Remember the good old days when you worked for one company your entire life, eventually retiring on a comfortable pension?

No?

Well, that’s not surprising since many of us started our working careers after those days passed into history. Today's workforce is more competitive and mobile. Company loyalty no longer exists and it isn’t even that uncommon for many people to forego the customary two weeks notice before leaving their job.

This puts employers in a tough position trying to figuring out how to attract, and retain, their most valuable resource – the employee. This is especially true in a generation that has grown up in a more affluent U.S. and, to some extent, shuns the old work hard, sacrifice time with the family and get ahead mentality. Today’s workforce doesn’t view working 50-60 hours a week as a virtue; rather it views this kind of work schedule as a vice.

While some may view this as a change for the better, and some may view this as a change for the worse, the fact is that this is the new reality.

So these days, what do employers do to attract and retain good employees? There is no single best answer to this question, but we do have a few ideas. Most of our ideas center on the benefits you provide for your employees.

As accountants and business advisors, we are aware that some businesses will be in a better position to provide benefits than others. As a very simplistic example, a 5,000 employee manufacturing firm will most likely be able to obtain better group insurance rates than a 2 person shop.

With that in mind, let’s take a look at some of the more common employee benefits provided by employers these days. This month, we’ll discuss healthcare benefits, followed by retirement plan benefits in December, and other benefits will be discussed January, as part three of our series.

Although Healthcare benefits are becoming more expensive to provide, however,most employers do offer some type of healthcare to their employees.

In a recent study performed by the Kaiser Family Foundation, the percentage of small employers (those with 3-199 employees) offering some form of group health plan increased from 54% in 1998 to 67% in 2000. Since 1996, large firms (200+ employees) consistently provided health insurance in the 99% to 100% range, to their employees.

What this means to you, as an employer, is that you need to address the issue of healthcare in your own company. This is no mean feat. In fact, it can be an absolute nightmare just deciding which healthcare provider companies to consider. Then analyzing the costs after you receive them, can be even worse. However, for the sake of retaining good employees, we suggest you take the time to investigate health benefits.

In addition to cost, you should also look at the rating of the company, their claims paying history, the type of plan, and the benefits offered.

One of your key concerns should be the rating of the company you look at. There are several different agencies that rate insurance companies. Moody’s, A.M. Best, Duff & Phelps and Standard & Poors are the more common rating agencies. Ratings deal with the insurance company’s financial strength and its ability to pay claims. It does very little good to pay insurance premiums if the company can’t pay claims when they are presented to it. If the company you are considering does not have a rating of A or better on the above scales, you could probably do better.

Just as important as the prospective insurer’s ability to pay, is it’s willingness to pay. Let’s face it, if you have a customer who has $1 billion cash, but won’t pay your bill, what do you care how strong the customer is? The same holds true for insurers. If the company has a poor history of paying claims, you could probably do better. The best way to find out about a company’s claims processing is to ask it’s current customers.

Now, lets look at the different types of plans offerd.

There are four basic types– Conventional, HMO, PPO and POS. Each has its advantages and disadvantages, both from the benefits side and the cost side.

A conventional plan is what most of us were familiar with prior to the advent of managed care. A conventional plan does not limit your choice of physician nor does it require you see a “primary care physician” prior to visiting a specialist. Typically you are required to pay a deductible and some co-insurance amount. There is typically a maximum out-of-pocket for the insured as well. The actual deductible and co-insurance amounts are negotiated items and have a great impact on cost – the higher the co-insurance and/or deductible, the lower the cost.

Conventional plans offer the most flexibility to the insured (the employee). However, they are also the most expensive.

In direct contrast to a conventional plan, an HMO (Health Maintenance Organization) manages virtually every aspect of medical care. In an HMO, you are typically required to choose a “primary care physician” whose responsibility it is to determine if you need the services of a specialist. Many times, the choices of available physicians will not include an employee’s current physician. Thus forcing the employee to change to an “HMO” physician. HMOs have come under fire recently because of the level of oversight they have exercised over their members’ medical care.

The advantages to the HMO’s subscribers (the employees) are lower premiums and more certainty lower medical costs. For example, a typical HMO may cost that each visit to the doctor will require the employee $15. Let’s say the employee’s doctor charges $150 per office visit. An employee with a conventional plan and a $500 deductible, will pay $450 for the first three visits to the doctor ($150 * 3) while the HMO employee will pay only $45 (15*3). Depending on your group’s circumstances, the cost savings may far exceed the inconvenience caused by a lack of choice.

A PPO (Preferred Provider Organization), is a kind of scaled down HMO. A PPO is basically an arrangement where the insurance company tells you who it would like for you to visit based on the doctors with whom it contracts. You will still have the ability to go to a provider outside the network, but it will likely cost you a good bit more, in co-payments and deductibles.

Like the HMO, it is less expensive for the employee to visit a physician who is in the PPO’s network. As with HMO's and conventional plans, there are maximum out-of-pocket costs per year. Unlike the HMO, the employee is not required to choose a “primary care physician” or have pre-approval by the primary care physician prior to visiting a specialist. This flexibility causes an increase in the premium over HMO premiums, but not enough to increase the premiums to the conventional plan level.

A POS (Point of Service) plan – is basically an HMO in conventional plan clothing. A POS is an HMO plan that allows the employee to go outside of the plan to obtain services. This will result in much higher health care costs for the employee. Also, in some instances, services covered under the HMO portion of the coverage are not available outside of the HMO network. These plans cost roughly the same, or slightly lower, than the PPO plans.

Average monthly costs for the 4 different plans, according to the Kaiser Family Foundation and Health Research and Educational Trust 2000 Employer Health Benefits study.

Plan Type	Cost of Single Coverage	Cost of Family Coverage
Conventional	$238	$608
HMO	$181	$487
PPO	$210	$538
POS	$202	$539

These costs represent the total cost of coverage and do not reflect a breakdown between the employer paid portion and the employee paid portion. The portion paid by the employer is generally within the discretion of the employer based on it’s own circumstances. However, some plans require a minimum participation by the employer.

In addition to the basic types of insurance coverages, there are a number of funding vehicles. A plan can be self-insured, part of a medical savings account plan or part of a cafeteria plan. Again, these all have their advantages and disadvantages. We suggest you talk to your insurance agent about the various options. You also need to know that the availability of plans that include medical savings accounts will close at the end of 2000, unless Congress extends their lives.

With the ever-increasing competition for employees comes the need to change the way you, as an employer, compensate your employee. Employees are becoming more sophisticated and realize that take home pay is not always the only indicator of their true compensation. These factors, combined, can place a strain on the budget and relationships as you strive to find the right balance for your company. Give us a call today and let us help you evaluate the various options for health insurance facing you.