Bruce Bishop

Wednesday, 20 September 2006 07:01

Looking ahead

If you had a real crystal ball, would you be too scared to ask it questions? Some people prefer not to know the future, based on the feeling that, if nothing can be done to change it, why get worked up about it? But regardless of whether it is good or bad, the real value of knowing the future is preparing for it. Do I have a crystal ball for health benefits? As a matter of fact, I do. Look with me into the mist to see the future.

A return to major medical plans.
The plan design of the future will be a $5,000 deductible, then 100 percent coverage. There will be no co-pays for office visits or prescription drugs. Employees will be responsible for the first $5,000 of health care. Of course, there will always be options for richer plans, but the $5,000 deductible, 100 percent coverage plan is inevitable. There are only two reasons to have medical insurance. The first is to prevent a financial catastrophe. People should not be forced to sell their home and liquidate their assets if they have a major medical problem. The second, and more important, reason is to ensure treatment will be provided if you experience a major medical problem. Health care providers can refuse to treat patients who don't have insurance. Most diseases can be controlled or cured, but if you have no medical insurance, the consequences can be grave when treatment is delayed or denied based on financial hurdles. Preventive care services such as immunizations, cancer screenings and well-woman exams will be covered in full or for very little out-of-pocket expense.

When: One to four years. The trend has already started, but will be rocketed by the Health Savings Account.

Health Savings Accounts
The HSA is the 401(k) of health insurance. HSAs will be as popular as 401(k) plans are today. As with 401(k) plans, HSA programs will provide solutions that make it a no-brainer to enroll. Also as with 401(k)s, it will be a challenge to convince employees to take advantage of it while they are young. Education programs will play an important part of their success.

When: One more year. Although the HSA account is available now, insurance carriers on the whole are not ready on the HSA plan that goes with the HSA account.

Healthier employees
The trend toward obesity will start to ebb and eventually reverse. When: Three to six years, or a few years after high-deductible plans become standard. People will start living healthier lives when the costs associated with being sick sting a little more than they do today. Carriers will become banks Insurance carriers and banks will become one entity. Carriers will buy banks or become banks.

When: It's already here. The HSA has accelerated the carriers to buy or become banks. The reason is a combination of reductions in premium associated with HSA plans (20 percent to 30 percent less than most in-force plans) and seeing money going out the door to financial institutions to fund the HSA. Even property and casualty insurance carriers are becoming banks. State Farm Insurance already has a bank, and is doing very well with it.

Changing role of insurance agents
The insurance agent of the future will provide more services than just shopping, spread-sheeting and assisting with claims problems. Insurance carriers will leverage agents, and so will the client. Agent contracts with insurance carriers will line item more and more specific operational duties that were previously performed by the carrier. Clients will view their benefits agent as an extension of their HR department and demand more services and tools.

When: Two to five years. Although some benefit agencies are starting to do more for their clients, it will take the insurance carriers to force the agents to do more.

I hope this didn't scare you. Your next move, if you dare to look into the crystal ball, is to prepare for the future.

BRUCE BISHOP (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits, which provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach him at (770) 425-6700 or (800) 874-2244, ext. 205.

Eventually, every employer asks the question, “To whom can I offer benefits?” There are usually several hidden questions within this one question, such as whether you have to offer benefits to everyone and whether you have to treat everyone the same in offering benefits.

With the exception of 401(k) plans and flexible spending plans, employers can be fairly creative in their eligibility language. For all other benefits, the rules of eligibility are determined both by the insurance carrier and the employer. Note that certain tax consequences can occur if benefits are funded by the employer for the sole benefit of the owners and/or officers.

The accompanying chart outlines the three main eligibility criteria from the carriers — hours worked, employer contribution and length of employment. These apply to group products for which the employer pays for all or a percentage of the cost. The most common group policies include medical, dental, life insurance, disability insurance and vision.

The remaining rules of eligibility are determined by the employer. It’s recommended that as an employer, you establish employee classes if you want to offer different benefits to certain people or at different contribution levels.

Name classes in a generic manner, such as Class 1, Class 2 and Class 3. Also, use Class 1 for the “rank and file” employees. If the class codes become known by other employees, and they will, you don’t want the impression that they are less important through the impression of being a Class 4 employee. The fact that you have classes will generate class envy. This is one of the dangers of having different classes within the same employer.

Once you establish the names of the classes, you can indicate what job titles or other requirements are included. In addition to job titles, you could use employee locations, income levels, exempt or nonexempt status, time on the job or several other factors.

Once you establish the definitions of the classes, you can define the benefits of being in a particular class.

You may decide that some benefits may only be provided to certain classes. Some classes may get different levels of benefits, as is common with company paid life insurance and disability plans. Class 1 employees (rank and file) may not need Own Occupation protection to SSNRA (Social Security Normal Retirement Age), but Class 4 employees (owners and officers) might.

Setting up classes can be a great tool. It can also help solve some participation problems. Some employers are having a hard time with minimum participation levels because the employee contributions are too high for certain employees. Offering medical benefits to a certain class of employees, such as management, sales or higher-paid employees, can help maintain the minimum participation requirement of 50 percent of all eligible employees.

Establishing classes can be problematic, so be careful. Someone that you didn’t expect might qualify at a later time. The more classes you have, the harder it is to track and manage the benefits.

Carriers can also get nervous when eligibility classifications change. The carriers might think you are making an exception and not just establishing a new class. Converting a currently enrolled employee to a new class is seldom a problem because of promotions and other changes. But adding a new class that allows a new person(s) to join the plan or get better benefits can be a concern for the carriers.

The result could include the carrier requiring underwriting approval, including evidence of insurability, before granting the change.

The bottom line is that you have numerous options, but once you establish eligibility classes, you need to stick to them. Consistency is the key.

Employers will get themselves into trouble if they stray off your establish classes, whether in writing or in practice.

BRUCE BISHOP (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits. The company provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 to more than 7,000 employees. Reach Bishop at (770) 425-6700 or (800) 874-2244 x205.

Monday, 10 October 2005 11:31

Musical carriers

Most employers have heard from a benefits broker, agent or consultant that if they change carriers too often, the market will decline to quote on their group.

Is this true? Are there penalties involved with changing carriers too often?

There has been a tremendous amount of misinformation regarding this subject, and the following facts should be considered when reviewing your benefits.

Myths debunked
Even if you change every year, the market will still quote on your group.

The myth has been used to scare groups into renewing with carriers even when better alternatives were available. Some carriers may decline you but those that do tend to be the carriers that are not very competitive. The biggest determent to marketing your plan, if you change carriers every year, is the level of negotiating power.

If your agent is doing his or her job, that person should be able to negotiate rate relief of some degree. The level of rate relief can range from 5 percent to 30 percent, depending on the carrier and the benefit. Carriers may not give you the maximum rate relief if you change often.

What to do if you change
If you change often, be sure to keep your current carrier in the loop at renewal time. You must give your current carrier a fair opportunity to renew your business. Underwriters can carry grudges if they feel they were not given a chance to renew your group.

If you place all your cards on the table and your current carrier fails to renew your business, then it will understand and not be as upset.

Get assurances that your current carrier is given a fair shot. Some agents, brokers and consultants will insulate you from your carrier. Insist on meeting or communicating with your current carrier to ensure it understands what’s happening.

You will find that if you are giving your current carrier the last look, you may not be changing carriers as often as you were.

You can also hurt your negotiating power if you change carriers often for a minimal savings. Although costs are getting so high that even a slight variance in rates can add up to substantial hard dollars, the general rule is anything more than 5 percent is understandable.

Some disadvantages
The primary advantage of changing carriers is financial. New-age thinking states that changing medical carriers more frequently than every three years will cost you more in the long run.

The theory is that disease management and consumer tools need time to work. The fact that large claims drive most of your costs leads experts to believe that a strong disease-management program can be the most cost-effective tool in controlling costs.

If you change carriers frequently, it doesn’t allow enough time to engage the chronically ill members of your plan. Disease-management programs are not one-time events. They are a continuing process with frequent interactions with members.

Disease-management programs cover patients with asthma, diabetes, cardiac disease, lower back problems, obstructive pulmonary disease, depression and weight-management issues, to name a few. If the contacts, protocols and even programs themselves change frequently, member will be less likely to engage in these (mostly) voluntary programs.

Good habits are hard to form, even in the best environment. When the sources used to help members form and maintain new habits change, members get frustrated and quit trying to keep up with the changes.

So when does a company stop chasing the low rate and focus on managing its medical plan? This question is becoming more valid as the field of medical carriers continues to shrink.

The average time between a carrier and an employer ranges from three to five years. Can you maintain a carrier relationship for five years and still maintain competitive rates? The answer is yes.

The temptation is great when you see a low rate, but you need to explore the disadvantages of chasing the lowest costs.

Bruce Bishop (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach Bishop at (770) 425-6700 or (800) 874-2244, ext. 205.

Tuesday, 27 September 2005 09:11

Competitive benefits

Why offer employee benefits? This core question often gets lost during the review of a group’s employee benefits program. Owners, CFOs and even HR directors are starting to look at benefits as just another expense. However, if your lose sight of the reason why you offer benefits, then you may be throwing good money after bad.

Benefits are offered for two primary reasons: recruiting and retaining employees. The best test of a successful benefits program is employee participation level.

Although medical is only one of many benefits that can be offered, it is a core benefit. Over the years, participation in medical plans has slipped from 100 percent down to as low as 50 percent. Most employers have failed in their mission to provide benefits primarily because they are trying to maintain the benefit cost level at the expense of having employees drop their coverage. In addition to losing the core value of retention, groups are in jeopardy of their plans terminating. Most insurance carriers and HMO plans require a minimum of 50 percent participation.

When participation drops, the health risk of the smaller enrolled population is greater, resulting in larger increases at renewal. This cycle is a death spiral that can lead to plan termination. Once you lose an enrollee, it is doubly tough to get them to return to your plan. You will have to offer a substantially better-priced plan than their alternative in order to motivate them to drop their alternative plan and return to your plan.

It is inevitable that we are returning to major medical plans with high deductibles, but most employers are afraid to even offer these plans. Remember one thing — employees are more concerned about their payroll deductions than they are about the level of coverage.

Employees don’t know if they will be sick, but they do know that every pay period they will have a payroll deduction for their plan. Eighty percent of plan members use less than $1,000 a year in medical benefits. Forty to 60 percent of the enrolled members use less than $500 a year in medical benefits. The point is that most people are overinsured. Once again, employees are more concerned about their payroll deductions than they are about the level of coverage.

Many people forget that high-deductible plans can still have co-pays for office visits and prescription drugs. High-deductible HMO plans with co-pays are priced less than most HSA plans, and HSA plans cannot have co-pays. Most HSA plans are based on PPO platforms, which by default are more expensive than high-deductible HMO plans with co-pays.

Now that we have beat up medical, lets review your other benefits. Other company-sponsored benefits are becoming as powerful as medical.

These other benefits do not have be a free benefit to the employee. Voluntary benefits continue to gain momentum. Participation on voluntary benefits do not have to be high. The general rule of thumb is that if you can’t get 25 percent participation in a voluntary benefit, then it may not be a strong value proposition.

Getting all or most of your employees to participate in at least one company-sponsored benefit is the ultimate goal.

Voluntary benefits include AFLAC, vision, dental, disability, life insurance, auto and home insurance, and even pet insurance. Although some funding by the employer helps the value proposition, the best voluntary benefits don’t need it.

Group auto and home insurance can be the best voluntary benefit, because employees are already paying for that coverage and the savings are typically 10 percent. The other value of group auto and home insurance is that it is payroll-deducted and does not require the typical 3 month to 6 month initial payment.

One tool employers should use in evaluating the competitiveness of their plans is a survey of other employers’ benefit offerings. Understanding what other employers offer and how much they charge employees can be a powerful tool. Your agent should be the best source for providing benchmarking and survey data.

Bruce Bishop (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach Bishop at (770) 425-6700 or (800) 874-2244, ext. 205.

Monday, 24 January 2005 06:09

Unbundling by state

If you have multiple employees in multiple states, your best benefits choices may be found in regional solutions; there are only a few reasons why you should ever choose a global solution.

If you want benefits to be exactly the same and have the easiest administration, then a one-plan solution is the best choice for your company. However, if you want the best plan for your employees at the best price, then you should go with the best regional solutions. Typically, the savings to unbundle a national plan into regions can be as much as 30 percent, and you may be providing better benefits.

Here are a few factors you should review when you consider unbundling your benefits.

* The only benefit worth unbundling is medical.

Life, disability and vision insurance gain no distinct advantage when you unbundle them by state. A case can be made for dental coverage only if you have a dental HMO as an option, but even then, the advantages are limited.

* The magic number of eligible employees is 50.

The requirement for individual underwriting typically stops at 50 eligible employees. Having your rates increase after open enrollment because an unknown health condition was discovered can be a big problem.

Although you can conduct prescreening with your employees, enrollment can still change at the formal open enrollment, potentially picking up a new member with health conditions. Although 50 is the best number, you can have as few as five employees and still make it work.

* National carriers or administrators are seldom the best player in each market.

The greater the number of markets, the greater the odds that one plan is not the best solution. If you look at enrollment by state or region, national carriers are seldom the dominant plan in any location.

* Regional HMO plans can be priced 20 percent to 30 percent lower than PPO plans.

When you factor in HMO plans, the regional-plan solution starts to gain momentum. Even the best national HMO carriers have limits to their HMO networks. Some national HMOs closed markets because they simply could not get enough market share to justify sticking around.

* Different parts of the country can look at medical benefits differently

Employers who are concerned with offering market-competitive benefits should look at each region to discover what other employers offer. Employers are often surprised how different markets can be on what is considered competitive in recruiting employees.

* Different plans result in different rates.

Your rates will vary from plan to plan due to many factors. As medical plans can vary from state to state, so can employee contributions for those plans.

Always look at the overall cost for all regions combined. Some regions, such as the Northeast, may have substantially higher rates than the one-plan approach.

* Isolating health conditions can be a hidden advantage.

A large, ongoing claim can pollute any group, regardless of the population of the group. Unbundling a group can isolate the negative impact of an ongoing claim.

Many employers lose sight of this fact when an unbundled region is battling a large increase. Although you have multiple plans, you are still one company. It's important to consolidate your funding methodology. If one location receives a higher-than-normal increase, the effects are offset by the other locations.

* Don't wait for your broker to recommend this approach.

This approach is substantially more work for the broker. Each location requires the same review as the one-plan review. If you have three locations, it becomes three times the work for the broker.

If you want the best benefits for your employees at the best cost, you are going to work harder to manage them, but doing so can substantially improve your benefits and your bottom line.

Bruce Bishop (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach him at (770) 425-6700 or (800) 874-2244, ext. 205.

Wednesday, 30 June 2004 05:21

Agency models to avoid

When you meet and interview benefits agents, you are presented only the advantages, not the disadvantages, of their model. Here are some of the more common models you will run into as the person responsible for selecting your company's benefits agent.

 

Catch and release

You meet a really smooth, talented agent who promises to deliver personal attention and value from years of experience. You hire this agent and start your agent honeymoon with a twinkle in your eye.

At the very next renewal time, you find yourself working with someone different within the agency. This person is decent but not the same person who sold you on changing agents.

Did you do something wrong? Did you put on weight? Why did you get dumped? That is when you realize that you have been caught and released.

Some agencies find success in having their best agents focus on catching new clients, then handing them over to a team. The first person you met was not your agent but your salesperson.

The principal reason you use an agent is to get the best advice, council and leverage. You need this advice every renewal, not just the first year. Choosing your agent is like choosing an attorney -- you need to work with the very best every year.

 

Jack-of-all-trades

On the surface, this approach sounds pretty good, one agent for all your insurance needs. This agent is typically a property and casualty agent who also shops employee benefits. If all you want is someone to bring you quotes, then the Jack-of-all-trades is an acceptable model.

However, most employers need more expertise and service than having quotes brought to the table. Employee benefits have evolved over the years and will continue to evolve into an extension of the HR department. HIPAA, COBRA, HRA, HAS and FSA are just the tip of the iceberg of the complex laws and plans that require a master of the trade.

 

Large block of stagnant business

Having a large block of business is a value, but if the agency is not growing by adding new clients, its leverage is diminished. All insurance carriers need to grow their business.

Most insurance carriers renew 90 percent or more of their clients. When it comes to getting favors, exceptions and rate relief, it's the agent placing "new business" with the carrier who has the better chance than the agent simply "getting quotes."

When interviewing an agent, ask about the last three years of growth, not in revenue but in the number of clients.

 

Solo practice

This is the most common agency model. The pitch is that the agent who handles everything can have a more hands-on, personal relationship with the group. In many cases, that's exactly what is happening.

Employers have a difficult time changing from this model because they have such a strong personal relationship with their agent.

But this model fails across the board. Limited growth thus limited negotiating power, limited agency services and limited access for employees with claim problems. The best analogy is the local hardware store being put out of business by Wal-Mart and Home Depot. This agency model will continue to fades.

 

No agent at all

This is the model some employers have moved to out of spite. They see their agent playing an insignificant role in negotiating rates and providing services. Although this approach can have an initial savings of 5 percent to 10 percent based on no commissions, the reality is that working without an agent is more expensive.

That sounds self-serving, but look at the facts. An agent who has just 10 group clients has more negotiating power than you do with your one group.

Insurance carriers want you to use an agent. Without an agent, your calls and questions go to the carrier rep, who becomes your agent, costing the insurance carrier more money. This is why some carriers refuse to reduce your rates if you don't use an agent.

The bottom line is that you don't need to stop using an agent. You need to start using a better agent.

Bruce Bishop (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach Bishop at (770) 425-6700 or (800) 874-2244, ext. 205.

Tuesday, 25 May 2004 07:22

Looking ahead

If you had a real crystal ball, would you be too scared to ask it questions?

Some people prefer not to know the future, based on the feeling that nothing can be done to change it, so why get worked up about it? But regardless of whether it is good or bad, the real value of knowing the future is preparing for it.

Do I have a crystal ball for health benefits? As a matter of fact, I do. Look with me into the mist to see the future.

 

A return to major medical plans

The plan design of the future will be a $5,000 deductible, then 100 percent coverage. There will be no co-pays for office visits or prescription drugs. Employees will be responsible for the first $5,000 of health care. Of course, there will always be options for richer plans, but the $5,000 deductible, 100 percent coverage plan is inevitable.

There are only two reasons a person should have medical insurance. The first is to prevent a financial catastrophe. People should not be forced to sell their home and liquidate all their assets if they have a major medical problem.

The second, and more important, reason is to ensure treatment will be provided if you experience a major medical problem. Health care providers can refuse to treat patients who don't have insurance. Most diseases can be controlled or cured, but if you have no medical insurance, the consequences can be grave when treatment is delayed or denied based on financial hurdles.

Preventive care services such as immunizations, cancer screenings and well-woman exams will be covered in full or for very little out-of-pocket expense.

When: Three to six years. The trend has already started, but will be rocketed by the Health Savings Account.

 

Health Savings Accounts

The HSA is the 401(k) of health insurance. HSAs will be as popular as 401(k) plans are today.

As with 401(k) plans, HSA programs will provide solutions that make it a no-brainer to enroll. Also as with 401(k)s, it will be a challenge to convince employees to take advantage of it while they are young. Education programs will play an important part of their success.

When: No later than three years. Although the HSA account is available now, insurance carriers on the whole are not ready on the HSA plan that goes with the HSA account. January 2005 will see the beginning of the move to introduce these plans.

 

Healthier employees

The trend toward obesity will start to ebb and eventually reverse.

When: Five to eight years, or a few years after high-deductible plans become standard. People will start living healthier lives when the costs associated with being sick sting a little more than they do today.

 

Carriers will become banks

Insurance carriers and banks will become one entity. Carriers will buy banks or become banks.

When: It's already here. The HSA has accelerated the carriers to buy or become banks. The reason is a combination of reductions in premium associated with HSA plans (20 percent to 30 percent less than most in-force plans) and seeing money going out the door to financial institutions to fund the HSA. Even Property & Casualty insurance carriers are becoming banks. State Farm Insurance already has a bank, and is doing very well with it.

 

Changing role of insurance agents

The insurance agent of the future will provide more services than just shopping, spread-sheeting and assisting with claims problems. Insurance carriers will leverage agents, and so will the client.

Agent contracts with insurance carriers will line item more and more specific operational duties that were previously performed by the carrier. Clients will view their benefits agent as an extension of their HR department and demand more services and tools.

When: Four to seven years. Although some benefit agencies are starting to do more for their clients, it will take the insurance carriers to force the agents to do more.

 

I hope this didn't scare you. Your next move, if you dare to look into the crystal ball, is to prepare for the future. Bruce Bishop (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits, which provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach Bishop at (770) 425-6700 or (800) 874-2244, ext. 205.

Thursday, 18 December 2003 06:34

Does size matter?

It's a common myth that big companies get better (lower) rates.

But if that were true, General Motors' rates would be free. The only thing that a large group is guaranteed is that more of its claims experience will be used to determine its rates. Underwriters use the term "credibility" when discussing how much claims experience is blended with manual rates to generate rates.

The following credibility table shows how claims experience is used, as a percentage, for each core benefit typically offered (medical, dental, short-term disability [STD], long-term disability [LTD] and life).

The credibility table for medical is more complex than what is indicated above due to Georgia laws governing underwriting formulas for groups with fewer than 50 employees. In addition, the medical table can vary based on HMO, POS, PPO and even self-funded plans.

Although the medical credibility table can vary, the answer is still the same. The bigger you are in the number of covered employees, the more your claims experience is going to drive your rates. The inverse is also true -- the smaller the group, the less claims experience is used, resulting in manual rates driving most or all of your rates.

Manual rates are generated using your company's demographics (age, gender, industry, location, number of singles and family contracts) and the plan design selected.

Each carrier uses slightly different credibility factors, and, in turn, their renewal formulas will be different. Knowing the carrier's renewal formula will help you pick the best carrier for your company.

Although some renewal formulas can be as many as 30 lines of calculations, the core formula that determines 85 percent of your renewal rates is ((claims experience rates x trend) x credibility) + ((manual rates x trend) x inverse of credibility) = rates (new or renewal).

Here are some things to remember the next time you are renewing and reviewing your benefits.

* Ask each carrier to provide a copy of its renewal formula in writing. They will look at you with a blank look because very few people ever ask for it.

* If your medical claims experience is poor, pick a carrier that uses less claims experience and more manual rates.

* If your claims experience is good (lower than a 75 percent loss ratio), then pick a carrier that uses more claims experience. Remember that going with a carrier with higher claims experience is a gamble, as forecasting claims experience is not an exact science.

* If your life or LTD (long-term disability) carrier states that your renewal was based on claims experience, challenge it using this credibility table. Some carriers still try to use claims experience, even when the formula does not call for it.

* If your company employs fewer than 100 people and shopping your STD (short-term disability) benefits and your claims experience has been poor, don't give the carriers your claims experience. Carriers may ask for STD claims, but you don't have to give it to them. Tell them to use just manual rates, and you should get a better quote.

Knowing your carrier's renewal formula and the formulas from the carriers quoting on your business is a gigantic advantage in leveraging the best rates.

Bruce Bishop (bruce@kybabenefits.com) is the director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts ranging in size from 20 employees to more than 7,000. Reach Bishop at (770) 425-6700 or (800) 874-2244, ext. 205.

Thursday, 20 November 2003 09:09

Employee contribution strategies

One of the most important decisions an executive must make is the employee contribution strategy for his or her company's group medical program.

This single decision has the widest array of consequences because employees rate the amount of their contributions (payroll deductions) as more important than the level of benefits and, for the first time, more important than the network of providers.

Before making your next decision on employee contributions, consider the following factors.

Try to keep the plan intact

The minimum goal of every employer-sponsored group plan is to keep the group plan in place. With employee contributions increasing, many employer plans are experiencing drops in employee participation.

To keep your contract from terminating, most carriers require 50 percent of eligible employees to participate. Some ask for quarterly wage and tax reports upon renewal to verify participation levels.

The requirement is 50 percent of your employees, not 50 percent of their dependents. Most contracts have no requirement for dependent participation. Your contribution strategy should be focused primarily on employee-only (single) coverage.

People shop around

Employees will shop their employer-sponsored benefits with their spouse's plans and individual plans and also consider going uninsured. Once you lose employees from your group plan, it is difficult to get them back. Employee contribution is the most important component of maintaining minimum participation requirements.

The average hard dollar cost for employee-only coverage ranges between $60 and $70 a month for medical plans with $1,000 to $1,500 of total out-of-pocket (including any deductibles), $15 office visit co-pay and a prescription drug co-pay benefit of $10 generic, $20 name brand and $45 nonformulary.

Reduced contributions

If your employee contributions are too high for single coverage, consider reducing employer contribution toward dependent coverage to increase funding toward single coverage.

The average hard dollar employee contribution for family coverage with similar benefits ranges between $275 and $300 per month. Even large employers are struggling with supporting these low contribution levels.

Some employers have successfully required the working spouses of their employees to prove a lack of access to medical benefits from their own employer before they become eligible to participate in the plan. Employers do not want to insure somebody else's employee. If the employer is paying any amount toward dependent coverage, he or she may be paying for someone else's employee.

With more employers looking for ways to eliminate waste, this may eventually be standard practice. It sounded harsh when employers first asked employees to pay toward single coverage; now, less than 10 percent of employers pay all of the cost of single coverage.

Multiple plans

Contributions for multiple plan offerings can also be tricky. The employee needs a financial incentive to enroll in the low-cost plan option, which typically has the highest dollar expense for out-of-pocket expenses and co-pays.

Worksheet assistance

Employees are using worksheets and even electronic Benefit Wizards to help make intelligent decisions in selecting which benefit plan is best for them. Employees will be making better decisions to make sure they are not overinsured. This should be the primary focus when employees select a plan from the list of options presented during open enrollment and initial enrollment as a new employee.

Executives should run through these worksheets themselves before deciding on contribution strategies. There is no advantage in offering a low-cost plan if no one elects it. This exercise can help executives select the correct low-option benefit plan(s) to offer employees.

As the industry takes the next logical step toward consumer-driven health care, everyone -- including the employee -- is asking, "How much insurance do I really need?"

Although medical benefits are an important part of the total compensation package, an employer should factor in other compensation including, vacation, sick days, work environment and, of course, pay rates before making final decisions.

Bruce Bishop is the director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts ranging in size from 20 employees to over 7,000. Reach him at (770) 425-6700, (800) 874-2244, ext. 205, or (bruce@kybabenefits.com).

Friday, 20 October 2006 13:11

Agency models to avoid

When you meet and interview benefits agents, you are presented only the advantages, not the disadvantages, of their model. Here are some of the more common models you will run into as the person responsible for selecting your company’s benefits agent.

Catch and release
You meet a really smooth, talented agent who promises to deliver personal attention and value from years of experience. You hire this agent and start your agent honeymoon with a twinkle in your eye.

At the very next renewal time, you find yourself working with someone different within the agency. This person is decent but not the same person who sold you on changing agents.

Did you do something wrong? Did you put on weight? Why did you get dumped? That is when you realize that you have been caught and released.

Some agencies find success in having their best agents focus on catching new clients, then handing them over to a team. The first person you met was not your agent but your salesperson.

The principal reason you use an agent is to get the best advice, council and leverage. You need this advice every renewal, not just the first year. Choosing your agent is like choosing an attorney - you need to work with the very best every year.

Jack-of-all-trades
On the surface, this approach sounds pretty good, one agent for all your insurance needs. This agent is typically a property and casualty agent who also shops employee benefits.

If all you want is someone to bring you quotes, then the jack-of-all-trades is an acceptable model.

However, most employers need more expertise and service than having quotes brought to the table. Employee benefits have evolved over the years and will continue to evolve into an extension of the HR department. HIPAA, COBRA, HRA, HAS and FSA are just the tip of the iceberg of the complex laws and plans that require a master of the trade.

Large block of stagnant business
Having a large block of business is a value, but if the agency is not growing by adding new clients, its leverage is diminished. All insurance carriers need to grow their business.

Most insurance carriers renew 90 percent or more of their clients. When it comes to getting favors, exceptions and rate relief, it’s the agent placing new business with the carrier who has the better chance than the agent simply getting quotes.

When interviewing an agent, ask about the last three years of growth, not in revenue but in the number of clients.

Solo practice
This is the most common agency model. The pitch is that the agent who handles everything can have a more hands-on, personal relationship with the group. In many cases, that’s exactly what is happening.

Employers have a difficult time changing from this model because they have such a strong personal relationship with their agent.

But this model fails across the board, with limited growth, thus limited negotiating power, limited agency services and limited access for employees with claim problems. The best analogy is the local hardware store being put out of business by Wal-Mart and Home Depot. This agency model will continue to fade.

No agent at all
This is the model some employers have moved to out of spite. They see their agent playing an insignificant role in negotiating rates and providing services. Although this approach can have an initial savings of 5 percent to 10 percent based on no commissions, the reality is that working without an agent is more expensive.

That sounds self-serving, but look at the facts. An agent who has just 10 group clients has more negotiating power than you do with your one group.

Insurance carriers want you to use an agent. Without an agent, your calls and questions go to the carrier rep, who becomes your agent, costing the insurance carrier more money. This is why some carriers refuse to reduce your rates if you don’t use an agent.

The bottom line is that you don’t need to stop using an agent. You need to start using a better agent.

Bruce Bishop (bruce@kybabenefits.com) is director of marketing and managing partner of KYBA Benefits, which provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach him at (770) 425-6700 or (800) 874-2244, ext. 205.

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