Have you ever wondered exactly how insurance companies determine the premium you pay? It’s a complicated process; many factors are taken into account.
Health insurance premiums paid by businesses are as much a human resources issue as a financial issue, says Albert Ertel, COO of Alliant Health Plans. “It’s a decision requiring balance. You have to determine if the benefits that HR wants to provide fit the budget,” he says.
Smart Business spoke with Ertel about how insurance companies determine your premium and how health care reform may affect the price you pay.
What do insurance companies look for when determining a premium?
The insurance company is looking for sufficient premiums to pay for estimated claims during the upcoming policy year. It is an educated estimate, using a simple formula that requires very complicated input. Underwriting and pricing is as much an art as it is a science. Insurance companies try to use past claims history as a predictor of the future. The goal is to develop a premium rate to cover future medical expenses and administrative costs.
Whether it is health, homeowner’s or auto insurance, there are two pieces of any premium dollar: the cost of doing business (administrative costs) and claims paid. The difference is that health insurance companies process a lot of claims — many low cost, high volume and others very low utilization but very high cost. ‘Normal’ utilization can be predicted for most groups. A small percentage of individuals will generate 70 percent to 80 percent of medical claims. Will those be one time or ongoing?
Why are premiums trending upward at the moment?
Premiums have outpaced wages for a number of years. Recently, the government has weighed in with a new law that may only exacerbate the increases. The Patient Protection Act has mandated new benefits, which focus on prevention and wellness. These benefits have to be paid for by the insurance companies at 100 percent with no cost sharing.
A few insurance carriers have been using health care reform as a reason to increase premiums, whether warranted or not. The real reason is fear of the unknown. Note, insurance pays for eligible treatments and nothing is holding down medical cost increases, yet.
What are the steps in the premium determination process?
First, the insurance company analyses the prior two to three years of claims and compares it to covered lives. Then they apply medical trend, which takes into consideration medical inflation, technology improvements, utilization, new treatments and drugs.
Second, they see where the group is located and compare this to available care in that region and adjust accordingly. For example, if new services become available in an area it will affect cost of coverage. New technology is expensive and needs to be paid for; supply and demand economics does not work in health care, as greater supply leads to greater utilization and costs. One of the variables when predicting premiums, or predicting medical costs, may be a new ‘miracle drug’ a patient just has to have. Or the local hospital bought a new CT scanner and it will be utilized.
What other factors go into pricing?
The size of the company, its industry and the age, sex and health status of eligible individuals, where they are located and the plan of benefits chosen are all considered. Lifestyles tend to be different between workers in varying industries. Those differences could include education, recreational activities, nutrition, and smoking and drinking habits. The age and sex of the people within the group has a lot of influence in the numbers. Young males tend to be healthier, young females are risk adjusted for potential maternity claims. Geography comes into play and may be coincidental to industry. Northwest Georgia is the ‘Carpet Capital’ of the world and jobs tend to be in a factory. That area has a high percentage of smokers. Also, consider the higher cost of healthy food. Atlanta has a much higher concentration of ‘white-collar’ jobs. Education levels may be higher and health awareness is commonplace.
Location also comes into play when considering available services. Availability of specialty services and referral patterns has to be considered when pricing health coverages. Known health concerns within a ‘group’ can have a significant impact on premium rates. An insurance carrier must price any risk to cover known claims; current cancer treatment, end stage renal disease or uncontrolled diabetes with multiple complications are conditions that could impact premiums. Finally, the benefits are considered; deductibles, co-pays and out of pockets affect required premiums.
Does anything else impact pricing?
Administrative costs will be added to the potential cost of claims. Those costs include customer service, underwriting, sales, claims processing, printing, postage, Internet and website maintenance, agent commissions and taxes. These costs cover the insurance company’s overhead or cost of doing business. These are generally lower than one would expect. Overall general and administrative costs run around 14 percent to 20 percent depending on the size of the covered group.
What can companies expect in the future?
Costs will continue to rise until we all make a stand; we need to improve our lifestyle choices today. Companies and insurers alike should be pushing employee awareness to improve prevention, wellness and personal responsibility. It’s fairly easy — less care equals less cost. And insurance should be there for the unexpected illness or injury.
Albert Ertel is COO of Alliant Health Plans. Reach him at (706) 629-8848 or email@example.com.
Before taking the plunge, many people considering an Executive MBA program want to know what they can expect in the classroom.
Antonio Bernardo, a professor of finance at the UCLA Anderson School of Management, has taught in the MBA program for 16 years and the Executive MBA program for the last six. He says the real-world experience of the Executive MBA group creates a lively, collegial atmosphere.
“There are many occasions when the students relate their work experiences to the issues we discuss in the classroom,” Bernardo says. “It shows how real organizations try to execute policies we recommend in theory.”
Smart Business spoke with Bernardo about how the Executive MBA classroom works.
What are the main differences between a full-time MBA course and an Executive MBA course?
One of the big differences between the two programs is the EMBA students immediately see the value of the material we are covering in class and can use it immediately in their careers.
Students will come up to me and say ‘I’m working on this problem right now that is exactly like the material we are covering in class. How would I deal with this nuance?’ People immediately see the value and have applications for it, many of them in real-time.
Another big difference is the classroom discussion tends to be richer. Students have more management experience, they are obviously a little older than the full-time students and the backgrounds are quite diverse. That is one of the reasons why I love to teach in the program. I learn a tremendous amount from the students who bring their own experiences into the discussions.
What is the environment like in an Executive MBA classroom?
One important aspect that is true in all our programs, but especially true with EMBA, is that it is a very collegial environment. The students recognize they need to work together and learn a lot from each other. They have intense demands on their time from their work and family life, so they have a lot to do.
That happens in our full-time MBA program too, but I think the EMBAs recognize it is a matter of survival that they work well together in groups and lean on each other. Everyone sees it as a positive sum game; we can all make ourselves better by helping each other out.
What is likely to be covered in a normal EMBA class?
An EMBA class is less likely to go according to plan. I will have a plan for the class, but quite often a really interesting thing comes up in the discussion and I don’t want to just ignore it because I have to follow my plan. Normally, my planning is a lot more flexible, and I leave a lot more time for discussions that you can’t predict in advance.
Learning from the experience of others is a big part of the value in an executive MBA. My view: Don’t try to kill those kinds of discussions. Let them flourish, but at some point you have to rein them in. For me, that has always been the challenge. How do we make sure we get all this experience into the classroom discussion without overwhelming the material we have to cover?
How do you relate that back to subject material that initially spurred the discussion?
The topics specifically covered in the core course I teach in corporate finance are mainly issues surrounding valuation and capital structure. For instance, how do firms finance themselves?
That is a pretty rich set of topics to get student input on, because invariably EMBA students are working on exactly those types of problems. It’s not that challenging to get it back to the material; the harder part is the nuances that come up in execution. Often, that is where the students have an interesting perspective. The theory will say, ‘You should take investment projects in these situations,’ and a student will point out an organizational challenge that makes it difficult to execute that policy. Those issues of execution often show up in the classroom discussion. The theory says one thing, but in reality you have to deal with different situations. How do we deal with those nuances? That is where the discussion gets incredibly interesting.
Why would someone opt for an Executive MBA instead of a full-time MBA?
If a person is in a very good position at their firm, the opportunity cost of leaving that position to go to a full-time program would be very high. That would be one reason. An Executive MBA is a good choice for people in a strong career path in their current organization who need to develop skills to push them over the top.
The other advantage of an Executive MBA is that the scheduling of the program can be accomplished while maintaining your career. The EMBA group meets every two weeks on Fridays and Saturdays. Obviously, these people have an incredibly difficult workweek with their careers and family life, but the scheduling of the EMBA allows them to juggle all those different things in their life.
Antonio Bernardo is a professor of finance at the UCLA Anderson School of Management. Reach him at (310) 825-2198 or firstname.lastname@example.org.
Upcoming health care reforms will require employers to monitor and report so much information that staying compliant will require a lot of time and effort.
“There are already many laws and rules that exist today affecting employers who offer health insurance benefits to their employees. The Patient Protection and Affordable Care Act, popularly referred to as the health care reform law, will impose many more responsibilities, including many new reporting requirements,” says Alicia Saporito, partner, Millennium Corporate Solutions. “That’s why it is so important to partner with a broker or consultant that not only understands how your business is affected by the health care reform law but also how to use existing technology to help you stay on top of the rules and minimize your liability for failure to comply with many of the thousands of laws you are required to follow today and in the future.”
Smart Business spoke with Saporito about how technology can make compliance easier.
What do businesses need to know about new initiatives and requirements?
The new initiative is going to require that companies track and document much more information than they ever had to in the past. In addition, employers will have to report much more information about their health plan to the federal government. For example, employers must document it when they offer medical insurance to qualified dependents up to age 26 and that the employee had a full 30 days to make the election. Employers must also provide notice to employees that lifetime limits under medical insurance plans are no longer legal. Employers will have to provide a uniform explanation of coverage to their employees and they will have to provide notice to the employee 60 days in advance of any change in the benefit plan. A new reporting requirement will mandate that all employers report the value of the employee benefits on the W-2 of each employee. Noncompliant employers would be subject to hefty fines.
How can technology assist employers in complying with existing rules and requirements?
COBRA requires that employers provide timely notice to eligible participants of their rights and contains many important notices and timelines. HIPAA requires health plans offered by employers to document certain business processes and rules. This law also requires you to provide information about benefits availability to eligible participants of the plan on a uniform basis.
Technology can help you provide historical proof that you offered benefits to eligible participants and document the reasons employees waived their right to participate under the health and welfare benefit plan. A good system will track all transactions and approvals and show a timestamp to provide an audit trail. You can track COBRA notices and prove how quickly required notices were issued. By using an automated system, employees will be notified well within the guidelines and this will minimize employer liability for failure to provide timely and accurate notices.
Using a technology tool will ensure that benefits deductions are fed to payroll correctly. When done manually, incorrect deductions may be sent to payroll and, instead of taking advantage of having their employees help pay for the cost of insurance, employers are then paying the full cost or, in some cases, overpaying the incorrect cost.
How can leveraging technology increase efficiency in the administration of benefit plans?
Employers are responsible for timely and accurate reporting of new enrollments and terminations to their benefit plan administrators or insurance companies. If there is a delay when an employee becomes eligible for coverage and is actually added into the insurance company’s system, this could present a challenge not only to the employee but also the company’s HR department. If the employee experiences an urgent need to see a provider or in obtaining a required medication, the HR department will spend a lot of time helping the employee receive the medical attention they need while they wait for coverage verification from the insurance company. Even worse, from a risk management standpoint, if HR forgets to send the paperwork on a timely basis the insurance company can deny coverage altogether. The employer may be liable for the coverage promised to the employee. There is another employer liability if a deduction is taken from the employee’s pay while there was no coverage in place.
Employers who rely on manual reporting of changes in coverage to the insurance company may end up overpaying for their benefit plans. For example, if a company terminates someone’s employment, it has to terminate the coverage on a timely basis to avoid paying unnecessary premium for that individual. When you streamline the process by making it automatic with an electronic component, it makes it a lot more foolproof.
Where should an employer start with the compliance and technology evaluation process?
Employers should begin by performing an audit of their current practices and business process as they relate to the health and welfare benefit plans and evaluate them against the requirements set forth by state and federal law. Also, review all the information provided to employees. There should be practices in place to track and document all of this.
It is important to correct any deficiencies before they are discovered either by an employee complaint or through a Department of Labor audit. The federal government uses random audits to ensure that employers are complying with their various obligations under their health and welfare benefit plans. It’s important for employers to demonstrate they have the required documentation, systems and tools in place and that the information is stored in a secure manner as to protect the information as required under existing laws. A good employee benefit broker/consultant who is familiar with the laws as well as the technology available to employers to assist with compliance is a valuable resource.
Alicia Saporito is a partner and senior vice president in the Employee Benefit Plan Risk Management division of Millennium Corporate Solutions. Reach her at (949) 679-7117 or email@example.com.
The catastrophes in Japan have caused many companies to take a hard look at the terms and conditions of the coverages they have in place.
Many policies exclude earthquake, flood and nuclear damage from coverage, says Shane Moran, vice president of ECBM Insurance Brokers and Consultants. However, there are other factors that make a company susceptible to contingent losses.
“It’s really a matter of evaluating your business model and identifying whether you are dependent upon a small number of vendors or suppliers to produce your product or service,” Moran says. “If so, you definitely have an exposure.”
Smart Business spoke with Moran about how to prepare your business for unexpected events.
How will the tsunami and earthquake in Japan change the way companies consider their coverage?
The tragedy will force companies to take a hard look at their business model, the key relationships they have and their risk management program in general.
Contingent business income is a property form, so you could expect to see earthquake, flood and nuclear exclusions on many forms. If you are a larger company with that type of exposure, you would want to negotiate with the carrier to write the coverage for your exposure. So you may be able to get an insurance carrier to provide some type of coverage for losses from an earthquake or flood, but probably not for a nuclear event.
The second area that companies are looking to reassess is the limits of coverage that they have chosen on their business income coverage. The magnitude of that destruction was so large that it will take a lot of those manufacturers a lot of time to get back up and running. That will force the buyers of those products to go elsewhere to find companies that can meet their needs, and that process is time consuming. Can a replacement meet quantity and quality expectations? You are not going to be able to pick up the phone, call a company down the street and immediately process an order for 10,000 widgets.
If you have a piece of equipment that takes nine months to build and you have one component you can’t get, the ripple effect can cause problems for your business for a long time.
How do unforeseen events affect losses for small and larger companies?
Whether you are a small or large company, you still need a well-thought-out contingency plan. It’s essential for any business to survive an unforeseen event.
If your business relies on a small number of key component suppliers, or depends on only a few customers, or if you only use one or two vendors for your product — then you have a very large business-contingent income exposure. That is going to apply whether you are a small, family-run company or large, international organization. For example, take the iPad 2 launch. Because so many of that product’s key components are made in Japan, shortages have created delays, which have cost that company because it can’t get its product into people’s hands.
Events like the disaster in Japan give us the opportunity to evaluate how our own contingency plans would respond and look at it from a fresh perspective. The key is to develop a plan that can be implemented whether you are a small or large company.
How do you begin to develop a well-thought-out contingency plan?
First, identify those key relationships with suppliers, vendors and manufacturers. Are you dependent upon just one or two of those to make your product?
Second, develop a plan that you would implement in the event that one of those companies shut down. How does that affect your business? What type of monetary loss would you suffer? Can you find a secondary vendor to replace that one? In that scenario, large companies do have an advantage because they are able to spread their risk over a larger spectrum than a smaller company can.
Then, the plan needs to be constantly monitored. As the business environment you are operating in changes, your contingency plan constantly needs to be evaluated and updated. You need to review annually, at a minimum.
If you are getting raw components from a country and the political climate there changes, you immediately need to evaluate how that will affect your business model. You need to be able to potentially outsource that stream of income to another, stable environment.
What else can businesses do to protect themselves from contingent losses?
You need to evaluate your company to see if you have that exposure. If you have identified that you have a problem, transfer that risk to an insurance carrier by purchasing coverage.
If a company’s spread of risk is small and it is not dependent on one particular supplier, and could easily move its business to another firm, it doesn’t have the same level of exposure as a company that gets a key component from only one company.
How can companies limit that exposure to contingent losses?
First, find another supplier. If you can’t, then you need to transfer that risk through purchasing insurance coverage.
Then, it becomes important to look at the terms and conditions of the policies. You may need to manuscript the coverage to fit your needs.
Finally, identify the limit of coverage you need. Make a business decision based on the cost of that coverage, whether you insure it or self-insure it.
Shane Moran is a vice president at ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100, ext. 1237, or firstname.lastname@example.org.
The public sector provides a broad range of services, and insuring their risks can be challenging. Within a single entity, such as a state, city or county, there are prisons, airports, police, etc., and entities that provide zoning ordinances, maintain bridges, run golf courses, and oversee water and sewer utilities.
“Public entities have a broad range of risks that need to be analyzed,” says William F. Becker, executive vice president and national practice leader – public sector, Aon Risk Solutions. “Many of these risks are unique, and trying to find carriers who understand that and will take on those risks can be challenging.”
Smart Business spoke with Becker, Steven P. Kahn, managing director of Aon Global Risk Consulting, and Mark Blassie, who works in business development at Aon Risk Solutions, about insuring the public sector.
What is included in the public sector?
The traditional definition is any governmental entity, encompassing cities, states, counties, towns and special districts, along with authorities, commissions, school systems, utilities, transits and airports. Aon’s practice group also supports nonprofits, political organizations, Indian Country and higher education institutions, both public and private.
How are insurance needs different for public sector entities?
Public entities see some of the same issues as private entities, but there are certain risks in the public sector that are not seen in private organizations because they provide services that other organizations do not, such as prisons, fire and police, zoning and bridge maintenance. Pursuant to sovereign immunity laws, the public sector may have caps on the amounts for which they can be held liable, or immunity from suits. Also, there are some coverages required by statute. For instance, private companies need D&O insurance to cover their directors and officers, but a public entity covers their public officials instead of directors and officers. While their basic exposures and risk factors are quite similar, the public entity-specific policies are worded specifically to insure these exposures.
How do caps and/or immunity from suits work for public entities?
In some states, there are caps on the amount of a claim against a governmental entity, capping its liability and reducing its costs. Many states have a per-claimant and per-occurrence cap. The cap differs by state and some states, such as California, have no caps. The caps would not apply to a claim in federal court if an entity is sued for discrimination, for example, and the caps do not apply to claims in other states.
Other states may have full immunity from certain suits, e.g., Michigan municipalities are immune from suits subject to certain exceptions, such as losses arising out of highways and sidewalks, motor vehicles and building maintenance, etc.
What issues may arise if public entities are not insured properly?
Government entities have a very limited ability to obtain funds from other sources. A large award could cause them to cut programs, impose a special tax assessment, or, in some cases, to declare bankruptcy, if allowed. This recently occurred in Boise County, Idaho, due to a zoning claim the county lost in court. The county issued a permit but wouldn’t let the developer move forward. The developer took the county to court and it lost a $4 million judgment. The county was not insured and it declared bankruptcy.
How can organizations best understand their risks and ensure they have the proper insurance?
A thorough and creative process is necessary to identify and measure exposure to risks of accidental loss. This is done by inspections, interviews, analysis of budgets and financial reports, analysis of past claims data, review of major contracts and knowledge of operations.
The organization needs a knowledgeable partner to help it place the best available coverage at reasonable terms.
How can these entities determine exposures?
To complete a thorough analysis of their exposures, public entities should set up inspections, conduct interviews with department heads, walk through the facilities, look at budgets, financial reports, past claims data, and contracts to understand what operations are being performed that fall under different units of local government.
Employees working in the governmental entity know the operations but are often unaware of the risk or insurance implications.
Why do public entities need professional help?
Risk professionals can look at insurance policy agreements and exclusions to make sure that nothing is left uninsured — or if something is left uninsured by design, the professional can ensure that everyone understands that the entity will retain the risk.
Some claims, like auto accidents, are straightforward, but other types can be subtle. For example, if the public entity denies a zoning permit to someone and is sued as a result, will it be covered? Will employment practices claims be covered if employees are terminated inappropriately?
In another example, if an airport, overseen by the city council, purchases coverage for bodily injury or property damage from the aviation insurance market, it should carry errors and omissions insurance for its oversight of the airport. The public entity may purchase E&O insurance from the carrier that is providing its general liability, but that carrier may not cover anything at the airport. Only someone well versed in insurance policies would recognize the gap between policies. If the airport policy doesn’t cover E&O and the general liability policy covers E&O but excludes the airport, there is uninsured exposure.
These more subtle exposures are the ones for which the public entity will need help from a knowledgeable partner.
William F. Becker is executive vice president, national practice leader - public sector, Aon Risk Solutions. Reach him at email@example.com. Steven P. Kahn, CPCU, ARM, is managing director of Aon Global Risk Consulting. Reach him at (949) 608-6418 or firstname.lastname@example.org. Mark Blassie works in business development at Aon Risk Solutions. Reach him at (314) 719-3865 or email@example.com.
Aon will be a sponsor and exhibitor at PRIMA 2011 June 5-8 in Portland, Ore. For more information visit Primacentral.org.
The success or failure of an idea often hinges upon timeliness. Was the time right for a particular innovation? If you have a great idea and want your business to capitalize on it, you need to apply for a patent. However, the average patent application takes almost three years to process. By the time you obtain your patent, someone else may have taken your patent pending idea to the marketplace, and your innovation may not be innovative anymore.
“The Fast Track Exam enhances your intellectual property by expediting the patent process,” says Jay Moldovanyi, partner with Fay Sharpe LLP. “Getting that patent prevents competitors from copying your patented idea themselves.”
Smart Business spoke with Moldovanyi about how to determine if you should fast track your idea.
How does a Fast Track Exam enhance your IP?
The Fast Track Exam is helpful for situations when you introduce a new product to the marketplace and you want to prevent another company from creating and selling a knock-off version of your intellectual property.
For example, say you run a stapler company and you want to introduce a brand new stapler. How are you going to prevent a competitor from introducing the same stapler?
It’s important to note that a patent is a negative right, not a positive right. Let’s assume your patent is for a new shift mechanism for a bicycle and someone else has a patent on the bicycle itself. Can you sell bicycles with your shift mechanism? No, because someone else has the patent on the bicycle. Can the owner of that patent sell a bicycle with your shift mechanism? No, because they need your permission to put your patented shift mechanism on their bicycle.
You have to make a deal with the bicycle’s patent-holder in order for you to sell bicycles with your shift mechanism. Conversely, he has to make a deal with you; otherwise he is unable to sell a bicycle with your shift mechanism.
You can’t enforce that negative right if you don’t have it. That’s why it is important for businesses to patent-protect their intellectual property.
What are the pros and cons of using a Fast Track Exam?
The upside of the Fast Track Exam is that you are going to get a patent faster. Normally, patents take almost three years to make it through the system. The average is 34 months. A Fast Track Exam can get the examination done in 12 months.
The downside is simple: It is very costly to expedite a patent’s consideration. The cost of a Fast Track Exam is $4,000 on top of normal patent application filing fees, which are dependent on your company’s total number of employees.
The total cost is broken out into a basic filing fee, a search fee and an examination fee. When you add those up, for a large entity (more than 500 employees) the fees are $330, $540 and $220, so the total is $1,090 for a normal patent application (there can be other costs for additional claims, etc.). For a small entity of fewer than 500 employees, the total cost for normal patent application is $545.
That is just for the patent application — in effect, just to get the show rolling. There are many more fees as you go through the process.
What are some examples of ideas that may be critical enough to fast track their patent application?
A new cell phone design, new engine design for motor vehicles, new antenna design for cell phones, new polymer composition to be used in tires — these are all examples.
The business owner has to decide which applications are important enough to fast track. That decision should be made in consultation with the lead engineer/VP of engineering and a patent attorney.
You have to have justification for spending that money. You certainly don’t want to do it cavalierly and file a Fast Track Exam for every application. The patent office has actually made this more difficult by capping the number of applications for expedited patents at 10,000 per governmental fiscal year.
Why does it take so long for patent applications to be considered, and why are all the fees necessary?
The reason for all those fees is that the patent office is fully user-funded; no taxpayer money goes to the patent office.
The process takes 34 months, on average, because the patent office is overloaded with patent applications. There is an avalanche of patent applications that have been submitted in the last five to 10 years. Because of the backlog, the patent office created the Fast Track Exam as a stopgap measure — prioritized examination for a fee.
Also, the patent office hasn’t been able to hire as many examiners as they would like because Congress controls its budget. Even though the patent office is fully user-funded, Congress has to appropriate that money to the patent office in order for them to use it. Bills have been introduced in Congress to overhaul the patent system, but so far none has been passed.
Fast track is indefinitely postponed because Congress has hit the USPTO with a $100 million budget cut for the 2011 fiscal year (ending October 1, 2011).
Jay Moldovanyi is a partner with Fay Sharpe LLP. Reach him at (216) 363-9127 or firstname.lastname@example.org.
With the vast array of telecommunications choices and unproven technologies available to businesses, how can they determine which solutions will work to meet their unique operational needs and be the most cost-effective?
“The variety of options available to large companies only adds to the complexity. There are too many competing carriers and technologies,” says Shane Heise, president of Simplify Inc., a firm that helps large multi-location corporations simplify and optimize their communications lifecycle management. “It makes for a world where companies are forced into being reactionary and devoting too many resources to deal with the chaos. This is the opposite of any best-practices approach; but it’s the norm that the industry creates.”
Smart Business spoke with Heise about how to make the right choices that fit your telecommunications needs.
What telecommunications challenges are companies facing right now?
There is a lot of uncertainty in the marketplace right now when it comes to telecommunications. Much of that is due to consolidation in the industry. Additionally, the traditional way of buying telecommunications (local, long distance and data products) has changed because of different technologies available today, some to which people have never before had access.
Most companies today hear buzzwords like VoIP and SIP, but they don’t have anybody on staff with the expertise to even know if those are the best strategies for them. Are they going to save you money long-term? What is the return on investment? Could going to one of these new technologies increase productivity?
Can you really rely on your carrier for these answers? They aren’t going to give you an honest appraisal of their products compared to those of their competitors. The key is opening your mind and saying, ‘I do have those challenges and I know there are a lot of technologies out there, but I don’t know how to uncover what’s best for me.’
How are companies dealing with these challenges?
The traditional telecommunications provider’s tactic is to lock you up in a long-term contract, or try to consolidate all your spend with them as a single provider. They tell you that the more you spend, the better your price points.
However, that’s not necessarily true. You don’t have to give everything to one carrier to get the best price. You don’t have to sign high-commitment, long-term contracts with a single provider. You can consolidate everything into a handful of companies and still get the best solution at the best price, while still doing what is right for your business instead of just doing things the way they’ve always been done.
How can this be done?
Instead of working with an account representative that proposes the same old contract renewal with a few minor changes, consider using a dashboard that identifies trends and assesses your current situation. Then take action to improve technology, reduce cost, etc. You can proactively identify, assess and take action, or reactively work within the constraints of a traditional contract renewal. Which would you rather do? We recommend using a strategic solution process that puts together short- and long-term technical, cost-effective solutions.
How does an executive team ensure that they are optimized?
Great question. You need a collaborative process that leads to a strategic solution. The telcos are not invested in your business. They aren’t meeting as a team and brainstorming new solutions for you. They are proposing options that benefit them but not necessarily you. They may cooperate, but they can’t collaborate. Instead of being in reactionary mode, renegotiating and renewing each contract, companies can ensure optimization by peeling back the layers, assessing all of the telecom spend and bringing an objective voice into the conversation. It’s about collaboration. Ultimately, contract negotiation is part of the process and some renewals may be appropriate. The question is whether you arrive at your strategy based on objective input from a collaborative partner or merely a price quote from a cooperative vendor. The difference is vast. We’re trying to open the eyes of executives to what a collaborative relationship looks like and can mean to the bottom line.
How can you be sure the approach you are taking is truly strategic?
The heart of it is having the right analytics, the right insight into the provider world, and a commitment to an over- arching, specific direction. The dynamics of the industry are continuing to evolve and new technologies are available, but who has time to test all the options? Ultimately, you need to know players in the industry who have both the insight to provide guidance and the accountability to be responsible for the direction they suggest. This goes beyond the average consultant. Companies need a trusted adviser. Most successful executives wouldn’t dare go through life without a trusted wealth manager. Why would they allow the business to go without a trusted adviser for such a critical service as communications? Executives don’t just need a consultant. They need someone whose neck is on the line for any solution they suggest. They need a trusted adviser.
Shane Heise is the president of Simplify Inc. To learn more about Simplify, call 87-SIMPLIFY ext. 236, or visit
When an employer moves from a fully insured health care plan to a self-funded plan, it becomes responsible for 100 percent of the claims risk. That transition can be frightening, especially as medical costs continually increase. But purchasing stop-loss coverage from reinsurance carriers can help mitigate some of that risk.
“Stop loss allows an employer to transfer a portion of the claims risk to the reinsurance carrier in exchange for a monthly premium,” says Donna Cowden, senior vice president with Aon Hewitt Health & Benefits.
Smart Business spoke with Cowden and Gary Cumpata, senior vice president, Aon Hewitt Health & Benefits, about how stop-loss coverage can help protect your business.
How can an employer limit risk with stop-loss coverage?
The employer can limit risk by purchasing aggregate coverage, which insures against an employer’s total annual claims exceeding an estimated dollar amount (with a corridor of 20 to 25 percent added), or specific coverage, which insures against a single, large, catastrophic claim that exceeds selected dollar amount (deductible) during the plan year. They work well together by protecting the employer if the year’s claims have exceeded the carrier’s claims estimate plus margin, and monthly by limiting the loss of a large, unexpected claim. Aggregate claim reimbursement occurs at the end of the contract period, while specific claim reimbursements take place as they occur during the plan year.
How can an employer determine which type of coverage is the best fit?
Employers need to determine what risk they are trying to protect against. Are they concerned about overall claims exceeding a budgeted amount and feel comfortable absorbing large losses that might occur during the year, or are they only concerned about a hit if a large, unexpected claim occurs?
Aggregate stop-loss coverage protects an employer against claim volatility, if annual claims exceed what is budgeted. Smaller employers have a more difficult time absorbing the claim fluctuations, so they will purchase aggregate coverage.
Most employers will purchase specific coverage but the level of the specific deductible will depend on their size and risk tolerance. Specific-only coverage is typically for employers with more than 5,000 covered lives.
How does stop-loss coverage work with a self-funded benefit plan?
Self-funded employers that purchase stop-loss coverage have the benefit plan document and the stop-loss contract. The employer’s plan document outlines benefit provisions and how benefits are paid. Ideally, a stop-loss contract will overlay the provisions in the employer’s benefit plan. The employer does not want the stop-loss contract to have exclusions or limitations that contradict or add to the employer’s benefit plan.
How can an employer determine whether it should purchase stop-loss coverage?
It is critical for employers to understand their risk tolerance and determine how much they can tolerate paying out without creating a cash flow issue. How easy is it to fund a $500,000 claim month when claims generally run $100,000 per month? Once that is determined, they can purchase the contract that provides them the appropriate protection.
In what other ways within the contract can employers share risk to keep the premium down?
One way is an ‘aggregating-specific,’ or ‘split-funded specific,’ contract and the other is a ‘tiered,’ or ‘coinsurance,’ contract. With an aggregating-specific/split-funded contract, the employer shares in the risk for a reduction in premium. The employer will accept claims up to the specific deductible and will accept additional claim liability generally equal to a 20 to 30 percent premium reduction. If the employer has no claims over its specific deductible during the year, it saves the amount of the aggregating deductible. If there is a claim in excess of the specific deductible, it is paid by the employer until the aggregating deductible is exhausted and the carrier pays the remainder. With a tiered/coinsurance contract, the employer agrees to share in more risk after the specific deductible has been exceeded for a reduction in premium. Once the specific has been exceeded, the employer may take on a reduced percentage of claims above the deductible up to a specified dollar amount, after which the carrier accepts all risk.
What potential pitfalls should employers be aware of when switching plans?
The first year an employer switches to a self-funded plan, claims incurred but not paid when it moved are the responsibility of the fully insured carrier. So instead of 12 months of claims for that first self-funded plan year, the employer has only nine to 10 months. The stop-loss rates and contract are referred to as immature and are discounted up to 20 percent. The second-year rate increase will look very high because the rate is increasing by trend and the additional 20 percent because of a full claim year. Employers should purchase complementary contracts to prevent gaps in coverage.
How is health care reform affecting stop-loss coverage?
The most immediate impact is the change requiring benefit plans to have unlimited lifetime maximums. The stop-loss contract generally duplicates the benefit plan maximum, so when unlimited lifetime maximums were implemented, carriers struggled to determine the financial impact on their rates. Stop-loss contracts should be reviewed to make sure the maximum reimbursement matches the employer’s maximum and the carrier hasn’t put a cap on the maximum. That would leave the employer at risk once the reimbursement maximum has been exceeded. We are also finding large employers that never had stop loss request very high specific deductibles because of the unlimited lifetime maximum.
Donna Cowden is senior vice president, Aon Hewitt Health & Benefits. Reach her at (336) 728-2316 or Donna.Cowden@aonhewitt.com.
Gary Cumpata is senior vice president, Aon Hewitt Health & Benefits. Reach him at (248) 936-5399 or Gary.Cumpata@aon.com.
The Fair Labor Standards Act was enacted in 1930 to regulate wage and workplace abuses. While the act is not new, the number of lawsuits and regulatory actions based on alleged violations is increasing. This can result in very expensive litigation that isn’t covered by any of your insurance policies, says Gloria D. Forbes, executive vice president with ECBM Insurance Brokers and Consultants.
Smart Business spoke with Forbes about how to reduce your business’s exposure to FLSA claims.
What types of actions might result in these claims?
These claims come in a variety of allegations but the most common are from misclassification, failure to pay overtime and other similar wage and hour claims.
One of the most common is wrongfully misclassifying individuals as independent contractors instead of employees. Claims can come from regulatory agencies, individuals or groups of individuals. Individuals or groups of individuals will often file claims because they are seeking access to benefits offered to those classified as employees. This could be medical or disability benefits, paid time off or sometimes pension benefits. These claims may start as an issue asserted by one employee, but others will join the suit and the claim my end up with class action status and a number of claimants. This makes these type of actions very costly and dangerous.
Regulatory agencies may bring actions if they feel, through an investigation, that there have been abuses of the system. There are federal regulations to consider and state laws that sometimes call for a more stringent adherence to status. Pennsylvania, for example, passed the Construction Workplace Misclassification Act on Oct. 13, 2010.
What does CWMA require?
The act is aimed at misuse of independent contractors in the construction industry and makes the intentional misclassification of employees a third-degree felony. CWMA states that an individual who performs services in the construction industry can only be classified as an independent contractor if the following three conditions are met: The individual has a written contract to perform the service; the individual is free from control or direction while performing the services; and the individual is customarily engaged in an independent trade, occupation, business or profession.
In addition to the fines the secretary of the Department of Labor and Industry can issue, it can petition the courts to issue a stop-work order. While the bill was aimed at abuse in the construction field, it is thought to be a precursor for judgments in other industries.
Is this the only type of misclassification?
No, often employees will allege wrongful classification of their job status as exempt employees. Because there are regulations related to overtime pay for hourly employees, there are situations when employees assert that they are wrongfully classified as exempt when, in fact, they are hourly or nonexempt. Like claims involving independent contractor status, these actions can end up with many claimants and take on a life of their own.
You mentioned other wage and hour issues. Can you expand on this?
We’ve talked about failure to pay overtime based upon misclassification, but failure to pay overtime or recognize other ‘paid time’ is asserted for other reasons as well. One recent suit under a collective bargaining agreement stated that the employer owed employees for the time they took to dress for work after arrival at the company facility. They were granted this time and back pay was ordered.
The retail and hospitality industries are particularly hard hit with these claims. Employees will claim that they work through breaks or often miss time off for meals. Sometimes these situations start as employees wanting to do a little more to get recognized but can end up later in a suit for back wages.
As a matter of fact, the Department of Labor reported in fiscal 2008 that 197,000 employees received a total of more than $140 million in minimum wage and overtime back wages as a result of violations pursued by the Wage & Hour Division.
Aren’t these claims covered under an employment practices policy or similar insurance?
Most directors’ and officers,’ and employment practices policies exclude claims that violate laws and regulations, and most specifically mention the Fair Labor Standards Act. They will often include language that the exclusion applies to ‘similar or related federal, state or local law or regulation.’ Policies with less specific language can result in some limited coverage based upon circumstances.
There has been a trend to provide some sublimit for defense only of these allegations, but those limits are generally between $100,000 and $250,000. There remains no coverage for any back wages, overtime pay or similar judgments that the employer might become obligated to pay. This is typically very inadequate for most of the cases and awards that we’ve seen in the last couple of years.
What can an employer do to reduce its exposure to uncovered claims?
The most important action an employer can take is to review all of its employment processes and procedures and be certain that it is not violating laws related to minimum wage, breaks, and overtime. Be sure that you have reviewed the classification of employees and that any employee who is considered ‘exempt’ truly fits within the parameters of that definition within the act. Human resource consultants and employment attorneys may be needed to review company policies.
Finally, have an insurance representative with the expertise and knowledge to review the fine points of your insurance contract before making a decision as to which insurance product is the best product for you.
Gloria D. Forbes is executive vice president with ECBM Insurance Brokers and Consultants. Reach her at (610) 668-7100 or email@example.com.
When people are curious about a company or product, the first thing they often will do is visit the website. So more often than not, your website is going to be the first impression your company will make to a prospective customer or business contact.
“Your website is a strategic marketing tool, just like an advertisement, press release or brochure,” says Jonathan Ebenstein, the managing director of Skoda Minotti’s Marketing Services Group. “It must fit into the overall marketing strategy you have established for your company. It should be charged with accomplishing specific pre-determined marketing goals and objectives and communicate a consistent message that is tied to your brand.”
Smart Business spoke with Ebenstein about how to optimize your company’s home on the Internet.
What kind of website do I need?
There are three main types of websites: basic information sites, lead generation sites and e-commerce sites.
The information site today is what the company brochure was 20 years ago. It functions as an online brochure that supports your off-line marketing efforts. That is the bare minimum today; you need a well-designed site that gives site visitors the information they need in an intuitive fashion. If that’s all you’re looking for, that’s OK, as long as it fits in with your overall strategic marketing goals and objectives.
The next step up is a lead generating site. Lead generation sites are unlike information sites because you want them to generate leads and business opportunities on their own. You want people to not only find the site while they are browsing on the Internet; you want them to feel compelled to contact you so you are set up to make a sale.
An e-commerce website can be a combination of a lead generation and information site, but added to the equation is the ability to purchase products and services online. After finding the site and viewing the content, the visitor is compelled to click to make a purchase. Those can be very profitable sites and an integral part of a marketing plan.
How do I know if my website needs to be redesigned?
When people are curious about a company or looking for a supplier, the first thing they will often do is visit its website. You need to ask yourself: ‘Does my site properly introduce my company?’ Does the site give visitors the perception that I am a leader in my service or my industry? If the answer is ‘no’ or ‘I’m not sure,’ you should probably consider a redesign.
Think about how prepared you are for a first meeting with a prospective customer. You have your brochure with you, you have your best suit on, your shirt is pressed — you look good because you want to make a great impression, and you want to be prepared to discuss the needs of that individual and how your company can meet those needs.
Your website is no different. It too has to be able to do that for you, because more often than not, it’s the first impression people are getting from your company.
How do I evaluate a website developer?
There are a lot of people out there with different price points for the same type of website. It’s not just about looks and cost. Your website is a strategic marketing tool, and it needs to fit into your overall marketing strategy. It needs to be charged with accomplishing specific predetermined marketing goals and objectives, and communicate a consistent message that is tied to your overall brand and marketing. The Web developer needs to understand that.
If you agree to that philosophy, it’s important that you partner with a Web design firm who is accomplished not only in designing and programming websites, but is also a strategic thinker. The ‘jack of all trades’ developer can sometimes get you into trouble. Your Web developer needs to be accomplished in all aspects of website design and development (i.e., project management, design, content development, programming, search engine optimization, etc.). And, they need to be a strategic marketer so they can tie what needs to be done from a website standpoint into your company’s overall strategic marketing plans, goals and objectives.
Is there an easy way to make frequent updates to a site?
Five-plus years ago, you had to go back to the developer if you wanted to make any changes to your website. Now, sites are built with content management systems (CMS), an administrative software system that allows users with little to no knowledge of web programming languages to create and manage the site’s content. So, if you want to add a picture, new copy or a new link, you, as the owner of the site, can make those administrative changes without taking on additional charges by going to an outside vendor or consultant. So make sure your website is built with CMS.
What is search engine optimization (SEO) and why is it so important?
SEO is the process of improving the visibility of a website or a Web page through its structuring so that search engines, such as Google or Bing, can find, read and index them in the most effective manner. When done properly, SEO makes your website and its content attractive, relevant and visible to search engines and Web searchers. In short, it will help folks find you or your company. A good way to think about it would be if you decided to build a beautiful new house out in some rural part of the country, but you didn’t build any roads to get there. How would your friends and family come to visit you? SEO creates the road to your website.
Jonathan Ebenstein is the managing director of Skoda Minotti’s Marketing Services Group. Reach him at (440) 449-6800 or firstname.lastname@example.org.