Who is the focus of your benefit plan?
Early in my career I learned an important question to ask when consulting a prospective client; is it an Us, Them, or Me plan? While sounding quaint it is fundamental to properly frame the discussion. The person who taught me this marketed pension plans to large companies but the concept is equally valid for any employer benefit plan. The ‘right’ plan depends entirely on who you are talking to and what can be right for one person might be less than optimal for another.
The comparison to a pension plan is relevant because they are frequently skewed in such a way to benefit the older employees, the highly motivated, the savers, etc. They cannot be “top-heavy” and must follow “safe harbor” rules but if designed in a certain way more often than naught it is the owners and highly compensated that end up taking the most advantage of it; in other words a me plan.
While not an exact corollary, group health insurance can follow certain patterns as well depending upon the industry, demographics, and the stage a business is in. You always need to comply with HIPAA and the carrier participation rules but there is often a similar push and pull within a company that plays out in terms of who benefits more.
It’s not a Democracy
By definition, individual or family plans are always me plans. The important considerations such as the cost and access to providers all revolve exclusively around the decision makers. Occasionally families are split between carriers or have to compromise on providers but that is true for many other things as well. Ultimately, they just pick what they think is best for them. Micro-Groups or small tight knit groups are a little different because they are not always for the owners but they tend to follow a similar pattern.
By the time a company reaches about 20 employees they have inevitably become them plans because the cost of the employees now outweighs the interests of the original founders forcing compromises as the company scales up. Generally with startups, the owners of the company tend to be older, more affluent, more likely to have families, and possibly have more health issues then the people they plan to hire. Their initial impulse is to go with benefits that match their last employer based plan (frequently they are still on COBRA). However this that can be a problem once the company goes on a hiring binge and they are forced to match benefits. There are ways to remedy or mitigate this such as carefully selecting which plans are offered and setting the employer contribution levels in anticipation but there is usually an internal tension depending on how things play out. However, companies are not democracies and ultimately it is up to the powers that be on how to best to handle it.
In the 1930’s, the great economist John Maynard Keynes coined the phrase “wage stickiness”. What he discovered was that unlike most other goods and services, the cost of labor was more rigid relative to supply and demand. When the economy or a business went into a recession, it was very difficult to cut wages so what usually ended up happening was that people simply got laid off resulting in a very high unemployment rate.
The exact same phenomenon occurs today although benefits are now more common. Stating the obvious, it is far easier for an employer to add benefits later on then it is to pull them back. So the general rule is to be as conservative as you can while still providing quality benefits. This is always a balancing act because if an employer is too frugal they might lose or fail to attract employees; particularly in a tight labor market like what is going on now in the bay area.
So what does an Us plan look like?
Industry knowledge is critical. For some employers such as a health insurance agency (like mine) or a hospital, providing insurance is de rigueur. For other companies such as a restaurant or landscaper, the employer is swimming upstream because most their competitors do not provide benefits so they get relentlessly underbid. But if your plan is to grow, it can be a mistake to put off starting a plan. First of all, it is hard to hire employees without offering benefits particularly if they are mid-career or have a family. Secondly, there are some employees that you just cannot afford to lose.
A general rule with employee benefits (or pay) is that they do not motivate employees unless in a negative sense by not providing them. What they will do is help you retain your employees, both good and bad. If you have an under performing employee and give them benefits, you will have an under performing employee with benefits. So the key to building your workforce is to hire the best people you can, quickly weed out the bad apples, and then invest in their success including training and benefits.
The Middle is Golden
One common strategy in the <20 arena is to include HMOs with the product selection. Typically this means Kaiser but it can also mean Sutter and Western Health. Frequently what happens is that the founder of the company simply buys a plan based on who his or her providers are which bodes towards a PPO with a wide network. But what works for him and his family is not always the best for his employees. It can also be very expensive.
It also helps you avoid getting caught being ‘upside down’. It is much harder to add a second, let alone third carrier once everybody is settled in a plan so don’t assume that just because the first two people on your health plan (the boss and his wife) like it or can afford it that everyone in the future will.
Another tip is to not gold plate your plan. If you can get away with it, lean towards the lower tier. This can be an issue depending on your employees and industry but resist giving away the store, particularly while you are trying to grow the business. The reverse can also be true. It is often worth the extra investment to offer a silver plan instead of bronze because it will bode for happier employees and fewer gripes. The middle is golden.
Another common technique is to benchmark the benefits you offer on an HMO and then let your employees “buy up” to the PPO. By doing this, you are able to provide a quality health plan at an affordable price. If it is important for the employee to have a wide network then it will be worth it to them to contribute the extra money.
You can also offer multiple tiers depending on the circumstances. While you want to keep the contribution formula “equal” and non-discriminatory you can let your employees buy up to a richer plan if it suits them. By combining this with a 125 plan and negotiating pay, the brass will gravitate towards a more robust plan which is more in line with expectations while not breaking the bank. It will also insure that your lower paid employees are being treated well and your participation levels are high.
Irrespective of where your business is at it is always a good idea to not just focus on what you are doing but why you are doing it. Things do change and one reason we insist on conducting a thorough annual renewal meeting with clients is that it keeps your plan aligned with your goals. Like playing chess, try to plan your moves as far ahead as possible and if you can stay one step ahead of your opponent, you win.
Thank you for reading my letters and call me if I may be of service. Feel free to share this with anyone you might feel would benefit and most of all, have a wonderful day.
Peace & Love
John Helms & Associates Insurance Brokers
2940 Camino Diablo Ste. 205
Walnut Creek, CA 94597 (925) 287-8600
California Life License # 0702479
With us, You’re a big fish in a small pond.