, what does it take for insurance to start shifting dollars from a reactive care to preventative care, but not more into…How can you get carrots reimbursed?

How can we get to the food reimbursements and what does it take in terms of data for insurance to seriously consider that as an option?

KL: We are very focused on preventative care, because we believe that health starts with preventative care and do a fair amount of reimbursing relative to preventative care. That’s core to our strategy.

It’s core to what we do every day because I think if you think about your health, the more you can spend time on the preventive, then we’re not spending time on the chronic pieces, and then obviously we’re continuing to reimburse on the chronic side as well.

L: Does that mean that a meal can be reimbursed, for example, for someone who has pre-diabetes?

KL: We haven’t gone that far yet, but it’s something that we should be looking at. We’re looking at our broad portfolio and re-inventing how we think about benefits.

RF: It seems like a natural question as health gets de-siloed because that’s what you’re talking about. It’s not just about what happens when the doctor draws your blood. It’s, “What kind of day did you have? What stresses are you under at work?”

KL: “Can we figure out how to have a personalized plan so that you get to pick and choose what you want for coverage and reimbursement?” which is very different because now it’s very broad.

RF: OK, thanks for the question. Get one more in.

Ron Stoltz: Hi. I’m Ron Stoltz. I wanted to address the ecosystem question. I’m an old guy who’s moving into the…

KL: [laughs] Not that old.

RS: Well, I’m pretty old.

[laughter]

RS: I look younger than I am. I…

KL: Good health care. [laughs]

RS: …consume a lot. That was my point and the question that I have. I’ve been a PPO and an HMO member alternately through my life. Here in Northern California, a large percentage of people are members — they call them members — of the Kaiser Permanente System.

My question is, and it was prompted by the trial balloon that Kaiser floated, that they’re going to establish their own medical school. That was a shot across the bow as far as flushing out their ecosystem. I just wondered if you looked at the Kaiser model? Do you see it as a side-by-side with the PPO insurance model, part of your industry?

How do you view the Kaiser system vis-à-vis a more private or PPO system?

KL: We obviously look at the Kaiser system, and it’s been a very successful…I look at the Kaiser system as a holistic healthcare.

As you think about what we’re doing with CVS and where we’re advancing our strategy, we’re thinking more broadly in that regard as well. We’re coming at it from the consumer and how consumers want to engage in their health and in their healthcare system.

Kaiser’s looking at it from a delivery-system perspective. They’re delivering care, and we’re looking at it from an access to care.

RS: Do you see them as a threat?

KL: I think the whole industry is revolutionized. Kaiser has been exceptionally successful in California, but we haven’t seen them in the broader country. I look at all healthcare as…I think there’s opportunities, and I think there’s threats as well.

RF: It’s interesting because that raises the point, too, that healthcare is, relative to any other country, quite fragmented in the US, quite local, fragmented along state lines much more so than other countries. We’ll take one last question and then…

Jan D’Alessandro: Hi. My name is Jan D’Alessandro. I have a consulting business. My question for you is that I’m starting to see one of the major problems that we have in this country in addition to the healthcare crisis is financial crisis, that over 80 percent of Americans are retiring at or below the poverty level. They’re not encouraged to save.

I’m seeing a lot of companies start to implement financial wellness programs side-by-side with their health and wellness programs. I’m wondering if you see any opportunities to partner. If so, I have a client I’d like to discuss with you.

[laughter]

KL: We can certainly discuss that.

RF: Deal-making is happening. [laughs]

KL: Exactly right, and we do. We think about it more broadly. As part of our overall employee, we call our EAP, we have financial programs and financial wellness.

We also, as part of our social compact, implemented reimbursement for college tuition, so we are spending time. It’s that holistic care of health, wellness, financial, emotionally stability, and looking at a person holistically. That’s how we’re thinking about it.

JD: I’ll email you about Chime Bank.

KL: OK.

[laughter]

RF: Well done. Well done. We’re basically out of time, but let me just ask you one final quick question to wrap up.

I have to say I dread healthcare in America, having lived in the UK for 12 years where it was just easier. You obviously have an incredibly bifurcated system. You can get the best cutting-edge care here, but there’s a big gap in the middle.

Is that gap going to go away in the next three to five years with what Buffett, Dimon, and you guys are doing? Are we going to have a profoundly different system, or is it going to incremental?

KL: I think we’re going to make changes. I wouldn’t say it will be huge in the next three to five years. Healthcare will evolve and emerge. I think you’ll see good progress, but it’ll take us a little bit longer than that to do it.

RF: All right. Karen, thanks for being here.

KL: Thank you.

[applause]


This Company Raised Wages to $16 an Hour. Two Years Later, What Happened? was originally published in NewCo Shift on Medium, where people are continuing the conversation by highlighting and responding to this story.