Sue Ostrowski

Many business owners think of their company as a tight-knit group and their employees as a family. That may be true in good times, but what happens when something goes wrong and an employee — or potential employee — sues you?

If you don’t have employment practices liability insurance, a lawsuit could put you out of business, says Cliff Baseler, vice president, Best Hoovler Insurance Services Inc., a SeibertKeck company.

“It is such a critical part of a commercial insurance program today that every company should have this coverage,” Baseler says. “It’s important coverage to round out property and casualty insurance. It doesn’t matter if you have one employee or 1,000 employees, it is a must, and the cost is relatively small in relation to the potential costs in the event of a lawsuit. Because it’s not a question of if you are going to have an EPLI claim, but when.”

Smart Business spoke with Baseler about what employment practices liability insurance covers and the risks of failing to have it.

What is EPLI and what does it cover?

EPLI is an insurance policy that provides employers with protection against claims of discrimination, wrongful termination, sexual harassment or other employment-related claims made by employees or potential employees.

Employers may see themselves as one big happy family, but happy families can be broken up when a company has a downturn and has to lay off employees. In an age of corporate downsizing and mergers, one of the biggest areas of employment practices claims is discrimination, be it sexual discrimination, racial discrimination or, the largest single driver today, age discrimination. The second biggest area of claims in this area is retaliatory claims, for example, when someone is a whistleblower.

When the first EPLI policies were offered, coverage was related to claims associated with the Americans with Disabilities Act and only large corporations carried these policies. Today, however, coverage is much more broad and it’s gotten to the point where even very small companies need to have it.

What steps can companies take to avoid EPLI claims?

All major insurance carriers have loss prevention consultant services. Businesses should take advantage of those services, because they can help your company be proactive in avoiding suits, providing best practices and loss prevention services. Some even offer a hotline where, if you’re in a sticky situation and don’t know how to handle it, you can call and talk to an attorney before you take action. For example, if you are going to fire someone, the attorney can advise you on what documents you need to have and what steps you need to take before doing so.

Your carrier can also help you set up your employee handbook with sexual harassment and discrimination policies outlining unacceptable behavior. Having those policies in place can go a long way toward helping you mitigate these types of claims.

If a company is doing everything right, and has these policies in place, why does it need this insurance?

Any company can be targeted for an EPLI lawsuit. And even if the company is innocent of any wrongdoing, it still has to defend itself against the charges of illegal employment practices. If you are accused of misconduct, you will need an attorney to defend you. The average cost to defend a simple EEOC discrimination claim starts at $25,000 to $35,000, and that’s for a dismissal. If the claim ends up in court, you could be looking at six figures or more.

In addition, these types of suits are more plentiful in this economy. As companies lay off employees, the frequency of claims for wrongful termination and discrimination has increased dramatically.

How would a potential employee have a claim against a company?

For example, if you have a potential employee who is 58 and very well qualified, and one who is 35 who is equally qualified, you can’t use age in your decision to hire. It’s amazing how many employers will have the discussion about the 58-year-old only being around for a few years before retiring, while the 35-year-old will probably be around a lot longer. If that potential employee learns of those discussions, and especially if they are documented, you may have a discrimination suit on your hands. This is where your insurance company’s loss prevention program can come into play to create policies to avoid this type of situation.

Another potential area of liability is if an employee leaves your company, is interviewing with another company, and someone at your company says negative things about the former employee. If that gets back to the employee, who finds out he or she didn’t get the job because of something someone at your company said, that can also result in a lawsuit.

How does third-party coverage work?

Third-party coverage is attached to your EPLI policy and covers accused wrongdoing outside your company. For example, if you have a salesperson who makes sexual advances to a client’s receptionist, and she sues your company for sexual harassment, that’s where third-party coverage would come into play.

Do EPLI policies cover prior acts?

In most cases, yes, but the caveat is that any known prior incidents and pending litigation are specifically excluded. Prior acts could be something that happened years ago, but you weren’t aware of the problem and no supervisor had been notified. But any known prior acts that might give rise to a claim would be excluded.

Cliff Baseler is vice president, Best Hoovler Insurance Services Inc., a SeibertKeck company. Reach him atcbaseler@bhmins.com or (614) 246-7475.

Dealing with payroll, employee benefits and workers’ compensation is time-consuming and can be a distraction from the job of running your business.

Engaging with a professional employer organization can remove those obstacles, allowing you to focus on growing your business, says J. Richard Hicks, CEO of HR1 Services Inc.

“A PEO is a single source provider of integrated services that allows business owners to cost-effectively outsource the management of strategic services such as recruiting, risk/safety management and training and development,” says Hicks. “The PEO becomes the employer of record for employees for both tax and insurance purposes in a practice called co-employment.”

As of 2010, there were more than 700 PEOs operating in the United States, covering 2 million to 3 million workers, and that number is continuing to grow.

Smart Business spoke with Hicks about how engaging a PEO can allow you to concentrate on your business.

How does a PEO work?

A small or mid-sized business enters into an agreement with a PEO to establish a three-way relationship among the PEO, the client company and the company’s employees. This now becomes a co-employment arrangement, as the PEO co-employs your existing work force and becomes a legal employer that is responsible for such functions as payroll, record-keeping, benefits and services, and participation in hiring, evaluation and firing.

Dealing with the day-to-day functions of running a business can distract an owner from the big picture and focusing on a strategic vision to move the company forward. Services typically provided by an employer are outsourced to the PEO; the PEO takes over the management of human resources and employment-related issues, freeing up the business owner to focus on the core operations of the business.

The role of a PEO goes far beyond that of a temporary firm, staffing agency or payroll administration firm. Instead of simply taking on one role for a company, the PEO offers comprehensive HR services to clients, either as a bundle or a la carte.

What are the benefits of a PEO?

In addition to allowing leadership to more sharply focus on the business, a PEO can manage your unemployment claims and keep current on tax laws to ensure your business remains in compliance. When employers need to submit employee paperwork to the government, the reporting experts at the PEO will ensure the documents submitted are in compliance with all regulations.

In addition, a business’s employees are eligible for the group benefits offered by the PEO, including medical insurance and 401(k) plans, and it can often get better rates than a single company could on its own. Because it is working with multiple companies, the employees of each of them can be pooled together, creating a larger group and potentially lowering costs. This also removes from the employer the hassle of having to deal with multiple vendors in areas such as health insurance, payroll, 401(k) management and other areas. And because the work in all of these areas is being done by one provider, instead of several, the company’s records are more uniform, allowing for less work in case of an audit.

How can a PEO assist in the area of workers’ compensation?

A PEO can be involved in the management of both workers’ compensation and unemployment claims. In the case of workers’ compensation, the PEO can work with a company to get injured workers back on the job through a light duty program more quickly than they otherwise might return. And as with health insurance premiums, the larger pool of employees created by joining the work forces of multiple employers under the PEO umbrella can often mean lower workers’ comp premiums than an individual employer would pay on its own.

Employers can also receive assistance from the PEO when implementing risk management programs. Having the proper safety initiatives in place can significantly lower workers’ comp premiums and help maintain a more productive work environment.

The PEO also eliminates the need for year-end premium audits, as the company’s expense is billed in the same amount each month.

What are the potential disadvantages of a PEO?

Although the PEO is responsible for all of the above-mentioned services, the employer is still responsible for the productivity and conduct of its employees. Also, some state laws or labor contracts may limit which employers can enter into such an arrangement.

What questions should an employer ask before choosing a PEO?

First, make sure you know what you are paying for. Services are often bundled, and unbundling them can give you a better idea of what you are paying for. Also ask who you will be regularly working with and ask about that person or that team’s background. Determine how often someone from the PEO will visit your office and whether someone will be available on short notice if you run into a problem.

Find out if the PEO will do an analysis of your company before agreeing to take you on. The PEO should be interested in working with you to make things more efficient and help you lower costs and shouldn’t agree to work with you without first thoroughly understanding your business.

Also ask about development and training. A good PEO will be interested in the growth of your employees to help grow your business, so ask if those services are included in your fees, or whether there is an additional costs.

Check with your local PEO expert to ensure that your business is eligible to participate and to get more information about how to proceed.

J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or RHicks@HR1.com.

U

nderstandably, the company mindset is always to be looking forward. So, when a company hits a milestone with a product it has had in the development pipeline for a lengthy period of time, the natural inclination is to pause (briefly) to celebrate the accomplishment, before turning attention to the next product. This pattern of constantly looking to the next and the newest challenge is essential to continued growth and innovation, but it is also the source of major problems when, after several years have passed since approval, a product becomes the focus of litigation that has the potential to sprawl into hundreds, even thousands, of cases.

This puts the company into “panic mode” as it is confronted with the need to make critical strategic decisions in a highly compressed period of time based on an overwhelming amount of fragmented and incomplete information — often with no reliable guide to explain the company mindset during the approval process and to shed light on why certain actions were taken while others were not. Litigation “time capsules” are a proactive step intended to help address this problem.

“Litigation time capsules are designed to capture relevant information and key documents, and to identify and clarify the mindset of decision-makers at the point when product milestones were achieved,” says Kevin M. Zielke, a member and the practice group leader for the Pharmaceutical and Medical Device Litigation practice group at Dykema Gossett PLLC. “All of this information would be captured while memories are fresh and documents are close at hand, and then would be stored away such that, if the product faced litigation down the line, the company would have ready access to it. Armed with this information, the company is in a much better position to make the important strategic decisions necessary so that it has the best prospects for litigation success.”

Smart Business spoke with Zielke about litigation time capsules and how they can help a company minimize litigation risk.

Why are litigation time capsules so useful and why don’t more companies utilize them?

The problem is that when something good happens — a new product has made it through the development pipeline to approval, for example — no one wants to spoil the party by raising the possibility of future litigation. That, however, is precisely the time when undertaking this effort is imperative. The ounce of prevention that a company gains by taking the additional time and effort necessary to work with its attorneys to develop these time capsules has the potential to provide pounds of cure when, in the event of litigation, the company can avoid being caught flat-footed by the informational disadvantage that often exists at the outset of litigation.

While these time capsules can prove enormously helpful in the products liability context, where the company faces the prospect of many lawsuits being brought relating to a particular issue, they can also be used when significant corporate transactions or real estate deals are concluded. Essentially, they provide a snapshot of the then-existing facts, circumstances, key players and driving forces at the time the product was approved or the deal was done.

Why are litigation time capsules so important for businesses to have now?

Today, the need for ready access to key information years after the milestone has been achieved is made all the more critical by two fairly recent developments. First, the ready availability of inexpensive and potentially limitless electronic storage means that those tasked with responding when litigation has been brought are confronted with a veritable ocean of potentially relevant materials that may be stored on hard drives, servers, backup discs, external drives, flash drives, cloud storage and the like. Second, the increasingly rootless nature of company personnel frequently means that those who were responsible for key decisions or who possess information necessary to effectively respond to the litigation are no longer with the company and not readily available to discuss these issues. As a result, capturing the most relevant materials and having immediate insight into the thinking at the time are essential.

What are the consequences of not appreciating these risks?

Now, perhaps more than ever, successful companies have to confront the fact that the litigation target is on their backs at all times, and have to build this sensibility into their culture by making it part of standard operating procedure. The failure to do so means the company will find itself forced to make key strategic decisions based on whatever information those charged with formulating the response were able to cobble together in the often highly compressed time frames found in the litigation context — after that the company will be largely locked into those early strategic decisions. That’s why litigation time capsules work so well: you can wrap your head around lawsuits and respond to them as quickly and efficiently as possible.

Kevin M. Zielke is a member and the practice group leader for the Pharmaceutical and Medical Device Litigation practice group at Dykema Gossett PLLC. Reach him at (313) 568-6908 or kzielke@dykema.com.

As a result of the earthquake and subsequent tsunami in Japan, and the ongoing flooding in Thailand, many U.S. companies have filed or are considering filing contingent business interruption claims against their property insurers.

“Both Japan and Thailand have a significant number of suppliers for various industries, particularly automotive and semiconductors, which is resulting in losses for a number of insureds,” says Russ Opferkuch, managing director at Aon Risk Solutions, and senior officer of Aon’s Property Risk Consulting group and Aon’s Global Rapid Response program. “These insureds can’t get a part, or one of the items they need to put their product together because the manufacturing plant that makes what they need is either underwater in Thailand or impacted by one of the many loss exposures in Japan.”

Smart Business spoke with Opferkuch and Dean G. Mandis, risk adviser, Aon Risk Solutions, about how contingent business interruption insurance works, and how to maximize your chances of success with such a claim.

What is contingent business interruption insurance?

There are a lot of misconceptions as to what contingent business interruption coverage is. The intent of the coverage is simple: to reimburse you for losses you have because either your supplier or customer, or both, are impacted by physical damage resulting in their inability to provide you with their product or accept your product. For coverage to apply, the physical damage has to be from a peril that is covered by the policy, and to property of a type that is covered by the policy.

On the surface, it seems pretty simple, but when you need to quantify what your loss is and prove it to the insurance company, it becomes a difficult task. There also are wide variations in policy wordings and, as a result, it is difficult to generalize in terms of coverage.

Why can contingent business interruption be a difficult claim for companies?

Suppliers that may be impacted by a disaster, interrupting your business, may be either direct suppliers or indirect or ‘second-tier’ suppliers. Thus, for example, if the company two tiers upstream from you has a loss and can’t produce its product, then your supplier can’t produce its product, so you can’t produce yours. The further removed from you a loss is, the more difficult it is to connect your financial loss to the physical damage experienced by your supplier.

You have to present and document the loss just as if it is a direct loss to you. You need evidence of what caused the damage that resulted in interruption of the product. The insurer will want to inspect the supplier’s facility to verify the damage and to determine how long it will take for that company to get back into business and continue producing the product you’re waiting for.

One of the easiest ways to explain some of the complexities in documenting these claims is to use the losses in Japan as an example. If a company there is making an item or part for you, production could be interrupted for many reasons. Its facility might have been damaged by the earthquake or the resulting tsunami — which typically are considered two different perils. It could have been impacted by the radioactivity, which is not insured. A claim requires that you prove to your insurer that the interruption your suppliers had was caused by a specific covered peril and that the supplier is doing its best with due diligence and dispatch to rebuild its facility and restart its operations.

What does CBI insurance cover?

Assuming you purchase the appropriate coverage and can document that you had a financial loss, it will cover such things as your loss of earnings for a product you were unable to produce and associated fixed costs/continuing expenses. It also covers the incremental costs of finding another source: Some companies need to recertify their product to appropriately recognize the use of a replacement item different than the original.

For example, an automaker may need to use a certain chip in a car. If the automaker can’t get that chip, it will need to get a different chip, but it will have to recertify the system to ensure the new chip works correctly. There is a cost to that, and those costs can be recovered under CBI coverage.

What should companies do in the event of an interruption?

It’s a policy obligation to mitigate the loss by seeking other suppliers. I find our clients do that, not because of the insurance requirement, but because it’s the necessary thing to do to maintain one’s business. Some of the manufacturers in Thailand or Japan fortunately have facilities in other countries, so they are able to move portions of their production elsewhere.

The Wall Street Journal reported a Japanese trade ministry survey indicated that 97 percent of manufacturers that used suppliers in northern Japan have found alternate sourcing since the quake. Caution applies, because even if you think you have alternate suppliers set up, they may get the product from the same place.

For some items, there just isn’t another supplier. For example, a number of auto manufacturers used a particular pigment in their paint. While some may have gotten the pigment from several vendors, all those vendors sourced from the same manufacturing plant — a second-tier supplier.

So the auto manufacturers could not produce some colors while they were unable to get this pigment.

Russ Opferkuch, ARM, CPCU, CSP, is managing director at Aon Risk Solutions. He is senior officer of Aon’s Property Risk Consulting group and Aon’s Global Rapid Response program. Reach him at (212) 479-4656 or russ.opferkuch@aon.com. Dean G. Mandis is risk advisor at Aon Risk Solutions. Reach him at (314) 854-0872 or dean.mandis@aon.com.

In recent years, health insurance companies have been enthusiastically deploying new tactics, sometimes linked to financial incentives, to improve health and reduce medical costs.

Many insurers are offering employer groups plans that provide monetary rewards to members who exhibit healthy behaviors and encourage them to be more involved in their health care decisions. A few have created a comprehensive, integrated and incentivized approach that is turnkey to help both employers and employees to achieve this goal.

A suite of next-generation, consumer-directed health plans powered by a health incentive account represents a cost-effective solution for directly addressing the rising cost of health care for employers while focusing on the health and productivity of employees.

“Enlightened consumer-directed health plans with funded health incentive accounts help employees and their families understand and improve their health,” says Dr. Michael Parkinson, senior medical director of health and productivity, UPMC Health Plan. “It also helps employees partner with their doctors in medical decisions and earn incentives as they do. Healthier, more engaged individuals — as both consumers and as patients — live longer, better and more productive lives, and usually save money in the process.”

Smart Business spoke with Parkinson about how to manage consumer-directed health plans and how they can benefit employers.

Why should an employer be interested in a consumer-directed health plan?

Increasingly, employers are focused on the health and productivity of their employees as an essential business investment. They understand that having healthy employees means increased productivity.

But employers need a cost-effective solution to the rising cost of health care. Chronic conditions account for 80 percent of all medical costs to employers, and that number is rising. The increase in these conditions and their costs predominantly are due to behavioral factors.

Consumer-directed health plans (CDHPs) must be done correctly to improve health and reduce unnecessary medical care costs for all members of a population, not just the young and healthy. Employers should embrace this growing trend because it focuses on the health and productivity of employees. It works because employees are better able to understand their health and their care, improve their health care and partner with their doctors to make health care decisions — with money they ‘see’ and ‘feel’ is their own.

How can employees be rewarded?

Employees can earn money for their Health Incentive Account to reduce out-of-pocket health care expenses by completing specific healthy behavior and care engagement activities. To understand their health needs, employees take a confidential personal health risk assessment that helps pinpoint their health risk factors. Based on aggregated data, this also enables the employer to offer targeted solutions for managing health conditions common in the population through wellness and disease management programs.

The health incentive account approach can be effective because it combines a high-deductible health plan with a program that rewards healthy lifestyles and better medical decision making in partnership with one’s physician. The high-deductible component encourages employees to be active consumers of health care, while the healthy lifestyles reward component gives them the opportunity to earn financial rewards for activities that have been designed to improve their health.

These activities would include getting a flu shot, visiting a doctor for a well visit, participating in a healthy lifestyle or a disease management program, or learning more about options for back surgery. These activities will help your employees reach healthier outcomes, whether by alerting them to health issues they were unaware of, or by motivating them to address ongoing medical conditions.

What is in it for the employer?

These programs work to improve health and productivity and to reduce unnecessary medical care faster and more effectively than traditional health plans. This is particularly true when done as a full replacement with leadership commitment and communication.

A plan that rewards healthy behavior tells employees that you care about their current and future health risks. These plans are popular because employers want employees to lose fewer days to illness, and they provide employees with the tools to change poor health habits and adopt healthier ones for life. Studies of effective CDHP plans with funded accounts and incentives show greater preventive care, healthy behaviors, care engagement and lower cost than other types of plans — even for patients who are high users of health care with chronic medical conditions.

When a health incentive plan is tied with a consumer-directed health plan, it allows an employer to offer a less-expensive health plan but make up the difference in benefit coverage by giving employees a way to earn extra money to cover out-of-pocket costs.

Why have these plans become more popular?

Employers frankly are running out of effective strategies — as well as time — to address rising costs and declining health among their employees and their families. Consumer-directed health care plans reward consumers who take charge of their health and health care by promoting personal responsibility and cost-conscious decision making. Increasing employee engagement gives them ‘more skin in the game,’ but with enhanced support.

By aligning both responsibilities and rewards for healthier behaviors, more engagement in their care decisions and greater awareness of the costs of their options, employees do make better choices. And their healthier behaviors and better choices literally pay off in better living and lower costs for both them and for their employer.

DR. MICHAEL PARKINSON is senior medical director of health and productivity for UPMC Health Plan, which is part of the UPMC Insurance Services Division. Reach him at (412) 454-5643 or parkinsonmd@upmc.edu.

As a result of the earthquake and subsequent tsunami in Japan, and the ongoing flooding in Thailand, many U.S. companies have filed or are considering filing contingent business interruption claims against their property insurers.

“Both Japan and Thailand have a significant number of suppliers for various industries, particularly automotive and semiconductors, which is resulting in losses for a number of insureds,” says Russ Opferkuch, managing director at Aon Risk Solutions, and senior officer of Aon’s Property Risk Consulting group and Aon’s Global Rapid Response program. “These insureds can’t get a part or one of the items they need to put their product together because the manufacturing plant that makes what they need is either underwater in Thailand or impacted by one of the many loss exposures in Japan.”

Smart Business spoke with Opferkuch about how contingent business interruption insurance works, and how to maximize your chances of success with such a claim.

What is contingent business interruption insurance?

There are a lot of misconceptions as to what contingent business interruption coverage is. The intent of the coverage is simple: to reimburse you for losses you have because either your supplier or customer, or both, are impacted by physical damage resulting in their inability to provide you with their product or accept your product. For coverage to apply, the physical damage has to be from a peril that is covered by the policy, and to property of a type that is covered by the policy.

On the surface, it seems pretty simple, but when you need to quantify what your loss is and prove it to the insurance company, it becomes a difficult task. There also are wide variations in policy wordings and, as a result, it is difficult to generalize in terms of coverage.

Why can contingent business interruption be a difficult claim for companies?

Suppliers that may be impacted by a disaster, interrupting your business, may be either direct suppliers or indirect or ‘second-tier’ suppliers. Thus, for example, if the company two tiers upstream from you has a loss and can’t produce its product, then your supplier can’t produce its product, so you can’t produce yours. The further removed from you a loss is, the more difficult it is to connect your financial loss to the physical damage experienced by your supplier.

You have to present and document the loss just as if it is a direct loss to you. You need evidence of what caused the damage that resulted in interruption of the product. The insurer will want to inspect the supplier’s facility to verify the damage and to determine how long it will take for that company to get back into business and continue producing the product you’re waiting for.

One of the easiest ways to explain some of the complexities in documenting these claims is to use the losses in Japan as an example. If a company there is making an item or part for you, production could be interrupted for many reasons. Its facility might have been damaged by the earthquake or the resulting tsunami — which typically are considered two different perils. It could have been impacted by the radioactivity, which is not insured. A claim requires that you prove to your insurer that the interruption your suppliers had was caused by a specific covered peril and that the supplier is doing its best with due diligence and dispatch to rebuild its facility and restart its operations.

What does CBI insurance cover?

Assuming you purchase the appropriate coverage and can document that you had a financial loss, it will cover such things as your loss of earnings for a product you were unable to produce and associated fixed costs/continuing expenses. It also covers the incremental costs of finding another source: Some companies need to recertify their product to appropriately recognize the use of a replacement item different than the original.

For example, an automaker may need to use a certain chip in a car. If the automaker can’t get that chip, it will need to get a different chip, but it will have to recertify the system to ensure the new chip works correctly. There is a cost to that, and those costs can be recovered under CBI coverage.

What should companies do in the event of an interruption?

It’s a policy obligation to mitigate the loss by seeking other suppliers. I find our clients do that, not because of the insurance requirement, but because it’s the necessary thing to do to maintain one’s business. Some of the manufacturers in Thailand or Japan fortunately have facilities in other countries, so they are able to move portions of their production elsewhere.

The Wall Street Journal reported a Japanese trade ministry survey indicated that 97 percent of manufacturers that used suppliers in northern Japan have found alternate sourcing since the quake. Caution applies, because even if you think you have alternate suppliers set up, they may get the product from the same place.

For some items, there just isn’t another supplier. For example, a number of auto manufacturers used a particular pigment in their paint. While some may have gotten the pigment from several vendors, all those vendors sourced from the same manufacturing plant — a second-tier supplier.

So the auto manufacturers could not produce some colors while they were unable to get this pigment.

Russ Opferkuch, ARM, CPCU, CSP, is managing director at Aon Risk Solutions. He is senior officer of Aon’s Property Risk Consulting group and Aon’s Global Rapid Response program. Reach him at (212) 479-4656 or russ.opferkuch@aon.com.

Most employers know that having healthy employees can help lower health care costs, but a healthy population can have far greater benefits for your company.

Those benefits can be so great that some employers are not only encouraging healthy behaviors, they are demanding them as a condition of employment, says Michael F. Campbell, chief wellness officer at Neace Lukens.

“There is a general consensus that health care costs are driving the wellness movement,” says Campbell. “But a recent study revealed that the benefits in improved productivity and presenteeism from wellness programs were financially a far greater advantage than the decrease in health care costs. Lost productivity due to poor health, chronic conditions and poor lifestyle created a far greater impact.”

Smart Business spoke with Campbell about steps you can take to improve the health — and productivity — of your employees.

If an employer wants its employees to be healthier, where does it start?

You have to start at the top. If the leader of the company is unwilling to lead in this endeavor as they would lead in their business endeavors, it will fail. That’s the only way you are going to have an impact on the culture.

For example, our CEO decided two years ago that something had to change. He began to change his lifestyle, his activities, his eating and drinking habits, and began communicating those changes to the employees.

You may get a lot of negative feedback from the population when you’re requiring people to do certain things, but if the leader is saying, ‘Look, face it, this is here to stay,’ having that repetitious message in place makes a big difference. At companies of all sizes, the ones that succeed with wellness programs are the ones in which the leader steps up to the plate and becomes a living example of what they’re asking people to do.

What kinds of things can employers incorporate into wellness programs?

You can encourage people to get annual physicals, whether they are covered on your health plan or not. If everyone is not on the health plan, don’t attach incentives to the plan because you are after your entire population.

You can also ask employees to participate in a nutrition program. That doesn’t mean telling them how to eat; it simply means that they have to participate in an assessment that will tell them what their nutrition prescription is. You can also persuade everyone to participate in quarterly seminars on nutrition.

For example, we are going to support the program for employees to use pedometers. That doesn’t mean they have to walk a certain number of steps each day, not yet, but they do have to wear them. We suggest a goal and tell them what the recommendations are. It’s very unobtrusive and we simply say to them, we need you to wear this.

This approach is not an outcomes-based program yet; it’s a participation-based approach.

How can employers overcome employee resistance?

Take, for example, a hospital that wanted to implement a tobacco-free workplace policy. It announced it was going to charge those who did not kick the habit, and it did a very poor job of rolling it out, a very poor job of communicating, a very poor job of educating people, and the turnaround time from announcement to quit date was way too short. As a result, it had a rebellion.

Compare that with employers who have done it correctly. They start 18 months in advance, they make a case for the initiative, they explain to employees why they are so interested in making it happen, and the pros and cons of the program. And they say to employees, way in advance, ‘Get ready. The day is coming when we are going to issue a policy that you will not be able to use tobacco on the premises, at any time. We’re not going to do this for a year and a half yet, and in the meantime, for those who do use tobacco, we have this incredible program that we’re going to bring to the table to help you quit.’

Employers who do that have no problems. Nobody quits, there is no rebellion; it just happens. But if you wait until the objections come, and you don’t answer all of their questions ahead of time and explain thoroughly why you’re doing this, you’re going to have problems.

What would you say to employers who say they can’t afford the investment into wellness?

Think of it along the lines of safety. If you ask a factory manager what kind of money that person is investing in safety programs, it’s amazing relative to the amount of money that’s involved in that area. It’s so incredibly disproportionate to health care cost. There are signs all over the place, and everyone knows what they should and shouldn’t be doing when it comes to safety.

But when it comes to health plan costs, which are astronomical when compared to their exposure financially, what are they doing there? There is a huge value to the investment for wellness.

Some employers may also think that the health of their employees is none of their business.

Yes, it is your business. And you’d better make it your business, or you are going to be out of business.

Michael F. Campbell is chief wellness officer at Neace Lukens. Reach him at (317) 595-7349 or mike.campbell@neacelukens.com.

With employers facing ever-rising health insurance premiums, most are looking for a way to control costs.

To do that, they are increasing co-pays and deductibles, or decreasing benefits. But there are other steps you can take to accomplish that goal without impacting benefits or increasing employees’ costs, says Mark Haegele, director, sales and account management at HealthLink.

“Lowering the cost of health care is driven by managing utilization,” says Haegele. “There are a number of things in your data covering members’ use that you can address to help control costs. Too often, people are not educated about alternatives to the emergency room, and educating them can help control costs.”

Smart Business spoke with Haegele about how to lower the cost of health care without modifying benefits.

Where should employers start?

From 1996 to 2006, the annual number of emergency visits grew from 90.3 million in the U.S. to 119.2 million, and from 34.2 to 40.5 visits per 100 residents. So start by looking at emergency room usage and other high utilization data points to identify trends in your health care that are areas of concern. Those are the areas you should focus on and on which you can ultimately have an impact.

Emergency room utilization is something very tangible that you can get your arms around. Identify if overuse of the ER is an issue, and, if it is, identify what is driving it. Then you can implement action plans to correct it and to lower the cost for that high-cost category.

What should an employer be looking for?

First, over the last three years, has the number of visits per member per month gone up year after year? And has the cost per member per month gone up year after year? If the answer is yes, ask why. It will help you understand what you can do to control that cost category without cutting benefits.

Look at frequency of visits per person to identify whether there is a subset of people who go to the ER 10 or more times a year. If there is, you need to determine how to address those people. Do you need to have case management nurses reach out to them to help them find a better path to care? Do they need help finding a primary care physician? Can you educate them on more appropriate levels of care that are available?

What other patterns in ER utilization should employers look for?

Employers should look at the reasons for ER visits. There are two categories — symptom, injury or poisoning; and disease and virus. If someone breaks an ankle, that person is going to the ER. But the disease and virus category is a different story. We find that more than 60 percent of ER visits are for disease or virus, for things such as sinusitis, flu, cough, headache, etc.

This category can be managed. There are 24-hour nurse lines, urgent care clinics and clinics in pharmacies, and all of those are lower-cost alternatives for that category. The cost of the ER averages $800 to $900, versus as little as $65 to $150 for the alternatives. If more than 50 percent of ER visits under your plan fall into this category, you know where to focus your energy. Then you can implement specific action plans to modify utilization and create awareness.

How can employers create that awareness?

Education is the No. 1 thing. Post information for employees, do e-mails blasts, distribute articles on proper use of the ER, do payroll stuffers, anything you can to get the word out that there are alternatives to the ER.

A lot of employers have penalties, so if an ER visit is not a true emergency under the plan design, it doesn’t pay. But hospitals have ways of getting around that. Typical plan designs waive that penalty if a patient is admitted. Guess what? Now your admissions just went up.

A better approach is to educate people so they know the proper use of the ER. And explain that if the ER coinsurance is $150, that’s $150 out of their pocket, whereas, if they went to an urgent care center, the cost is much less. And oftentimes, the wait is shorter, as well. Sell your members on appropriate lower levels of care that are more easily accessible, less expensive and more convenient.

How do hospitals play into the equation?

Hospitals are not off the hook. Hospitals code ER visits from one to five, with five being the most severe cases, but some hospitals never code lower than three. As a result, we recommend to employers that, if they identify a hospital overcharging for ER visits, they address the issue with the hospital.

The employer, in conjunction with the insurance company, can co-write a letter explaining its issues with the ER. Say, ‘We’d like you to consider two things. One, reconsider the way you’re coding ER visits, and, two, consider establishing an urgent care center for lower level visits to your facility.’ One letter isn’t going to result in a new facility, but it does create awareness of the way it codes, and we will often start to see coding that is more appropriate. By showing the hospital the data demonstrating high coding levels for low levels of care, you create awareness.

The employer, the hospital, the member and the insurance company all have to work together to address this issue. As an employer, look at your benefit design and ways you can support the insurance company to educate members. It is the responsibility of members to do what is good for them, keep dollars in their pockets and appropriately use their benefits. Hospitals and providers have a stake in the game, as well. Everyone shares equal responsibility in managing this.

Editor’s note: The ER is just one category of many in which employers have the ability to impact cost. In coming months, HealthLink will address other categories, including high-cost imaging, implants, 23-hour observation and surgery.

Mark Haegele is director, sales and account management, at HealthLink. Reach him at (314) 925-6310 or Mark.Haegele@healthlink.com.

When determining what entity type is best for your organization, you need to consider several factors, and working with an outside adviser can help avoid trouble down the road, says Steven H. Gross, CPA, a partner with Skoda Minotti.

“A limited liability company (LLC) often makes the most sense, as it provides the most flexibility, but there are other options to consider,” says Gross. “Even with an LLC, you need to determine the best way to be taxed.”

Smart Business spoke with Gross about how to make the best choice to lessen your tax burden and avoid common tax traps.

What types of entity structures can businesses choose from?

The most common options are a C corporation, an S corporation, partnerships and, as mentioned above, an LLC.

A corporation (S or C) is a separate legal entity. C corporations are tax paying entities, that is, they pay taxes on their taxable income just as individuals pay taxes on their taxable income. A C corporation can make a distribution to its shareholders, which may be taxed as a dividend. These dividends are not deductible to the corporation, but taxed, at least until 2013, at a favorable tax rate to the recipient. Depending on the tax situation of the individual and the corporation, paying some dividends may result in less taxes paid by the corporation and individual combined.

An S corporation is also a separate legal entity but generally is not a tax-paying entity for federal tax purposes. An advantage of an S corp. is that its profits are taxed to the shareholders, not the corporation itself; therefore the double taxation that exists in a C corp. is eliminated. Another advantage is that the amount of profits taxed to the shareholders is subject to self-employment tax. Since S corp. profits are not subject to self-employment tax, you can manage your self-employment taxes better than in a C corp. In an S corp., profits and losses have to be allocated to the shareholders in the same percentages, as ownership and distributions cannot be disproportionate.

Another entity structure option is an LLC. Generally, a multi-member LLC will be taxed as a partnership. An LLC filing a partnership return is not a tax-paying entity and the profits and losses flow through to the members in a similar manner to an S corp. Members of an LLC can elect to have the entity taxed as an S corp. or a C corp.

What are some benefits of an LLC?

An LLC that is treated as a partnership allows its members to avoid the double taxation and higher income tax of a corporation while, at the same time, retaining limited liability and other favorable attributes of a corporation.

An LLC, unlike an S corp., has the ability to specially allocate items of income, loss, deduction or credit, so long as the allocations have substantial economic effect.

Note that, even if an LLC is treated as a partnership for federal income tax purposes, an LLC may also be treated as a corporation and be subject to franchise taxes under state law.

What are some benefits of an S corporation?

As stated before, shareholders of an S corp. do not pay self-employment tax on the flow-through profits.

An S corp. with only one shareholder still files a separate return, unlike a single member LLC. A single member LLC is a disregarded entity for federal tax purposes and all of the business income and expenses are reported on Schedule C of the individual’s income tax return.

Disposition of an ownership interest in an S corp. at a loss may yield an ordinary loss under I.R.C. Sec. 1244, while disposition of an LLC ownership interest generally yields a capital loss.

What are some common tax traps businesses fall into?

When you have flow-through entities, you have basis issues when it comes to losses. If you meet certain criteria, those losses can be deducted on your tax return. However, individuals often think that if they are incurring losses in their pass-through entity, they can deduct those losses on their individual income tax returns when, in fact, they do not have basis to take the losses.

Another trap in the C corp. arena is charitable contributions. Contributions made in a C corp. are only deductible to the extent that they don’t exceed modified net income by 10 percent. Any excess contributions can be carried forward for up to five years. If a C corp. is running at a loss, the shareholder may want to consider making the donation personally.

How do you determine the right choice for your business?

Business owners need to seek advice on what would be the best choice in their particular situation. Sit down with an adviser, determine the pros and cons and weigh the options.

The issues can be very confusing and difficult to get your arms around. These are intricate tax issues and you would be best served by sorting through your options with an experienced professional.

Steven H. Gross, CPA, is a partner with Skoda Minotti. Reach him at (440) 449-6800 or sgross@skodaminotti.com.

Your insurance company provides benefits that most business owners don’t utilize, many of which could save you money on your property and casualty insurance premiums. Because these services are bundled into the cost of your policy, if you’re not taking advantage of them, you may actually be costing yourself money, says Craig Hassinger, president of SeibertKeck.

“Oftentimes, business owners don’t understand that there are valuable resources available to them that are built into the cost of the premium,” Hassinger says. “Because those costs cannot be carved out of the premium dollars, if you don’t use those services, you lose them.”

Smart Business spoke with Hassinger about services you can take advantage of for no additional cost, and how those services could actually save you money on insurance.

Why are so many business owners unaware of the services available to them from their insurance company?

In some cases, the agency is not taking the time to explain it properly. In others, the customer doesn’t have enough interest in the insurance-buying process to take advantage of it. Property and casualty premiums can be significantly less than health care costs, so some business owners may only want to meet with the broker once a year and spend a limited amount of time reviewing their property and casualty insurance program. But they are walking away from some real value-added services that insurance companies offer through their independent agent.

What kinds of services are often overlooked?

The majority of companies in the insurance industry offer loss control services to their customers. Loss control engineers will visit your business, meet with you and get to know your company. As a result, they can provide you with a list of services they can offer, such as life safety seminars, employee seminars and risk management services, all of which can help control your insurance costs, or even drive those costs down.

Employers should also take advantage of the insurance company’s website, which, 24 hours a day, seven days a week, for the entire term of the policy, provides access to information on topics such as safety, HR and other important information they may be paying for through an outside consultant.

How can a five-year claims report benefit a business?

Employers should ask for a five-year claim report from their independent agent. Look at your claims and identify any trends, any problems that are driving costs or that may position you to negotiate a lower premium. If your loss experience is better than average, then your premiums should be better than average.

Though insurance companies are in business to make a profit, it is possible to negotiate with them for a discount. However, too many employers don’t know that this information is available to them and that they can use it to have an impact on their premiums.

What other steps can businesses take to save money on insurance?

One simple solution is to review your deductibles and retentions and adjust those based on your risk appetite. The higher your retention or deductible, the lower the premium you are going to pay and the more exposure you accept as a company. And the more risk you are taking on, the more you will pay out for a claim.

It’s important to know what your deductibles are and what your return on investment is by adjusting these deductibles.

How can risk transfer agreements impact your costs?

You want to make certain subcontractors and vendors have the appropriate insurance coverage. Contractors should transfer risk to these groups if they are performing work on your behalf. Certificates of insurance with additional insured coverage can allow you to transfer the exposure to risk from your organization to these subcontractors and vendors.

With risk transfer agreements, you are transferring that risk to your subcontractors and vendors, which will reduce your claims activities and, ultimately, control your insurance costs. It’s a simple process, and that’s where you independent agent can bring value by assisting you in the risk transfer process.

How else can your relationship with your independent agent provide benefits?

Your independent agent should be more than just a buying agent for purchasing the insurance product. That person should bring a value service platform. And that is an educational process to understand what services are available to you and what reports are available to you. The independent agent should also be familiar with market conditions and be able to share with you the rate expectation for future years.

Also, don’t just renew the policy each year and forget about it until next year. It’s recommended that business owners meet with their independent agent in some capacity at least twice a year. The bigger the organization, the more often those meetings should take place, because the needs are greater.

Your relationship with your independent agent should include an ongoing service plan to review your entire program on a regular basis; it should not be a once-a-year project. You should be working with your independent agent year-round to help control costs and potentially reduce them, and to manage your losses. The relationship should be that of a trusted adviser, such as that with an attorney or an accountant. The independent agent should be part of that trusted adviser group, providing solid recommendations on how to manage your risks and control insurance costs.

Craig Hassinger is president of SeibertKeck. Reach him at (330) 865-6237 or chassinger@seibertkeck.com.