To date Principal Life Insurance Company has rented the Private Healthcare Systems (PHCS) network of doctors and hospitals. While this has been a beneficial relationship one can see how owning your own network rather than renting one may produce some badly needed efficiencies.

Principal Edge, as the new network is called, will be installed as the default provider network for small- to medium-sized employer clients – it’s not a Medicare Advantage network! It is designed to be provider-focused and bring unique features to the doctor community. Don Weitzel, who is now the President of Principal Edge Network Georgia, is busy recruiting medical providers to the new panel. Principal hopes to have the new network in place in the last quarter of 2009.

Mike Fleischman, a principal with the consulting firm Gates Moore & Company, brought over twenty years of experience in provider / insurer contract negotiations to the table. Mike was able to represent the concerns of the provider community in that insurers must be more responsive in timeliness of payment and simplification of reimbursement schedules.

Principal Edge seems to accommodate these issues in its promise to pay providers within 15 calendar days (not work days). Failing to do so may result in a penalty being paid to the provider. Innovative thinking for an insurance company!

If there is a take-away for the doctor community it is to seriously consider signing up for this network. Like I said before, it is not another doomed Medicare Advantage plan asking for your time. Principal Life is a solid company that can bring thousands of paying patients to your door. And, you know the payor is Principal, not a nameless TPA tucked behind a rented network.

As an insurance agency we are looking forward to a more competitively priced medical plan to show our clients. Hopefully we can put a quote in front of you someday soon!

1. Ditch the PEO. If there was ever an inefficient, expensive way to deliver employee benefits this is it. Buying workers comp, payroll administration and group insurance from standalone vendors should afford immediate dollar savings.
2. Reduce non-network medical benefits. It is not unusual for 90 or 95% of medical claims to be incurred with in-network doctors and hospitals. So why have overly generous non-network benefits that few people use? An employer may have non-network medical benefits paid at 80%; consider reducing to 70%. If at 70% consider a change to 60%.
3. Institute an opt-out program. If your plan pays a significant amount of dependent premiums and a decent number of those dependents have access to other coverage (through their employer’s plan), then providing an incentive to get off your plan will lower your premium costs.
4. Install an HSA or HRA plan. This solution is not for everyone. Much will depend on the overall health of your group, you and your employees’ willingness to take on claims liability, and the financial ability of you and your employees to fund the HSA or HRA.
5. Eliminate unused plans. We’ve taken over a number of groups that were paying for benefits that their employees just didn’t use – a vision plan for instance. Go to your employees and have a heart-to-heart. Discuss what forms of compensation are important – salary, commissions, bonuses, each employee benefit, etc. You may be surprised with their candor and understanding.
6. Tighten up your definition of an eligible employee. If presently an employee must work 30 hours a week to be eligible for benefits, consider raising the requirement to 40. If presently an employee must wait 30 days before benefits start, consider increasing that wait to 60 or 90 days.

The suggestions above, in relative terms, have little impact on an employee’s perception of his or her benefits package. Let’s assume, however, that items 1 – 6 did not produce the necessary level of savings. Even though your goal of attracting and retaining employees will suffer, you may be forced to consider these more drastic measures:

7. Reduce benefits. Now we are getting serious. You are shifting costs from the employer to the employee. Increase deductibles, copayments, and patient out-of-pocket costs. Switch from the more expensive PPO and POS plans to the more restrictive, cost effective HMO products.
8. Adjust employee premium contributions. This one will hit to the heart of the matter. Very simple – make your employees pay more out of their pocket for their insurance.
9. Eliminate benefit plans. I always say that you should insure catastrophic risks. Keep your medical and long-term disability plans. Keep your dental plan if possible. Dental insurance is not covering a catastrophic risk, but it is a great employee benefit. In tight times short-term disability and vision plans are luxuries and should be on the chopping block.
10. Eliminate a class of eligible employees. In certain industries (mainly blue collar ones) you may see the elimination of a whole class of employee from eligibility. For example, exclude all hourly employees from the eligible class. Obviously this is a last ditch tactic.

None of this is fun to think about, but know that reducing costs as early as possible will enhance a company’s chance of survival. Some of these suggestions can be implemented with little effect on employees and their moral. Others will have a direct and real impact on the employees’ disposable income.

Effective employee communications is key. How any change is presented to the employee population is important. While I’m biased on this issue, an ethical, competent and experienced insurance broker is your best resource at a time like this. Call us if you need help: 770-300-0001.

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!

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.

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?

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…