Being proactive can keep worker-benefits programs from becoming disadvantageous

Controlling the rising costs of employee benefits is a challenge that never seems to get easier. While the recent spike in health insurance premiums has gotten the lion's share of attention recently [see "Dr. Feelgood," Nov. 2001, p. 38], the fact remains that business owners must consider the impact of the full range of worker benefits. As a group, these comprise 37.2 percent of the average payroll, according to the U.S. Chamber of Commerce.

Doing away with benefits, of course, is not an option. Hourly workers and salaried staff demand good benefits as part of the employment agreement. Your challenge is to offer attractive plans to keep your good personnel, while maintaining a healthy bottom line.

How can this be done? Start by making sure you aren't paying for benefits your staff doesn't need. "Being all things to all people is more expensive than narrowing in on what people really want," says Robert Dughi, president of CitiStreet, a defined contribution plan provider based in Quincy, Mass. "Survey your employees about their wants, and listen to what they say. Put your energy where there's 'value added,' as opposed to offering a little bit of everything."

Your goal is to select the most affordable quality plans, and then administer them as efficiently as possible. Technology can help. "A number of new webbased services offer plans and quote prices, so certain choices can be made over the Internet," says Tim Harrington, a principal with William M. Mercer, a Chicago-based consulting firm that has tracked benefits costs for more than 25 years. The automation inherent in the Internet allows web-based services to offer comparison-shopping of products from a broad range of carriers. They can also reduce the overhead involved in processing employee claims, educate new employees on your benefits plans and answer common questions.

Employers should tread carefully when setting up benefits programs in any of the following four areas:

• Retirement plans. With some 73 percent of employers offering 401K retirement plans, it's important to look into anything that can help cut through all the paperwork and reduce the time spent educating employees about their options. A number of new Internet services offer to do this and more, but beware of the temptation to buy a 401K plan off the shelf without carefully considering alternative plans.

"Most of these plans are being sold by brokerage and insurance companies, and because no one has sat down with the client to see what is an appropriate design, companies end up squandering money," warns Joel Levy, principal with Benefit and Compensation Consultants, an actuarial benefits, compensation and human resources advisory firm in New York City. Comparison shopping is critical, since organizations that sell these plans can vary widely in terms of administration costs. Levy has seen such annual costs range from $1,000 to $35,000.

• Life insurance. "Life insurance is very inexpensive to provide," says Levy. And it's also very popular: Roughly 89 percent of employers nationally offer this benefit. Are plans pretty much the same where premiums are concerned? Not at all. "Life insurance is a commodity item," says Levy. "Employers should shop around for the best rate."

A common error is to save time by purchasing different forms of insurance from the same broker. That practice can be costly, says Levy, because one broker may offer reasonable rates on one form of insurance but charge high rates for another. You may be better off purchasing group life from one carrier, for example, and accidental death and dismemberment (AD&D) from another.

And while you're shopping around, be aware that some carriers have more than one division selling the same kind of insurance at different rates. You will need to call each division to get current rates.

• Workers' compensation. This is a mandated benefit that can erode your bottom line if you do not watch it carefully. Premiums are increasing nationwide by about 10 to 15 percent annually, according to Stephen B. Paulin, senior vice president of Sullivan Curtis Monroe, an insurance brokerage in Irvine, Calif. "It's starting to hit businesses in the pocketbook," says Paulin. "They are asking, 'What can we do now?'"

Premium increases are only part of your cost - indirect costs can be two to three times as great. They include costs to administer a claim, supervisory time in investigating an accident, and lost time from the injured individual. Costcontainment measures range from monitoring workplace conditions to choosing an experienced insurance carrier.

"Choosing the cheapest carrier can end up costing you more when it does not handle claims properly," says Paulin. Instead, look for a company with a good claims-handling history. "Meet with the individuals who will handle your claims and determine their operating philosophy," says Paulin. "And get feedback from other businesses that have experience with that carrier."

You can also reduce your premiums, or keep them from increasing unnecessarily downstream, by taking some proactive steps. "Overcharges by insurance companies are very common," says Edward Priz, principal of Advanced Insurance Management in Riverside, Ill. To keep them from occurring, you need to audit your own classification codes to ensure accuracy with the workplace conditions to which your personnel are exposed. Consider having an outside auditor review your records.

• Disability income. Workers' compensation protects your workers from financial disaster if they are injured on the job. But what if the injury takes place outside of work? That's where long- and This can be a valuable benefit, offered by 68 percent of employers nationwide.

How can you control the rising costs of disability income insurance? Edward Muldoon, director of absence and disability management at the Washington Business Group on Health, a Washington, D.C.-based organization that assists businesses on this topic, points to three key areas:

1. Institute early-return-to-work policies. To save money, you want to encourage people to return to work as quickly as possible. "The costs of a disability go far beyond disability payments and insurance premiums," says Muldoon. "Whatever you can do to return the employee to work can make a big difference."

To encourage early return, institute workplace programs that will accommodate workers who suffer from temporary disabilities. Many employers have these in place for staff members covered by workers' comp, but have not extended the programs to cover people absent under short- or long-term disability. Now is the time to do so.

2. Pick the right plan. "Look at your plan to see if there are any incentives for workers to stay home longer," suggests Muldoon. For example, some plans call for no payments unless a person stays out for two weeks, at which time the payments become retroactive to the first day. "Under these plans, individuals often stay out longer because it is in their interest to do so."

3. Select your carrier wisely. Not all companies providing insurance are equal.

Muldoon suggests selecting a company that will help you increase your productivity by assisting injured people to return to work more quickly. "Select a company that helps manage the duration of the disability," says Muldoon. "Ask the right questions. Do they spend money on rehabilitation? Do they have good medical resources? Do they have doctors and nurses on staff? What training do they give their people?"

Left uncontrolled, the rising cost of employee benefits can erode your bottom line and lead to staff discontent when draconian measures are needed to cap spiraling expenses. Take action now to review your entire benefits package, survey your staff and share information on growing costs with them. When employees know the effect that benefits have on the health of your business, they will be more willing to help by sharing costs and utilizing benefits responsibly.

"Rather than just react to a crisis such as rising health insurance premiums, it's important to conduct a total review of your company's benefits structure," says Levy. "Develop costeffective benefits plans for the company that will be understood and appreciated by employees."