Lane 3

Why I’ll vote for McCain

I never really meant for this to be a political blog, but work with me on this. I love entrepreneurs, start-ups and the Atlanta community. I’ve founded three companies; an insurance agency that makes money, and two software ventures that don’t (yet).

To pay for the additional tens of thousands of tax dollars I will owe under an Obama presidency which of the following changes should I make?

Reduce my take-home pay.

Reduce time with my family / work harder to satisfy additional tax burden.

Hire only one new employee this next year, not the two as planned.

Eliminate the discretionary sponsorships I make to groups such as TAG, TiE, Startup Lounge / Riot / Weekend, etc.

Shut down my second software venture and not pay the programmer the $40,000 or so I had budgeted.

There are a number of other reasons I like McCain over Obama, but what I have outlined above is a true representation of how an Obama presidency will negatively impact the Atlanta start up community.

I do not mind paying my fair share of taxes (and I do), but my definition of “fair” differs greatly from Obama’s. And, a capitalist market delivers prosperity more efficiently than does government. As the saying goes, “When have you every gotten a job from a poor person?”

What do you think? Any options I have not considered?

PEOs - Convenience Store Insurance

Would you buy all your groceries at the local convenience store? Of course not! So why buy your benefits from a Professional Employee Organization (PEO)? Convenience comes at a price.

In a nutshell, a PEO, sometimes called a “staff leasing company,” will put your employees on its payroll and provide them with employee benefits and workers compensation coverage. It also provides you with payroll administration and a human resources help desk service. In turn you pay your insurance premiums and an administration fee (typically a percentage of payroll).

A PEO’s sales pitch is pretty enticing to an uneducated small employer: (i) Get access to large company benefits, HR expertise, and reduce your liability as a plan sponsor. (ii) Avoid the hassles of administering a benefit plan. (iii) By combining your few employees with the PEO’s larger group you have access to lower insurance premiums and less volatile renewal increases. But, the devil is in the details.

Several weeks ago we had the opportunity to compare one of our client’s benefit package against the quote of a PEO - and we kicked butt! The PEO came in promising this eleven employee group $17,000 in annual savings. But we noticed an inconsistency in its proposal. In its spreadsheet the PEO quoted $18,800 in annual administrative fees, but when you did the math using the rate outlined in the quote those costs came to $57,200. And, the medical insurance we provide is far superior to that quoted by the PEO. So, in the end, when you made an apples-to-apples comparison the PEO had $102,200 in total annual costs (or $140,600 if you used the higher $57,200 fee) against our program for $86,400.

One component of the PEO sales pitch is that it will reduce your liability as a plan sponsor. To a degree this may be true, but probably not to the extent you may expect. You still have a number of responsibilities. For example, if Fred quits work and you fail to notify the PEO for several months then the PEO may rightly balk at providing COBRA benefits, thus leaving you with an uninsured liability to pay the person’s medical bills for the next eighteen months. In a similar manner, if you do not pass out the benefits booklet you may be on the hook for certain unpaid claims. Many responsibilities you have as an employer are still present under a PEO. The PEO’s contract will spell out your responsibilities - and will typically include a hold harmless agreement as well.

So after all of this what is my recommendation? Let the free market work! Get quotes from Administaff, ADP TotalSource, Oasis, Adams Keegan (I find it funny that this one seems to avoid at all costs the PEO / staff leasing label. Come on, be proud of who you are!) or some other PEO and from an ethical insurance broker that knows how to compare a staff leasing product to a traditional benefits package. Pretty quickly you will see the value of keeping your benefits in-house.

Several years ago we moved a 65 employee neonatology practice from one of the aforementioned PEOs and in doing so saved the employer over $190,000 in annual costs. We moved payroll to a national payroll administration company, workers compensation to a stand-alone policy, and kept the employer’s medical with Aetna (the same carrier and benefit design they had through through the PEO).

If you do not have the time or expertise to administer your payroll through QuickBooks or a similar program then consider using ADP, Paychex, or your accountant/bookkeeper for that task. Find a competent insurance broker to handle your employee benefits and your property and casualty coverages.

An Atlanta start-up may be tempted to turn to a PEO in order to minimize time spent on payroll, employee benefits and HR issues. But doing so will be expensive compared to the in-house alternative. Convenience has its price!

Lucas Group - A Consumer-Driven Health Care Case Study

We just wrapped up open enrollment meetings for Lucas Group, an Atlanta-based executive search firm. Effectively informing four hundred employees who are spread throughout the United States of their employee benefit plan choices is a daunting task, but one that went extremely well.

The highlight of this year’s benefit offering was the addition of a Health Reimbursement Arrangement (HRA) to Lucas’ existing medical plan choices (High Deductible Health Plan / Health Savings Account (HDHP/HSA or HSA), HMO and Point-of-Service plans).

Strategic planning

Six months ago we began the planning process that culminated in the employee meetings last week. Kelly Stewart, Lucas’ new Director of Human Resources, had arrived with some fresh ideas and had been given a directive to explore instituting a “wellness program.” Kelly handed me an advertisement boasting 26% premium savings for installing a wellness plan.

Common sense dictates that if you quit smoking or lose 50 pounds today (both great things) the result will not be a near term reduction in claims costs (and therefore a reduction in premium costs). So, in my opinion, installing a “wellness plan” has been a smokescreen used by other employers to reduce company-paid benefits. And, reducing benefits was certainly not Lucas Group’s goal. We did, however, want a program that would reward healthy lifestyles. Enter consumer-driven health care.

Consumer-driven health care

With a consumer-driven health care plan there is that a fund of money available to an employee to spend on medical expenses; the idea being that the employee will be a better, more informed consumer given it is his or her own money on the line. HRAs and HDHP / HSAs both fit in this category. Here is a brief summary of the differences:

Contribution schedule adjustments

So why would an employee sign up for a plan with higher patient costs (deductibles and coinsurance)? Simple! Because the premium rate for that plan was lower than the alternatives. For this policy year, Lucas Group pays 100% of employee premiums and 60% of dependent premiums for the HRA plan and a slightly lower percentage for the HSA product. That is strong!

Here is a quick comparison of the group’s HMO plan vs its HRA plan for an employee with relatively low claims:

As you can see, a person with a low claims history has a wonderful opportunity to save money under the HRA plan. And, employees who may have higher claims cost still have access to an excellent suite of traditional health plans.

Open enrollment process

In years past, employees would have to fill out hard copy forms and submit them to HR for processing. The burden of this fell directly on the capable shoulders of Lisa Stewart, the HR consultant at Lucas Group. This year we decided to take advantage of an on-line enrollment tool offered by the medical insurer. While there was considerable more work involved on the front end the result has been fantastic. Here are the steps we went through:

• Obtained a data dump from the insurer and created an individualized benefits statement for each employee showing their current election. This was e-mailed to each employee a couple days before the open enrollment meetings along with a summary of our open enrollment presentation.
• Held a series of conference calls with the entire employee population to explain the differences between each medical plan choice, the employee premium cost, etc. A great question and answer session followed each presentation.
• Provided the employees with instructions on how to log into the insurers computer system and make their benefit elections.
• Once the deadline for employees to enroll is reached then the insurer will upload the enrollment data file into its system thus avoiding the work Lucas’ HR department had done in past years.
• Our office will get another data dump from the insurer and prepare an individualized benefits statement for each employee as a confirmation of their elections for this new policy year. These will be e-mailed to each employee in the coming weeks.

Open enrollment results

Last year only 11% of Lucas’ employee population was covered by a consumer driven health care plan. Given the commitment to such plans - both in terms of employee education and employer premium contribution - we were pleased to see that 23% of the population enrolled in consumer driven health care plan for 2008 - 2009.

We added eighteen new employees to medical insurance - that is eighteen more associates who value the Lucas Group’s efforts to retain their services.

Finally, we had about a 100% increase in enrollment in the voluntary life insurance program. This is directly attributable to the ease of the on-line enrollment process.

Conclusion

Consumer-driven health care plans are not for every employer - and are certainly not appropriate for every plan participant. They are, however, one more tool that can be used to build a responsive benefits package that will attract and retain employees. Re-evaluating the employer contribution schedule is an integral part of installing these products. And, finally, effectively communicating to employees their plan choices goes a long way in having employees better appreciate the value of the benefits offered by the employer.

Sanjay Parekh & Start-Up Riot

Sanjay Parekh is a Force of Good within the start-up community. Singlehandedly he organized Start-Up Riot; giving 55 ventures the opportunity to make their pitch for advice, talent, or dollars. On top of all that we heard from Drew Curtis, creator of Fark.com. Closing question by Dave Wright: Would you sell for the right price? Drew’s answer: Hell yeah!

Start-Up Riot was a great opportunity for me to meet in person a number of folks I’ve only followed on-line: Keith McGreggor, exercise freak Rob Kischuk, and Wei Yang. I enjoyed catching up with Todd Merrill, Duncan Freeman, and fellow gun nut Michael Mealling.

A number of our clients were at the event. Jungle Disk both presented and sponsored. My office just started using their services to back up our systems. Dave Wright and his crew come highly recommended.

Another client, Servinity, had a great presentation. Having worked in the restaurant industry early in my life I can appreciate how Servinity’s technology will make things easier for managers and employees.

I wasn’t able to see all the presentations as my day job got in the way. I missed seeing Josh Watts (Blue Violin) and several others. I also missed the after party, but am sure that there were some good photos to be had there. The ones I took are posted in the Photo Gallery. Congratulations again to Sanjay for a job well done!

Red Rockets - Norcross Champions!

This past Saturday the Red Rockets beat the Pink Pussycats (18 - 14) in order to win the Norcross Youth Baseball Softball Association Pee Wee Championship. It was a hard fought season in which the girls learned a lot about team work, sportsmanship and the game of softball. Coaches Jack Camarda and Gary Robinson did a fantastic job to encourage the players to reach their personal best.

We were blessed with a great group of parents who had the right attitude about kids’ sports. And, as the season progressed you could see the level of play improve. At first most outs were made at first base and the games were high scoring. But towards the end the girls were catching pop flies and making double plays. We had a great line-up with the younger girls consistently getting on base and a solid core of heavy-hitters to get them all home.

2008 will go down as a memorable year for Norcross softball. Congratulations to Sarah and the rest of the team! Go Red Rockets!

P.S. - Find pictures posted in the Photo Gallery (right click, save image as).

James Harris @ Serenbe

This past Sunday we packed the kids up and headed to Serenbe in Palmetto, Georgia. It is a pretty interesting little community nestled amongst the yellow pines south of Atlanta. My friend, James Harris, of Elemental Interactive fame owns a quaint general store there.

When I found James he was leading a group of customers through a honey tasting session. I was particularly interested in a pecan honey - he had taken some pecans grown on his family farm and soaked them in organic honey for about a month. Good stuff!

James’ store, Harris & Clark, has a great selection of tasty food, sundries, and things you will remember from your childhood (pixie sticks come to mind).

The Serenbe community includes a 25 acre farm, riding stables, and an inn that caters to business meetings, weddings and other celebrations.

There are several great restaurants to consider and numerous shops and art galleries to look through (you know the kids will appreciate these times later in life). If you really catch the Serenbe bug you can buy a cottage, town home or one of the live/work loft sites.

I’d highly recommend that you take the short drive to Serenbe. Lots of slow food, quaint shops, and friendly people. It’s great departure from the hectic life we seem to lead in Atlanta…

Is your benefits broker clueless?

I am constantly amazed at the lack of detailed benefits knowledge exhibited by many of our competitors. Hiring a competent insurance broker makes good business sense. A well-informed broker will be able to guide you and your HR department through the maze of benefits regulations and insurance company policies and procedures.

Have some fun and give your broker the following quiz. Judge the timeliness and accuracy of his or her response.

1. An employer just hired an employee whose wife is pregnant. For the twelve months prior to being hired, the employee and spouse were uninsured. Will the pregnancy be considered a pre-existing condition under the group’s medical plan?
2. An employer with more than 20 full-time employees has a medical policy subject to the laws of Georgia. A 61 year old employee terminates employment because of a health condition. For how long must the employer allow him to stay on the group plan?
3. A fully insured welfare benefit plan had over 100 participants at the beginning of the plan year. What are the plan sponsor’s ERISA reporting and disclosure requirements? Is compliance the obligation of the broker or employer?
4. In the preceding calendar year, an employer had sixteen full-time employees and eight part-time employees. Only twelve of the full-time employees are covered by medical insurance. None of the part-timers are covered. For the current calendar year is this group subject to COBRA?
5. An employer with a fully insured medical policy written in Georgia hires an employee with a history of cancer. This individual was uninsured for 70 days prior to joining the employer. When is the earliest this employee can incur a cancer related claim and have it covered? Does the answer change if the plan is not subject to Georgia law?
6. If Joe terminates employment April 16th and coverage ends April 30th, by what date must he have elected COBRA? If he elects COBRA on May 22nd, by what date must all back premiums be paid?
7. An employee returns to his previous employer after having been deployed in the U.S. military. Can the employer make the employee satisfy the health plan’s 90 day waiting period?
8. A Georgia corporation which is subject to COBRA has several employees in Texas. What is the maximum duration of continuation coverage for Georgia employees? Texas employees?

I hope this helps you evaluate the quality of your benefits broker. Shoot me an e-mail (amcrae@angusmcrae.com) or give me a ring (770-300-0001) if you would like the answers…

Feel the Burn… Benefit Plan Selection for a Newly Funded Start-Up

Okay, so your bank account just went from 0 to 60 in Porsche Carrera GT kinda time. Sorry I just needed an excuse to post a video of a car that’s so hot it’s not even on Porsche’s retail site. 605 horsepower. Stock. But at a price tag of $440,000. I digress…

After spending months or maybe even years with little to no employee benefits - being covered by COBRA, your spouse’s policy, or maybe a substandard individual plan - a newly funded start-up may be tempted to hasten the burn by purchasing that well-deserved, gold-plated employee benefits package. Before doing so, answer this question: “Why do you want to sponsor an employee benefit plan in the first place?”

Attract and Retain Employees

There is one overwhelming reason to become a plan sponsor and that is to attract and retain employees. You should purchase whatever benefits will allow it to hire and keep qualified employees. A company trying to recruit highly trained engineers in a tight job market will have a different benefits strategy than one hiring run-of-the-mill, non-technical types.

The level of premiums you pay on behalf of your employees and their families should follow this same strategy. Should you pay 100% of both employee and dependent coverage? 100% employee and 80% dependent? 50% employee and 0% dependent or something in between the extremes? All will depend on what it takes to attract and retain employees.

What to Buy?

Scarce dollars should follow catastrophic risks. Suffering an accident or illness which results in a $200,000 medical bill is catastrophic. Becoming disabled and therefore unable to earn a paycheck for the next 30 years is catastrophic. Having to buy a pair of eyeglasses or having to pay for a root canal is inconvenient, but not catastrophic.

Consider purchasing the components of an employee benefit plan in the following order: 1. health insurance, 2. long-term disability insurance, 3. retirement plan, 4. dental insurance, 5. employer paid life insurance, 6. short-term disability insurance, and 7. vision insurance.

You may ask why I put dental insurance so high on the list. True, dental in and of itself is not a great insurance buy, but it is an excellent employee benefit. Believe it or not many employees will appreciate your dental plan more than your medical insurance. People typically get their teeth cleaned twice a year and under a good dental plan it will cost them zero. Dental is a very visible benefit. Whereas it often takes a significant sickness or injury before someone truly understands the value of medical insurance.

Insurance Brokers

Entrepreneurs are consistently told to surround themselves with competent advisers. When it comes to employee benefits you should seek out the services of an ethical insurance broker. It is that person’s job to get to know your business – your needs as an employer, to prepare a request for proposal, to shop the insurance marketplace, to consolidate the quotations from various insurers into an easy to understand format, and then to help the business owner come to an informed decision as to which insurer and what plan(s) should be offered to employees.

It is the insurance broker’s responsibility to conduct employee enrollment meetings. These meetings are a golden opportunity to explain how the employee benefits package is an integral part of the company’s long-term vision.

Conclusion

If you are smart enough to get a start-up off the ground then you have the mental capacity to make a valid argument for a Carrera GT as your new company car. Or as reality enters the picture maybe you should install that badly needed employee benefits package instead. With the help of an ethical insurance broker, select plans and contribution schedules that will attract and retain the employees you need to grow your business. What do you think? Car or benefits?

The Blue Schoolhouse

The nexus of three events resulted a calling for Atlanta entrepreneur Wayt King. First, while on a backpacking expedition in the mountains of Guatemala Wayt came across a struggling English teacher from Auburn who had just lost his funding. Second, at a Mayan campfire ceremony in the little town of San Marcos which is nestled along the shores of Lake Atitlan, the local Shaman or priest told Wayt that what he had been seeking had been found in the village. Third, and most important, Wayt met the kids.

These are young school children who are not only poor by U.S. standards, but by Guatemalan standards as well. That said, they are rich with a desire to learn and explore their world. They speak two and maybe three languages (Spanish, their Mayan dialect, and English). And, the children live in one of the most beautiful and peaceful places on Earth. But ignorance in the ways of politics has left the village vulnerable to corrupt officials.

In the Atlanta tech community Wayt King is well known as one of the founders of N2 Broadband (purchased by Tandberg Television, an Ericsson company). Since leaving N2 he is involved in a number of web-based projects with Last Minute Tee Times as the one consuming most of his time. The trip to Guatemala inspired him to create a non-profit, Blue Schoolhouse, Inc., which has the mission of improving education in the town of San Marcos. This is described nicely in an Atlanta Business Chronicle article by Justin Rubner.

In Dunwoody, however, Wayt is known primarily as Linda King’s husband. After supporting the family when Wayt was going through law school, Linda has become very active with their church working in outreach programs, sports leagues and new member orientation. Though not quite as eager to take Spartan backpacking trips as Wayt, Linda is equally involved in the Blue Schoolhouse.

Like any start-up, Blue Schoolhouse has seen its share of challenges. The Kings were able to restore electrical power to the schoolhouse, to wrestle a satellite dish through four months of bureaucratic red tape (customs), and to finally establish internet connectivity. The children have responded to the new technology and are working through the typical learning curve - the goal being to transform from using technology as entertainment to that of education and empowerment.

You can imagine that children who have an aptitude to understanding a number of verbal languages are already primed to excel at learning computer languages. Wayt and Linda hope to use the Blue Schoolhouse in San Marcos as a testbed program that may be spread to other villages around Lake Atitlan.

A new generation of children, better educated than their parents and more capable of earning a living within their own community, is the goal. I’ve posted some pictures within the photo gallery. Take a look at them, the Blue Schoolhouse website and see if you can share Wayt and Linda’s dream…

Clearleap goes Cool!

Two weeks ago, Deborah Michael and I spent some time with Braxton Jarratt and John Vecchio, two of the founders from Clearleap. I got to know John during his days at N2 Broadband (now Tandberg Television, an Ericsson company). Our agency, specifically Deborah, has been privileged to handle Clearleap’s benefits package since the company’s inception.

Clearleap’s mission is to harness all of the power of video and to make the experience easy, reliable and flexible. It is developing a revolutionary new internet video system that enables any business to easily upload, manage, enhance, and distribute digital video.

Clearleap is working on cutting edge video technology and $9 million in recent funding from Trinity Ventures and Noro-Moseley Partners validates the potential of its business model.

Clearleap boasts a talented group of founders who have bootstrapped the company thus far. In July 2007, we installed a solid core of benefits (health and dental) mainly designed to take care of the founders’ immediate needs. Now, as Clearleap is poised to ramp up its operations clearly the focus must shift to the goal of attracting and retaining employees.

Clearleap is an exciting, vibrant place to work. The founders recognize that Clearleap’s employees will drive its success and that a responsive benefits package is one of the keys to employee satisfaction.

Deborah and I are honored to have a front row seat to witness the evolution of such a talented young company. Keep your ear to the ground as you’ll be hearing a lot more about Clearleap soon…