Bruce Bishop

If you had a real crystal ball would you be too scared to ask it questions? Some people prefer not to know the future. This fear is based out of the feeling that nothing can be done, so why get worked up about it. Regardless if the future is good or bad, the real value of knowing the future is preparing for it.

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

A return to major medical
The plan design of the future will be a $5,000 deductible, then full 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 to have richer plans, but the $5,000 deductible, full-coverage plan is inevitable.

There are only two basic 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 most important reason to have medical insurance is to insure that 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 turn grave when treatment is either delayed or denied based on financial hurdles.

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

When: No later than five years. Although many employers have added high-deductible plans as options to their benefits package, most employees are still willing to pay more to hold onto low co-pays and out-of-pocket costs. It is similar to the cost of gasoline. Gasoline costs continue to climb at the same time more Americans are buying bigger vehicles with bigger engines that yield lower miles per gallon. As long as Americans have disposable income, they will continue to purchase what they want.

If you haven’t added a high-deductible plan yet, you should. Introducing these plans as an option versus a replacement will help ease your population into the plan of the future.

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

When: No later than five years. Although the HSA account has been available for several years, its introduction will go hand-in-hand with the introduction of high-deductible health plans. Once again, you should start adding these plans now as an option.

Corporate wellness programs
The obesity trend will start to ebb and eventually reverse. As high-deductible plans increase enrollment, employees will be more motivated to avoid the expense of getting sick. Although the numbers vary depending on who you talk to, 70 percent of all health expenses can be avoided or managed.

Wellness is the final frontier in controlling health care expenses. The return on investment is already too great to ignore, but employers need to invest time to implement and maintain a successful wellness program. Eventually, every Human Resources Department will also become a wellness center.

The good news is that successful wellness programs do not require a great deal of time nor money. Please note that they do not run by themselves. The best wellness programs are found when the corporate culture embraces wellness.

Employer-sponsored snack machines in the future will not have Ding-Dongs, Honey Buns and potato chips. They will have granola bars, nuts, fresh fruit and diet drinks.

When: This will take five 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 today.

I hope this didn’t scare you too much. Your next move, if you dared to look into the crystal ball, is to prepare for it.

BRUCE BISHOP ( 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.

Wednesday, 17 May 2006 05:18

A heavyweight match

As with the Rocky Balboa story, many people would not pick a dental HMO over the long-standing champion, traditional insurance. But before automatically discounting the dental HMO (DHMO), consider the following.

The champion
In this corner, we have traditional coverage, the most popular plan. The cornerstone of this classic plan is the freedom to use any dentist. With the frequency of at least two preventive visits a year, many people’s relationship with their dentist has become more important than that with their medical doctor.

Even so, traditional plans have been changing over the years from pure indemnity to passive dental PPO plans. They are referred to as passive because there is no penalty for using nonnetwork providers. If an employee does not use a network dentist, he or she has the same benefits as with the age-old indemnity plan.

Driven in part by some state laws, most dental PPO plans must offer the same deductibles, co-insurance and maximum payment limits whether patients use a network provider or not. Many times, employees who are enrolled in a passive dental PPO plan don’t even know or remember they have an incentive to use network providers.

The primary advantage of using network providers is that the employee participates in an average discount from usual, customary and reasonable (UC&R) charges of 25 percent, as well as no balance billing from the dentist. Despite this incentive, many employees are not motivated enough to change dentists. Even the largest networks in the country only cover one-third of licensed dentists. As a result, the reductions in premiums for these passive PPO plans compared to pure indemnity is only 4 percent to 8 percent. Nevertheless, passive PPO is the current champion of dental plans.

The Achilles’ heel of these plans is their limit on benefit payments. The most common plan has a maximum calendar year benefit of $1,000. Although less than 7.5 percent of people enrolled have more than $1,000 a year in claims, over a five-year period, you could have 37.5 percent of your employees find the $1,000 limit a problem. Increasing the maximum to as much as $2,000 does not resolve this issue.

Because of this benefit cap, I refer to traditional dental plans and PPO plans as dental “assistance” not dental “insurance.”

The challenger
In the other corner we have the challenger, the leaner, tougher dental HMO.

The typical DHMO has no deductibles, no claim forms, uses predictable co-pays versus co-insurance, protects you from UC&R cutbacks and has no dollar limit on dental services. If you require $5,000 of dental services, you’ll get it. Last but not least, the premiums can be 50 percent less than those of traditional or PPO plans.

Many companies have purchased a DHMO on this simple comparison, but you must truly understand the limits of a DHMO before determining if it’s right for your employees. The biggest hurdle is the network. You must receive services exclusively from providers within the network. The lists are much smaller than those for even PPO networks, and in some rural areas, they are nonexistent.

The other concern is that procedures outlined in the benefit summaries are the only services covered. There are hundreds of different procedure codes for dental services. If a procedure is performed that does not match one on the list, it’s not covered. This is one of the reasons employees should take their benefit summaries with them to DHMO dental appointments.

Some employees may also find difficulty in scheduling their first preventive service. Although not uncommon with any dentist, DHMO dentists typically push preventive services like your semi-annual teeth cleaning four to six months out. Of course, if you have any pain or require immediate attention, a DHMO patient will be seen immediately.

A DHMO is not the best fit for everyone. If you’re interested in a DHMO, consider offering both it and a traditional plan, letting employees choose which is right for them. Typically, 30 percent of employees will choose the DHMO over the more expensive traditional or PPO dental plan.

Educating employees on the advantages and disadvantages of the DHMO is critical to a successful DHMO program. If you want a dental plan that can go 15 rounds, like Rocky Balboa, then the DHMO and its unlimited benefits can be the champion.

BRUCE BISHOP ( 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.

Wednesday, 22 March 2006 11:10

The race to wellness

Wellness could be the final frontier in managing expenses related to health insurance. Although wellness programs have been around for a long time, they have been viewed more as an added value and not a company-promoted program that generates results.

Employers want results and not just another program to administer. The two primary components to an effective wellness programs are:

  • Measuring the success of the program

  • Having a program that will change the behavior of your target audience

The perceived inability to measure success has been the primarily reasons why employers have failed to invest either time or money into an effective wellness program.

The truth is that an employer can measure the success of a wellness program. There are many tools that can be used but only within the last five years have enough employers measured them to have other employers believing the data.

According to the 2006 International Foundation report on wellness the following companies reported the following returns on their wellness programs.

ROI $1.40 to $4.90 - Chevron, General Mills, General Motors, Johnson & Johnson, Pacific Bell, Proctor & Gamble, Tenneco.

Other employers are reporting higher ROI, including Bank of America and Citibank at $5.50 to $6.50, and as much as $13.00 from some of the national health insurance carriers.

A successful wellness program should not be measured by your renewal increase on your medical plan alone. Based on general credibility factors, it is harder for smaller companies to count on the same ROI as larger firms. An employer could have a dynamic wellness program with measured success and still receive a gigantic increase in their health insurance costs based on a few catastrophic claims.

Wellness can be very dynamic and impact more than just the expense of your employee benefits programs. It can affect the overall productivity of your workforce. Reduced absenteeism, improved Workman’s Comp claims, higher job satisfaction and reduced turnover can all be achieved by a dynamic wellness program.

ROI statistics will continue to improve as more time and more employers implement effective programs.

Changing behaviors
The second primary component to a successful program is also the most difficult. Changing someone’s behavior is not guaranteed, but again statistics show that enough people are willing to change to make it worthwhile, and the previous ROI figures were based on these following enrollment figures.

More than 80 percent of survey respondents had an average employee participation rate of 50 percent or less. Specifically, 36 percent report average participation in the 10 percent to 25 percent range and 27 percent in the 26 percent to 50 percent range, and 19 percent of respondents experience participation levels less than 10 percent.

Look for participation levels to increase as employers move from an incentive-based program to a combined incentive- and punitive-based program. Using the stick along with the carrot will produce the best results. More employers are starting to penalize employees who don’t participate. Participation levels have a direct correlation with the ROI of the wellness program.

The State of Georgia employee benefits program has tied avoiding the tobacco penalty with the health risk assessment and wellness program. An employee must take the health risk assessment and review wellness programs to avoid the surcharge of $40 a month.

About two-thirds of all respondents offer an incentive program. Thirty five percent of respondents use non-cash rewards, including T-shirts, gym bags and water bottles. Twenty-five percent report using gift cards, and 16 percent report reductions in copays and deductibles for those who participate.

Constant attention
A common mistake in building a wellness program is taking the approach that, “if we build it, they will come.” Successful wellness programs need constant attention. Forty-six percent of employers use internal staff to manage the program, 11 percent use only outside vendors, and 39 percent use a combination of internal and outside vendors.

Like any successful program, the more you put into it, the more you will get out of it.

The other important item to remember is that you can build your program to your liking. Corporate culture along with your specific goals and objectives will help you build the best program for your people.

BRUCE BISHOP ( 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, ext. 205.

Tuesday, 14 February 2006 05:53

Smoking cessation programs

Free smoking cessation programs are widely available for businesses to utilize. But don’t let the word free lead you to believe that smoking cessation programs must be weak or incomplete. The fact is, the tobacco settlements have paid for the programs. These are successful programs with outbound calls and enrollment certificates.

The first thing you should do is ask, “Why does my business want to utilize a smoking cessation program?” Determining this first will influence the type of program you need to put in place to accomplish your goal. Here are some common reasons for using the programs.

  • We care about our employees’ health, and we want to help them without being punitive

  • We believe smokers cost more to insure and they should pay more for their benefits

  • We believe smokers cost the company more money in general because they take more breaks and they are out on sick days more than nonsmokers

Every year you should review the reason why you have a program and make adjustments to your program accordingly.

The next thing to do is choose your resource. There are numerous places to get your free program.

  • Your health insurance carrier

  • 1-800-QUIT-NOW

One strong combination is No. 2 and No. 4. The Web site has all the materials you will need to put together a high-quality program. You can use the materials to conduct your own classes and enroll in a customized program.

Combining the Web site with the 1-800-QUIT-NOW program will allow you to include those employees that may not have adequate access to the Internet. Employees anywhere in the country can call this toll-free number and are automatically routed to their state’s smoking program.

These programs have coaches that will evaluate the caller’s needs and customize a program for them. This program includes written materials, referrals to local free resources and up to four outbound calls over a two-month period to check on their progress.

The next thing to do is to establish a consequence if the employee is a smoker. If there are no consequences, the program will typically fail. It is good to follow large public or government programs, as they are typically the least punitive and a good reference point in your communication to your employees. The state of Georgia has a $40 monthly penalty if anyone who is covered by the health plan uses any form of tobacco.

The following are the recommended consequences of being a smoker.

  • Remain a smoker and pay the increase in employee contributions for the medical plan

  • Pay a slightly smaller monthly penalty if you come to the company smoking cessation meeting and provide proof that you have enrolled in the state-funded program but remain a smoker

The next thing that you must do is establish the consequences of getting caught smoking if you have declared yourself a nonsmoker. This is the most difficult part of your program. The employee should receive a document that outlines the consequences of smoking, and the document should be signed by each employee. Give members the opportunity to come forward on their own if they return to smoking to avoid a harsher penalty. The following options are currently used by programs all over the country.

  • Immediate implementation of the standard penalties

  • Repay back to the beginning of the plan year all penalties

  • Termination of eligibility in the medical plan

  • Termination of employment

The last thing to do is pick an implementation date for the penalties. Give your employees notice of the new program and a way to stop smoking before the penalty is applied. Any program with consequences will be received negatively by the employees that use tobacco — having a program in place to help your employees quit shows them you want to help. Six months to one year is the recommended ramp-up period.

Bruce Bishop ( 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, 22 August 2005 07:10

The role of surveys

One of the easiest and most efficient ways to ascertain employees’ opinions on everything from benefits to management to overall employment experience is to conduct an employee survey.

Benefits surveys
With more and more of the cost of benefits shifting to employees, it is increasingly more important to ask employees what they want to buy. The employer’s benefits package is like a store with products for sale. If you aren’t in touch with what your target audience wants, then you’ll miss a sale. You may not like the previous analogy, but benefit programs are for recruiting and retention of employees. If the employees don’t choose to enroll in your benefits package, you have failed, even if an employee takes (or stays with) a job.

To ensure that employees want your benefits, employee surveys should be conducted after you have completed your annual benefits review and before open enrollment meetings. Surveys are best conducted when you know exactly what you want to ask.

For example, asking an employee if they want to pay more to stay with the same benefits program is vague. Asking the employee if they want to pay $7.27 more per pay period to keep the same medical plan is based on the specifics of your final review. Conducting a survey is a science and you should be careful how you phrase any question. Avoid any open-ended questions. Some employers are afraid to ask their employees’ opinion, for fear of not being able to give them what they want.

What does any employee want? The employee survey can help make final decisions on carriers or benefits packages. The best surveys explain to the employees exactly what problems the employer is grappling with in this year’s annual benefits review. Don’t be afraid to share with your employees the dilemmas you may be facing. This involvement will always soften the blow of a tough renewal.

The other fear employers have is not getting a consensus. Once again, you have to understand that you are never going to get a full consensus. You should also understand that many employers are now offering three, and sometimes five, medical plans. Choice will continue to be the future of health care plans.

Surveys need to be limited to core questions. There is no magic number. If you have a question that you think is important to get feedback on, then ask it.

Picking the best format for conducting your survey is important. Paper surveys are typically the best, however Internet surveys are more powerful. The best Internet survey tool is Key Survey. It is relatively inexpensive, comparable to mailing a survey, and Key has fantastic customer service. Check it out at

Exit surveys
Another important employee survey is an exit survey. These are the trickiest of all surveys, as the ex-employee has no incentive to complete the survey. So you have to create the incentive. Paying an ex-employee as little as $25 will dramatically increase your survey response. American Express gift certificates or vouchers work well, because if the employee never uses it, the employer avoids the expense.

The other option is to outsource the survey. Ex-employees have a fear of retaliation by their former employer and so choose to distance themselves. By having a third party administer the survey, your success ratio will improve dramatically. These surveys can be kept confidential by using a third party, unless the ex-employee grants authority to release the results.

Exit interviews go through more questions than just satisfaction with benefits. These surveys ask other vital questions, including knowledge of nonethical conduct by current employees, as well as why the employee chose to leave.

Your employee benefits broker should be the best source for assistance in these surveys but developing the survey questions should be a team effort.

Bruce Bishop ( 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.

A new trend in health care benefits is enacting tiered contribution plans based on lifestyle choices. The most common lifestyle choice that employers are using to determine different contributions is a person’s smoker/nonsmoker status. Although this is the most common lifestyle choice, the list of options is much longer and more dynamic.

As with any nonstandard or new concept, many employers are interested in the concept of tiered contributions but are reluctant to be the first to pull the trigger. The good news is that the starting gun was recently fired by the state of Georgia, which announced an increase in contributions for medical coverage if employees or family members smoke.

This bold move was met by tough opposition, mostly from the smoking population. With an increased contribution of $40 a month, the state of Georgia is hoping this will be enough to motivate employees to stop smoking — the ultimate goal of these increased contribution plans.

Sources suggest that up to 70 percent of illnesses are lifestyle-related. And the only way to truly reduce health care costs is to reduce claims. Employees who follow healthy lifestyles incur fewer claims, and fewer claims mean lower health care costs. So why not focus on the cause of the problem?

Some lifestyle plans are taking the smoker/nonsmoker concept and adding body mass index, blood pressure and cholesterol levels. Experts agree that these are the four lifestyle factors that impact health care expenses the most, and each factor can be controlled.

As seen with the sweeping move to high-deductible plans, the creation of the health savings accounts, health reimbursement accounts and other consumer-driven plans, the tiered contribution strategy is an attempt to subsidize health care costs and change decision-making regarding health care spending.

If the tiered contribution idea seems too radical, another option is to give lifestyle credits toward a plan deductible. Using a $2,500 deductible plan, employees can qualify for credits worth $500 for each lifestyle choice. Each category met would translate to a credit toward the deductible, bringing employees who meet all four categories down to a $500 deductible plan. In this situation, employers are not charging the employee more in contributions but hitting them where the rubber meets the road. If you make poor lifestyle choices, then you will have more claims, and you will pay more for those services. This option may also go over easier with employees, compared to charging a smoker more per month in contributions when that smoker may not have more claims than the next person.

The range for scoring each factor can be as forgiving or as narrow as desired, allowing employers to set the standards they feel are most important. The cost of the deductible credits is also set by the employer. The goal should be moving toward medical standards for each of the four criteria.

It’s also important to note that these plans do not punish the sick. If someone has cancer or another disease, they could still be a nonsmoker, have low blood pressure, have normal cholesterol (even with medication) and be at an acceptable weight. The key word here is choice. Lifestyle choices are voluntary or can be controlled.

Implementing these plans may meet with resistance, so they should be slowly phased in. Some employers announce the introduction of this new lifestyle plan six to 12 months before implementation. Giving employees adequate time to meet these new standards emphasizes that the primary goal of the pro gram is to get employees and their families to live healthier lives. If everyone wants to take a sip of the truth serum, we would all admit that lifestyle choices threaten controlled premiums for the rest of the population. An additional $40 a month may not force everyone to stop smoking, but it’s a step in the right direction.

BRUCE BISHOP ( 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.

Friday, 16 July 2004 09:09

Employee benefit landmines II

First, there was Rocky V and Die Hard 3. Now, back by popular demand, is the followup to "Employee benefit landmines," our March article. It elicited such a great response that it only makes sense to offer several additional landmines that you probably don't know to avoid until it's too late.

As in the movie, Kelly's Heroes, once you know you are in the minefield, you can work your way out. Remember, even seasoned veterans sometimes miss landmines until they explode.

Sending the initial COBRA notification letter in the proper time and the proper way
COBRA no longer has the scare factor it once had. In the early days, it was like whispering the name Lord Voldemort. COBRA isn't dead. In fact, many HR managers are administering COBRA the wrong way.

The most common question missed when reviewing your COBRA administration issues is, "When and how do you send the first COBRA notification to an employee?"

Some people answer, "When an employee leaves," but that would be wrong. The first time an employee should receive the notice is when he or she enrolls in benefits that are subject to COBRA.

You are required to send the notice of rights to the employee's home, addressed to those enrolled, using first class mail. Many people fail because they try to do more than the law indicates. All other formats may sound better, but may get you into deep trouble.

Working on an executive's claim problem without being in full HIPAA compliance
Employers realize that HIPAA is here to stay and have made arrangements to keep in compliance. Most employers have chosen not to be in full compliance because they are not assisting employees with claim problems.

However, some HR managers are still assisting top executives. Unless the top executive is the owner and the only person you are assisting, you are playing with fire.

An owner's spouse could file a complaint that could cause a liability for the company because you never know if divorce is in the cards. In addition, top executives are sometimes replaced.

The simple answer is that if you are not in full compliance, you need to tell the boss why you can't assist with his or her claim problem, or you need to get into full compliance. If your agent is assisting employees with claim problems, you still have to confirm your agent is in HIPAA compliance.

Auditing your payroll and first month's bill after open enrollment
Most people audit their bills, but you need to audit it against your payroll deductions. Many times, mistakes are discovered months -- and sometimes years -- after the change.

Don't wait until your next change. Audit payroll right away to prevent any problems from getting worse.

Miscalculating STD and LTD premiums
We see this mistake often. It is most common on self-administered billing. Although self-administered anything has value, it usually comes with liabilities. The consequences of this mistake impact deductions, and worse yet, coverage.

If you have been paying an incorrect premium, the benefit to the employee may be in jeopardy of being based on that incorrect premium. Here are the formulas and examples:

  1. LTD (Long Term Disability) -- Monthly gross salary / $100 x rate = monthly premium. $24,000 annual salary / 12 = $2,000 monthly gross salary. $2,000 / $100 X $0.25 (made up rate) = $5 in monthly premium.

  2. STD (Short Term Disability) -- STD can be the tricky because it is based on weekly benefit. Weekly wages x benefit percentage / $10 x rate = monthly premium. $24,000 annual salary / 52 weeks x 60 percent (benefit percentages can be different) / $10 x $0.25 (made up rate) = $6.92 monthly premium.

Please keep in mind that for both LTD and STD, there is usually a maximum premium based on the maximum insurable salary based on your policy limits. Bruce Bishop ( 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.

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. Please 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 you stray off your establish classes, whether in writing or in practice.

Bruce Bishop ( 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.

Wednesday, 23 February 2005 08:29

Delicate balance

There is a very strong argument that employees should pay 100 percent of the premium for long-term disability (LTD) insurance. Although many HR executives and CFOs understand the value of this, many are not aware of the dangers associated with transitioning from employer-paid LTD to employee-paid LTD.

Generally, the taxability of group disability benefits is based on the portion of the total premium paid by the employer. If the employee pays 100 percent of the premium on a post-tax basis, the benefit is tax-free. This is true if you start your plan having the employees pay 100 percent of the cost. However, it is not the case if you change from 100 percent employer-paid to 100 percent employee-paid.

A recent IRS ruling provides a distinction in determining the taxability of disability benefits for certain plans. Under the three-year look-back rule, a covered employee would have to pay 100 percent of his or her LTD premiums for three policy years with post-tax dollars in order to receive nontaxable benefits.

If an employee becomes disabled in the first year of the employee-pay-all format, the benefits would still be 100 percent taxable. Year two would be 66 percent taxable, year three 33 percent taxable and not until three years had elapsed would the benefit be tax-free.

An employer needs to be very careful to communicate this important fact to employees during the transition. If you fail to communicate this correctly, you may find yourself making up the difference in a court of law. Remember that LTD claims can last until a person is 65 or 67 years old, making this a potential 40-year nightmare.

Despite this hurdle, it can still be a good idea to transition to employee-paid LTD.

See the above chart for the following examples.

In the first example (ER pay), the employer is paying 100 percent of the cost and the benefit is taxable. In the second example (EE pay), the employee pays 100 percent of the cost. Notice that the LTD rate increased by 20 percent.

The carriers will add as much as 30 percent to a rate based on the assumption that fewer than 100 percent of employees will participate and the fact that a claimant receiving a higher benefit is less likely to return to work. Although some employers will return income back to the employee to pay for the premium, LTD carriers will still load the rates, even if 100 percent of employees enroll.

Although the rate increased by 20 percent in this example, the cost of the premium is still relatively low. If an employee is on an LTD claim for just one month, the tax savings could be as much as 70 months of premium payments ($700 or $10 a month).

In reality, the employer-paid LTD benefit replaces only 43 percent of the pre-disability income. ($2,500 benefit minus $700 tax = $1,800 after-tax benefit; $1,800/ $4,167 = 43 percent)

The fact that the monthly premiums are relatively low helps the employee afford the LTD premium on his or her own.

There are several ways you can approach your employees with this transition from company-paid to employee-paid. Some employers say they are increasing their benefit from 43 percent to 60 percent for only $10 a month. Other employers explain that savings from the employer's LTD premium will be used to fund a new vision plan, which, in most cases, costs less than the LTD premium.

If you do not have a LTD benefit, you should seriously consider offering an employee-pay-all LTD plan. You insure your house, your car, your teeth and your health, but if you don't insure your paycheck, all the other items cannot survive. An LTD plan is the horse that pulls the rest of the benefit wagon.

Bruce Bishop ( 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.

Friday, 29 October 2004 05:13

Self-funded vs. fully insured

Which funding arrangement is better -- self-funded or fully insured? At some point, every employer with group insurance asks this prudent and assertive question. With costs of medical benefits continuing to increase at multiples of the Consumer Price Index, more employers are asking this question.

The problem with self-funding is that most employers are not educated enough before entering self-funded plans. To compound the problem, getting out of a self-funded plan can be difficult. Employers interested in self-funding should take a class or read a few books before entering into these arrangements.

A word of warning: Do not rely on your agent alone. Get written information and read all disclosures. Self-funded plans in the wrong hands can be like giving a monkey a loaded gun.

Before we can answer the question, we need to pick a specific benefit. Short-term disability, dental and vision as well as medical plans are candidates for self-funding. Although most people think of medical benefits, there can be advantages to self-funding other benefits as well.

For this review, we will pick medical benefits. And for you purists, when we mention self-funding, we really mean partially self-funded. Reinsurance is prudent regardless of the size of the group.

The answer to the original question is, "It depends." Both are clear winners in their respective environments. It is difficult to give all the support data in this short article, so let's tackle the big question of "Which plan costs less?"

Here are the facts we need on the table.


1. Self-funded plans have more liability than fully insured plans.

2. Self-funded plans are less aggressive than fully insured plans.

3. Claims are fairly predictable but not guaranteed.

4. The name of the game is shifting risk to someone else.

Self-funded plans have more liability; if they didn't, everyone would be self-funded. If you get a fully insured rate from a carrier and then ask for a self-funded quote, the liability on the self-funded plan will be about 20 percent to 25 percent greater.

Under fully insured plans, the insurance carrier has a greater opportunity to win than with self-funding. Under fully insured plans, if claims come in less than expected, the insurance carrier keeps the savings. Under a self-funded plan, if claims come in less than expected, the employer keeps the savings. Conversely, if the insurance carrier's opportunity to win is substantially less under self-funding, then its tolerance for risk is equally low.

This is the reason fully insured carriers can get more aggressive than self-funded.

Claims are predictable. We believe in actuarial forecasts because we have seen them to be true more often than not year after year after year. The accuracy of predicting claims can be spooky, but that is why the actuary industry is still around after hundreds of years.

The name of the game is to shift risk. Being self-funded is not shifting much risk. Consultants who love self-funding will argue that claims are claims, so just understand them and try to control them using different methods. Although that is true, it is also incomplete.

If you perform accurate actuarial forecasts of your claims and total costs, then find someone who is willing to take more of that risk, you should let them have it.

In the example in the chart above, the ultimate question is, do you want to lock in a savings of $64,000 or risk paying either more or substantially more ($150,000 in this example) in order to have the "potential" for your claims to come in less than the fully insured rates?

Some optimists want to shake the bones and roll the dice. The optimist may be correct, but no one will know until after the fact.

So when do self-funded plans dominate?

They are the primary funding arrangement in large, multilocation employers that want to keep a consistent benefit in all locations while picking the best regional PPO network. In that third-party administrator environment, they are almost impossible to beat.

Bruce Bishop ( 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.

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