The open enrollment period for many companies, a few weeks in the fall when many employees get to choose their health plan coverage for the following year is more important than ever and much more difficult to navigate.
“It is not uncommon for employees to be faced with five or 10 choices, and, in many instances ... the range of choices can stagger even an expert,” writes David Mechanic, director of the Institute for Health, Health Care Policy and Aging Research at Rutgers University.
What is remarkable is that Mechanic wrote those words in 1989, long before health reimbursement accounts (HRAs), health savings accounts (HSAs), flexible spending accounts (FSAs) and myriad other variations that have spun off traditional HMOs and PPOs in the past decade. Staggering, indeed.
To meet the needs of employees during open enrollment, employers have traditionally held events designed to focus their employees’ attention on health-related issues. The conventional wisdom is that such events are a painless way to get employees to think about their health coverage.
The need to generate that kind of thinking has never been greater. Historically, employers have favored passive enrollments (where employees do not need to take action to retain their previous year’s coverage), but now the trend is moving away from that.
Many employers require employees to make a choice or risk being enrolled into the company’s default plan, which may not be the best match for their needs. More employers want their employees to be aware of their health care options and to examine them in order to make the best possible choices.
Moreover, in recent years, employers have been asking their employees to share a greater portion of health care costs, whether it be through increased co-pays, higher deductibles or premium increases. When more involvement is expected, employees want to know more about how they are allocating their money.
The increase in out-of-pocket expenses has spurred interest in tax-advantaged savings and funding accounts such as HRAs and HSAs. Again, the more employees know and understand about these options, the better.
All of these trends have one thing in common: The onus is on employees to learn the most they can about their health care options and coverage, which means there is also an onus on employers to transmit that information.
What’s also obvious is that all of the learning cannot possibly take place during a few weeks once a year. To some extent, the education that goes on during open enrollment should extend through the entire year.
How can that be done? For one thing many health promotion and education events could be just as attractive and informative if they were held at various times throughout the year.
Consider in mid-year:
- Health screenings
- Health education sessions
- Health benefits fairs
- Informal Q & A sessions with benefits experts from the health plan
- Distribution of published informative materials
- Easy online links to health benefits information
Surveys show that employees consistently say they want more information. The challenge for employers is how to present that information in interesting ways that resonate with employees all year long.
Michael Taylor is executive director, marketing and corporate communications, for UPMC Health Plan. The Health Plan, with more than 435,000 members, is part of the University of Pittsburgh Medical Center’s integrated medical delivery system and is the only provider-led health plan in Western Pennsylvania. Reach Taylor at (412) 454-7534.
Oddly enough, this is just the right time to begin thinking about next years tax filing, in April 2001.
While this years tax planning strategies are soon to become a distant memory, here are three suggestions to act on now, while tax season and the cost of poor planning are still fresh in your mind.
Component Depreciation. Is your company planning to put up a new building or complete a renovation this year? To avoid the cash flow crunch associated with large building projects, accelerate the depreciation schedules for certain portions of the job.
The basic principle of component depreciation is that the sum of the parts is greater than the whole. Component depreciation, also called cost segregation, is achieved by depreciating the components of a newly constructed building (HVAC system, elevators, lighting, roof, boiler, landscaping, etc.) over periods less than the 39-year life required by the IRS for buildings.
This makes it possible to accelerate depreciation deductions by segregating specific nonstructural building costs and depreciating them over their shorter lives (five, seven or 15 years).
By accelerating depreciation deductions, you reduce your taxable income, thereby reducing your income tax liability and increasing cash flow in the earlier years after a new or renovation building project. Say your company constructs a $5 million building, and without using component depreciation, schedules the full $5 million for depreciation over 39 years for federal tax purposes.
The depreciation deduction is approximately $130,000 annually. If you use the component method of depreciation and are able to identify $2 million of cost (for nonstructural building items) that can be depreciated over seven years instead of 39 years, the total depreciation is approximately $360,000 per year. Each year, you receive an additional deduction of $230,000 with a federal tax (40 percent) savings of $92,000. After-tax cash flow is increased by the tax savings.
Keep in mind that if you keep the property for its 39-year life, the total depreciation will be the same, but you will have depreciated more in the first 10 years than in the last 29 years and can invest and earn income on the tax savings.
100 percent deduction of self-employed health insurance premiums: Many who are self-employed or in a partnership only deduct a portion of their health insurance premiums. However, you can deduct 100 percent of your premiums (vs. deducting 60 percent as above-the-line deductions and 40 percent subject to the adjusted gross income limitation).
Its simple. Hire your spouse.
If your spouse is a bona fide employee, your familys medical coverage becomes a normal and necessary (read: deductible) business expense by the spouse-employer.
The spouse-employee must be a bona fide employee and meet the eligibility requirements of the accident and health plan. The requirements must be applied consistently to all employees, with no discrimination in favor of the spouse-employee.
The spouse-employee can be the only employee, but cannot maintain joint owner status at the same time. The insurance policy should be carried in the name of the business, not the spouse-employer.
Family Limited Partnerships. If you own rental real estate (including the land and building within which you operate your business), you might consider transferring it to a family limited partnership (FLP). An FLP is a limited partnership for federal income tax purposes (flow-through taxation results in only one level of tax).
FLPs offer tax advantages, such as lowering your tax rate by shifting income to your children in lower tax brackets. You can realize federal gift and estate tax savings by gradually transferring the partnership interest to your children or grandchildren via annual gifts.
Generally, the limited partnership interest is transferred while you continue to own the general partnership interest and retain total control of the assets.
The value of the limited interest transferred can be discounted for lack of marketability and lack of control. This allows you to transfer $50,000 in actual value property at a gift tax value of $35,000 because of the applicable discounts.
Consequently, you have transferred assets out of your federal taxable estate at a discounted value to the next generation while maintaining control of the assets through your ownership of the general partner interest.
Mary Taylor, CPA, is the manager of Taxation Services at Bober, Markey & Co. in Akron. She can be reached via e-mail at firstname.lastname@example.org
In order to build a larger, more valuable business, a private equity firm must be able to attract, retain and develop high-performing employees in its portfolio companies. One of the keys to achieving this goal is the ability to define, develop, implement and communicate an effective employee-compensation program throughout the company.
A properly designed compensation plan will encourage employees to act as shareholders, while at the same time enabling them to enjoy an employment package that recognizes and rewards their contributions to the company’s success through a combination of cash compensation, fringe benefits, positive work environment and career opportunities.
Proper economic alignment between the private equity firm and the portfolio company’s employees builds shareholder value and enhances the compensation and benefit package available to employees. It also drives value by transforming a company from a group of individual employees into a unified team.
Compensation and benefits
Every business must provide a competitive base compensation and benefits package to attract and retain top employees. As an additional incentive, successful private equity firms generally offer key employees the opportunity to purchase or earn equity in the business.
This offer can extend to more than 20 percent of the work force. When the private equity firm eventually sells the business, employees with equity are able to share in the value they helped create. Anticipation of that payout can play a role in spurring company growth.
Examples of other compensation tools that top private equity firms frequently use to stimulate peak performance from their employees include:
- Incentive compensation enables employees to earn extra cash compensation for achieving both individual and company objectives, generally on an annual basis. These programs can also cover up to 20 percent of employees, and they offer the benefit of providing a clear line of sight between employees’ performance and their financial returns.
- Incentive benefit and 401(k) programs enables employees to earn extra dollars toward benefit programs such as health insurance premiums or 401(k) contributions when the company meets predetermined goals.
A properly designed compensation program also encourages employees to participate in the business-planning process because they understand that the outcome will affect their wallets. In addition, it promotes the proper balance of individual, team and company performance. When the employee wins, so does the private equity firm, and vice versa.
Employee behavior can also be significantly affected by the corporate culture. One of the biggest changes often made by a private equity firm after purchasing a company is to decentralize the decision-making process. This benefits the employee and the company alike by ensuring that employees have a personal interest in business results.
Other benefits stem from enhanced communication between ownership, management and employees, including regular communication of the business’s performance; and from factors such as a safer work environment, employee recognition programs, and events such as lunches, picnics or celebrations. Private equity firms can build a stronger work force with a desire to perform by paying attention to these areas.
Professional development and career opportunities
A private equity firm typically seeks to double or triple the size and value of a company during its ownership generally from five to seven years. A natural by-product of this growth is enhanced job security and career opportunities for employees.
In addition, private equity firms generally implement generous educational assistance programs for job-related training and development that help employees build their skills.
A properly designed and administered compensation and benefit program is a highly effective tool for attracting and retaining top employees and aligning the interests of employees and shareholders.
When employees make value-enhancing decisions, they are appropriately rewarded with increased compensation, an improved work environment and enhanced career opportunities. Meanwhile, the private equity firm enjoys the benefits of happier, more highly compensated employees who are highly motivated to work as a team to increase the size and value of the firm.
Larry Taylor is vice president of Pfingsten Partners LLC. Reach Pfingsten Partners at www.pfingstenpartners.com or (847) 374-9140.
More alarming, however, is the fact that the majority of jurors also believe companies will lie to win a lawsuit, and that million-dollar verdicts go unnoticed by senior management.
So how do you protect your business against a million-dollar sexual harassment verdict? A good offense is always the best defense. Effective employee handbooks and personnel policies not only reduce discrimination and harassment based on sex, race, disability, age and national origin in the workplace, but also significantly limit an employer’s liability when such harassment occurs.
To best prevent harassment in the workplace and defend against sexual harassment lawsuits, a well-drafted employee handbook must contain:
- An equal employment opportunity policy that emphasizes zero tolerance of sexual harassment and specific examples of prohibited conduct
- A clear complaint procedure that requires employees to promptly report sexual harassment and allows them to do so without fear of retaliation
- Assurance that sexual harassment complaints will be promptly investigated and kept confidential
- An acknowledgement form that requires the employee to certify that he or she has read and understands the company’s sexual harassment policy and complaint procedure
The most important step in preventing sexual harassment in the workplace is to clearly communicate a company policy of zero tolerance. Along with the company’s statement of equal employment opportunity, the employee handbook should include a specific written policy prohibiting sexual harassment.
This policy should state that the company does not tolerate sexual harassment, complaints will be taken seriously and promptly investigated, and employees engaging in sexually harassing behavior will be disciplined. The sexual harassment policy should also include specific examples of inappropriate behavior, such as explicit sexual propositions, sexual innuendo, suggestive comments, sexually oriented jokes, displays of obscene printed or visual material and unwelcome physical contact.
In the event an employee is subjected to inappropriate sexual conduct, you must also ensure that clear reporting and complaint procedures are in place to address and correct the harassment. The handbook should explicitly state that if an employee feels he or she has been subjected to prohibited sexual conduct, that person should report the conduct immediately to a supervisor.
However, problems arise when the supervisor is the one making unwelcome sexual advances or otherwise engaging in prohibited conduct. When this occurs, the harassed employee may not report the conduct for fear of retaliation or continued harassment. It is absolutely critical the complaint procedure allow the employee to bypass his or her supervisor when reporting harassing behavior. The complaint procedure must also specifically name a person outside of the supervisory chain of command to whom employees can report sexually harassing behavior. It is a good idea to name the director of human resources, or another employee who is trained to handle sexual harassment complaints.
In addition to reporting procedures, the employee handbook must also ensure that harassment complaints will be kept confidential, that complaints will be promptly investigated and that employees will not be retaliated against for reporting sexual harassment.
An effective employee handbook should contain an acknowledgement form to be signed by every employee and kept in his or her personnel file. This acknowledgement should state that the employee has read and understands the company’s sexual harassment policy, as well as the proper procedures for reporting sexual harassment.
If an employee acknowledges understanding of company policy yet fails to promptly report sexual harassment, it is much more difficult to pin liability and significant damages on the employer. By taking this extra step, you can reduce the risk of significant damages at trial- as well jurors’ perceptions of corporate indifference to harassment in the workplace.
Ellen M. Taylor is an associate at Gambrell & Stolz LLP and specializes in employment law and commercial litigation. Reach her at 404-221-6507 or email@example.com.
In New England, a life insurance company gave its employees a different kind of choice. They were invited to participate in educational courses, work out at fitness clubs and/or make preventive care physician visits and earn up to $345 toward their health care expenses.
A local company established a wellness program called My Health. A key component of the program is an online health risk assessment. In order to provide an incentive, employees could waive a deductible if they participated in the Web-based screening. This positive incentive, coupled with thorough communication, resulted 94 percent participation.
Financial incentives be they negative or positive are increasingly being seen by employers as an ideal method of changing employees’ behaviors and ultimately bringing down health care costs. The effectiveness of the incentives in terms of saving money in health care costs is not always immediately visible, but the long-term positive impact indicates the effort is well worth it.
“While there will always be legitimate debate over the costs and benefits of particular health promotion and disease prevention endeavors,” the Department of Health and Human Services wrote, “the nation simply cannot afford not to step up efforts to reverse the growing prevalence of chronic disorders. ... The stakes are so great that the challenges must be met.”
About 41 percent of American companies employ incentive plans to encourage healthy behavior, USA Today reported in August, 2005. This compares to 34 percent in 1996. Eight out of 10 of the top executives at the nation’s 150 largest companies indicated that the best option for reducing costs is to offer financial incentives that encourage healthier lifestyles.
Helen Darling, the president of the National Business Group on Health in Washington, D.C., told the Detroit Free Press in May, 2005, that she expects a majority of U.S. companies to offer financial incentives to encourage their employees to live healthier lives. “We’re just on the cusp of an explosion of employers and employees saying we want healthy lifestyles,” Darling said.
There are two reasons financial incentives are being embraced. One, over time the most effective way to reduce health care costs is to promote healthy habits. Two, financial incentives have been shown to be the most effective way to get employees to change habits. Certainly, more information about healthy lifestyles is important, too, but information alone has not proven to be an effective way to change behavior.
Financial incentives have certainly been shown to be an effective way to get people started, but of course, they carry no guarantee of long-term success. Still, financial incentives are a necessary first step. Employers must make participation in wellness programs or initiatives worth it for employees or they simply won’t get involved.
Incentive programs do carry some risks, however. First, employers need to have any incentive plan reviewed by a labor lawyer to ensure that there will be no inadvertent violations of Employee Retirement Income Security Act laws, Health Insurance Health Insurance Portability and Accountability Act laws or other pertinent state or federal statutes or regulations.
Employers must also understand that use of sticks, rather than carrots, can carry long-range implications. Sometimes, disincentives create bad PR in a company and can generate negative feelings about future initiatives.
The purpose of financial incentives is to encourage healthy behaviors. It might not be the perfect way to do it, but it is increasingly becoming a critical step in the process.
Michael Taylor is executive director, marketing & communications, for UPMC Health Plan. The Health Plan, with more than 435,000 members, is part of the University of Pittsburgh Medical Center’s integrated medical delivery system and is the only provider-led health plan in Western Pennsylvania. Contact Taylor at (412) 454-7534.
However, no employer can simply assume there will be employee acceptance for CDHC. Consumer-directed health care cannot succeed unless the consumer does the directing. That means that without a clear understanding of what’s being offered and how it works, employees are going to be reluctant to take part in a venture that they see as new and unfamiliar, and maybe even a bit frightening. One of the most important parts of your consumer-directed plan is the communication program you use to educate your employees.
The CDHC your company offers may be a Health Savings Account (HSA), a Flexible Spending Account (FSA), a Health Reimbursement Arrangement (HRA), a Medical Savings Account (MSA) or some combination.
Regardless of the plan or plans, any consumer-directed health plan, “place(s) new burdens on employees, making them responsible for managing health care dollars,” writes Kathryn Tyler, in an article in HR Magazine. “Employees must not only buy into them, they also must use them to buy health care services more judiciously.”
Eliciting this buy-in requires effort on the part of the employer. “Offering HSAs, at least at the outset, can be a high-maintenance endeavor for an employer,” “The Wall Street Journal” reported in an article in July 2005.
When it comes to explaining the benefits of a complex insurance product, nothing beats repetition. Craft a message and repeat it often, in as many different forms as possible, is the advice of Pat Wiley, a financial education and counseling practice leader for Ernst and Young in New York. The more employees read or hear about the concept, the closer they come to understanding and accepting it.
To add to the complication, CDHC is new not just to employees, but to health care in general. That means that some hand-holding is necessary to guide employees through the ins and outs of plans. As more of the responsibility for health care is shifted back to the consumer, support, in terms of information and guidance, becomes crucial.
Rolling out CDHC programs can be most effective if you follow a five-track path.
- Organizational support. Offer train-the-trainer presentations to senior leadership and HR to explain the reason for making the benefit change and to clearly demonstrate how the program works from the member’s perspective.
- Employee awareness. Announce the change to employees, demonstrating the program’s importance and the value proposition to employees.
- Employee buy-in. Build understanding through in-office and home messaging tactics, utilizing easy-to-understand examples. Face-to-face meetings with all employees are highly recommended.
- Enrollment support. Provide enrollment support via phone and Web-based tools. Such tools must be easy to use so that consumers can feel comfortable with them. Consumers need to have ready access to account information, as well as control enough to manipulate that information in real time to serve their needs.
- Ongoing communication. Provide constant education and frequent updates throughout the year. With changes in health care occurring on what seems a monthly basis, keeping consumers up to speed is critical for them to make informed health care decisions.
As the popularity of CDHC continues to gain momentum, communicating with employees becomes more critical. Companies that provide necessary information and support in a timely manner will take a giant leap toward successful implementation.
Michael Taylor is executive director, sales & marketing, for UPMC Health Plan. The Health Plan, with over 435,000 members, is part of the University of Pittsburgh Medical Center’s integrated medical delivery system and is the only provider-led health plan in Western Pennsylvania. Previously, Taylor was part of a consumer-directed health plan based in Alexandria, Va. Contact Taylor at (412) 454-7534.