The Case for an Energy Benefit
A Study of The Clinton Foundation's HEAL Program
Consider these employee benefit facts:
In the early 1940s, when war-induced wage freezes pushed industries to find new means of attracting employees, only 5 million people in the United States had health insurance. By 1960, that number was 140 million. Today, nine out of ten large employers offer a major medical policy to employees.
In 1981, only 4.6 million U.S. employees—or less than 10% of the nonfarm labor force—were enrolled in a 401(k) plan. Today, the count is approaching 70 million, with 60% of large employers automatically enrolling employees, at the time of hiring, in a dedicated savings plan.
Table 1. HEAL Activity Across the U.S.
Table 2. Commercial Savings from HEAL Arkansas Pilot
UAMS Survey of HEAL Participants, June 2013
In 1950, the $10 billion collectively spent on employee benefits represented 5.6% of total compensation. In 2006, the $1.13 trillion spent represented 19.6%.
According to a recent survey conducted by Aflac, 58% of large-business employees said they were “more likely to accept a job with slightly lower compensation and better benefits” than a job in which the inverse was true. In a separate survey by Towers Watson, only 25% of CEOs disagreed with the statement that “trying or considering new benefits [would be] a wise response to the recession.”
Combine this information with the fact that, from 1999 to 2010, average household energy costs rose by 32%—even in the wake of the recent recession, which saw private sector wages drop 7.5% from 2008 to 2010—and we have four seemingly disconnected facts. First, energy costs are rising. Second, wages are still recovering after the recent recession. Third, the employer is a proven vehicle for driving employee benefit programs to scale. And fourth, the value of employee benefits has never been greater than it is today.
Consider this: In 2008, when the owners of a small shoe factory in Wynne, Arkansas, were faced with Facts One and Two, they decided, as did their forebears during World War II, to think outside the box. After conducting a modest commercial energy retrofit, the owners loaned the savings to their employees, who used these funds to conduct energy retrofits on their own homes, retiring the debt through payroll deduction.
Result: a timely benefit program, the first in the nation to be based on home energy conservation.
That program, called HEAL (Home Energy Affordability Loan), is one of several initiatives run today by by the Clinton Foundation’s Climate Initiative (CCI). (I serve as the commercial program manager for HEAL.) HEAL’s director is Martha Jane Murray, a former architect and LEED pioneer, who also happens to be one of the owners of the shoe factory mentioned above. Today, HEAL is hoping to follow the same trajectory as did health insurance and 401(k) plans in the past century; with programs now active in the states of Arkansas, Vermont, Michigan, and Wisconsin—and with six more entities slated to replicate in 2013—it is well en route. From the the City of Ann Arbor to Johnson Controls, Incorporated, employers from all over the country are embracing HEAL as a wise response to the recent recession recovery (see Table 1). Not only is the program considerably less expensive than traditional benefits, but it also is an effective way to combat climate change.
According to Tom Butler, Vice President of Governmental Affairs at the University of Arkansas Medical Sciences (UAMS), which has entered into a fee-based arrangement to offer HEAL presentations and assessments every month on its Little Rock campus, it’s a benefit to employees who aren’t seeing much in the way of income increases. “In this present economy… we’re on a very tight budget,” says Butler, who is one of nearly 10,000 UAMS employees in central Arkansas. “If we do give a raise, it’s not like it was six or seven years ago; it’s a very small percentage. [HEAL] is a way of putting money in an employee’s pocket, not just for this year, but on an ongoing basis.”
UAMS, in adopting HEAL, became the first hospital in the United States to pay for an energy-based benefit for its employees. That happened in 2012. Here’s a quick look at the challenges CCI faced in getting there.
In the Beginning
The HEAL Pilot in Arkansas
It took only a few retrofits back in 2008, and a few hugs from grateful employees of her shoe factory, for Martha Jane to seize the far-reaching potential of the model she’d created. As the Wynne project was underway, she produced a video to promote the concept, and went on to peddle it, doggedly, to anyone who would listen: to the audience at the 2008 USGBC Green Build event in Boston, where she was invited as a Master Speaker; to various industries in Arkansas. Finally—and most important—to Arkansas Governor Mike Beebe, who saw the program as a powerful recruitment and retention tool for the state’s industries, particularly in light of the recession. In short order Governor Beebe requested that a portion of incoming American Recovery and Reinvestment Act (ARRA) funds be earmarked to pilot the concept statewide, and the Arkansas Energy Office (AEO) agreed. Martha Jane, who had been working with CCI as a consultant since 2006, approached the Clinton Foundation with the AEO’s offer, and HEAL was born.
The industries that participated in the statewide HEAL pilot, launched with AEO’s support in 2009, included a manufacturer (L’Oreal USA), an institution of higher learning (Hendrix College), a statewide nonprofit (Friendship Community Care), and one of Arkansas’s flagship hotels (Arlington Resort Hotel & Spa). Each organization adopted HEAL as a means to its own corporate ends, whether those were financial, environmental, or retention-focused. Each also followed the blueprint that Martha Jane had drawn from the Wynne project: commercial audit and retrofit, capitalization of a loan fund with savings, employee enrollment and retrofit, and debt retired through payroll deduction. (Table 2 shows savings from the HEAL Arkansas pilot projects.) Employees signed up then, as they do now, by attending an informational session on the industry’s campus, presented by CCI in much the same fashion as are most traditional benefits. Two weeks after the employee-participant’s home energy audit, CCI returned to the workplace to personally deliver the audit results in a comprehensive report, and then met again with the employee, after each completed retrofit, to verify the results with diagnostic equipment. (Figure 1 illustrates the five steps in this process.)
If this sounds like a labor-intensive process on CCI’s part, rest assured it’s by design. A central focus of the HEAL model is to eliminate those places in the home energy process where homeowners historically drop out. For example, to remove the scheduling barrier, CCI booked each pilot audit conveniently at the employee enrollment event, with dates and times reserved by the given auditor. Bids were likewise conducted in tandem with the audit, so that employees wouldn’t have to track down a contractor themselves to schedule a quote. Financing, of course, was within walking distance of the employee’s desk. Fears of contractor fraud were largely assuaged by CCI’s measurement and verification of each retrofit. The end result is an easy experience not just for the employee-participant, but also for the given industry’s human resources team.
“Mostly I didn’t have to do much at all,” says Cedric Martin, chief human resources officer at L’Oreal USA’s plant in North Little Rock, of his experience with HEAL. “I had to provide an appropriate venue for my employees, the right times and places… The HEAL team presented [the rest] in such a fluid and efficient way, there wasn’t much I had to do, nor my management team really, to get involved and make the project a success.”
Other key elements of the HEAL program were established during the ARRA pilot, particularly concerning energy recommendations. Across all four pilot industries, CCI learned to audit each home with an eye toward the employee-participant’s cash flow. The amortization term of each employee loan, set internally by the given industry’s human resources (HR) and finance teams, ranged from two to five years in the pilot. Loan allowances were likewise capped at $2,000–3,000, depending on the employer’s preference. By necessity, these guidelines helped inform lasting HEAL policies regarding energy recommendations: To keep intact the benefit component of HEAL, a retrofit needed to yield a net payback (after utility incentives) greater than or equal to the corresponding amortization term, lest the employee’s paycheck shrink over the life of the loan.
It is this commitment to the employee’s financial health—along with an obligation, as a benefit provider, to facilitate and verify each retrofit—that distinguishes HEAL from other models. Mass-market programs can often act more as marketing funnels to approved contractors and lenders than as a service to homeowners. Guidelines in these programs can be loosely structured, allowing contractors to tailor bids more toward their own bottom lines than to those of homeowners. By focusing on the employee’s pocketbook, and holding contractors to a tight bidding protocol, HEAL has been able to deliver an aggregate return on investment of 23% to its employee-participants, a rate that the Dow Jones Industrial Average has bested only nine times in the past 35 years. (The data sample is limited from February 2012 to May 2013 and includes only core measures—air sealing, duct sealing, and attic insulation—which comprise over 85% of HEAL retrofits.)
Little wonder, then, that employee-participants like Winfred Batch of L’Oreal use words like godsend when describing HEAL. Thanks to CCI’s focused scope-of-work parameters, Batch borrowed only $1,836 to retrofit his home, with savings of $796 annually.
Batch’s message to the country: “I would highly, highly recommend [HEAL].”
CCI’s message to same: There are millions of unserved Winfred Batches out there. They’re employed, their energy bills are consuming more and more of their paychecks, and they desperately need help.
The Second Model of HEAL
Here’s another fact: Some organizations are statutorily prohibited from making loans to employees. Many state-funded entities, for example, are barred by law from loaning internal funds to staff, and some private companies have similar board-directed mandates. In early 2011, when the EPA awarded a Climate Showcase Communities grant to the city of Little Rock (CLR) and CCI, calling for the introduction of HEAL at CLR and UAMS—both of which were funded, to varying extents, with public dollars—this statute posed a threat to the original HEAL blueprint. Only 18 months old, the program was already under pressure to reimagine itself.
In response, HEAL created the Third-Party Model, or the credit union-as-lender concept. In this type of HEAL offering, the employer loan is replaced by a third-party lender, typically a credit union, which advances funds to the employee and, as in the original model, collects payments through payroll deduction. Because many large employers (such as UAMS) already have credit union offices on their physical campuses, the financing mechanics between one HEAL model and another are basically identical: employee opts for retrofit, applies for financing on campus, and retires debt through in-house channels.
What is different about the Third Party Model, though, is that its introduction of a lending institution, in lieu of an employer-funded loan pool, makes the commercial retrofit optional. In the cases of both UAMS and CLR—through which HEAL enrolled over 300 employees, cumulatively, from 2011 to 2012, reducing a projected 3,740 tons of greenhouse gases (GHG) through retrofits—the credit unions’ participation was enough to initiate the residential process, and the commercial module was simply bypassed. But that’s not always the case. As of this writing, an employer in Michigan is considering a blended HEAL benefit—commercial audit and retrofit, with savings used to guarantee loans from a participating credit union. Like most new ideas, the HEAL concept continues to evolve to meet the market’s demands.
How It Works: UAMS as Case Study
Perhaps one reason for the success of employer-born benefit programs like the 401(k) is that, for all intents and purposes, the water cooler at work is the original social network. And if this was true in 1940, it’s even truer today. A recent report from the U.S. Department of Labor (DOL) describes the workplace as having become “the central institution in American society.” According to this report, “a higher proportion of the [U.S.] population than ever before” is in the office. But that’s just half of the story. Not only are there more of us working in offices in these days, but DOL says the 8.8 hours we spend working on a given business day are more than workers spend in any other industrialized country except for Japan. Compare this to the average number of hours we spend sleeping (7.6), for instance, or eating and drinking (1.1), or doing household chores (1.1), and one conclusion seems straightforward: If we’re not told about things like energy efficiency at work, the odds of our learning about them elsewhere are pretty small. There just aren’t enough hours in the day.
The lessons gleaned from CCI’s nearly three-year partnership with UAMS have only underscored this concept of workplace learning. Audience surveys conducted at CCI’s biweekly enrollment sessions at the university, for example, consistently show that 80–90% of employees are unaware, at the time of the session, of any local utility incentives for energy efficiency. (This is true in spite of the local utility’s direct-mail efforts, and reliance on approved contractors to act as marketing agents.) Moreover, the same surveys show that an increasingly large percentage of session attendees—over half as of this writing—are coming to HEAL by word of mouth, which is to say: they’re hearing about HEAL at the water cooler. In 2011, when HEAL was a new phenomenon at UAMS, the primary outreach method was an e-mail blast, typically sent through the university’s HR channels. Today, e-mail is still the preferred method of making employees aware of HEAL, but it’s serving more often to reinforce word-of-mouth testimony than it is as a first contact with employees. By the time the message reaches an employee’s inbox, there’s a good chance he or she has already heard of the program through a colleague.
In addition to the steady increase in employee attendance at informational sessions, the rate at which UAMS employees actually enroll in the program has increased. In 2011, roughly 80% of hospital employees who attended a given session would sign up for a home audit; today, that number is closer to 95%. Program partners—such as UAMS itself and the University of Arkansas Federal Credit Union (UARKFCU)—have broadened their roles in the wake of this momentum. In 2011, CCI relied exclusively on grant funds to cover its administrative costs; today, not only does UAMS pay a fee to CCI for each employee audit conducted, but the hospital also provides a complimentary NEST thermostat to any employee-participant who goes forward to retrofit. In 2011, UARKFCU introduced a program rate of 5.75% for HEAL employee-participants, capping the amortization term at five years; today, after realizing no defaults in the first 18 months of operation—and after converting 47% of HEAL applicants to membership in the credit union—UARKFCU has relaxed the rate and term to 3.75% and ten years, respectively (based on UARKFCU statistics as of March 2013). Participating contractors, as of summer 2013, have also entered into fee-for-lead arrangements with CCI in recognition of the value HEAL has brought to their businesses. (See Figure 2 for more information from the UAMS survey.)
The point here is that, just as HEAL has blossomed at UAMS, so too can it blossom elsewhere. But it takes time. The concept of an energy benefit, while attractive to most employers in the abstract, is still very new; levying a fee from an industry can often require a pilot, as with UAMS, to demonstrate the value of the benefit. What CCI has found, since launching its replication campaign in July of 2012, is that the funding for these pilots can derive from any number of sources. In Wisconsin and Vermont, for example, grants have financed demonstration projects. In Michigan, the local utility, DTE Energy, approved a one-year pilot in April 2013 to showcase HEAL with three large employers in Ann Arbor. When CCI approaches a potential replication partner, one of the first things it looks for, in assessing the viability of HEAL in the given market, is the funding potential should such a pilot prove necessary. Helping each of its partners transition from this stage to one that is financially sustainable, like that between CCI and UAMS, remains a constant challenge.
The Future of HEAL
The ultimate goal, of course, is the paradigm shift—the point where enough national data exist “to make workplace retrofits the norm,” as President Clinton describes HEAL in his 2011 book, Back to Work—and already the movement is happening, albeit slowly. Next year, Duke University will be testing HEAL with a small employee pool to determine the greenhouse gas benefits, and CCI has begun discussions with other national industries that are considering offering HEAL directly, or with their own staff handling the roles typically assigned to HEAL’s replication partners. The flexibility of the model is as important today as ever.
As benefits continue to expand, not just in terms of ratio to compensation, but in scope—the menu of services now available to employees can range from smoking cessation programs to gym membership discounts to health and wellness newsletters—the value of HEAL could very well broaden, too. Ten to fifteen percent of HEAL employee-participants come away with health and safety recommendations for their homes, and more and more, this statistic, combined with financial return on investment, is capturing the interest of employers. The rising cost of health care has given industries a mandate to keep their employees at their desks (and out of doctors’ offices), and the proven link to air quality and respiratory health, for example, adds depth to the HEAL benefit.
Find out more about the Clinton Climate Initiative and the HEAL program.
These health and safety benefits complement HEAL’s focus, which has always been on the employee.
“HEAL is first and foremost about people,” says Martha Jane. “It’s about making a difference in an employee’s life. That was our mission at Addison Shoe Factory, and it’s our mission today, in Arkansas and all over the country.”
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