Double-digit growth rates are forecast for 2003!
Great news, right? If only it was the stock market. Unfortunately, this prediction refers to the expected rise in the cost of medical insurance. And if this wasn’t enough, consider these announcements:
The Hay Group, an HR consulting firm, recently reported that medical premiums rose an average of 14% in 2002, and increases are expected to be another 15% to 20% in 2003.
In Washington State, the Department of Labor & Industries has proposed increasing Workers’ Comp premiums by 40.5%.
California employers are facing a $5.2 billion payroll tax increase over the next 3 years.
And the list goes on and on...
"This is a very difficult time for companies to cope with double-digit medical premium rate increases," says Michael Carter, Vice President in The Hay Group’s benefits practice. "In the current business environment, most companies simply cannot afford to pass these costs along to their customers."
So, if you can’t pass on the costs, what can you do?
Defusing the Most EXPLOSIVE Cost: Healthcare
When looking to control benefits costs, the most logical starting point is the health and welfare area. Group health care accounts for the largest benefits expense, averaging 10.5% of payroll, according to a recent U.S. Chamber of Commerce analysis. To maintain current levels of profitability, companies are exploring new strategies to contain their medical expenses. Some of these experiments include:- Increasing the cost to employees.
This strategy includes increasing the percentage of health care premiums paid by the employees, raising employee deductibles, increasing co-payment amounts for patient care and prescriptions, and increasing the employee cap for "out-of- pocket" expenses. - Plan Consolidation.
In 2001, 47% of companies offered three or four plan types, compared with 32% in 2002. Consolidating plans can lower administrative expenses and decrease risk segmentation, thereby lowering overall costs. - Disease management.
These programs emphasize the prevention and reversal of common manageable diseases, such as diabetes, asthma, congestive heart failure, coronary artery disease, and hypertension. These programs are designed to improve employee health, reduce the instances of disease, and thereby lower medical costs and time off from work. - Case Management.
These programs aim to control the costs of major illnesses on a one-to-one basis. - Health Reimbursement Arrangements (HRAs).
HRAs are a new type of plan involving a company-funded account that employees can use for IRS-approved health expenses. Unused funds can be carried over to the following year, which encourages employees to become better health care consumers. Typically an HRA is supplemented by a "high-deductible" medical plan, with annual deductibles ranging from $1,000 to $4,000 for individual coverage.
GROUNDING Workers’ Comp Costs
According to Martin McGavin, risk management columnist for the International Risk Management Institute, "managing workers’ compensation is more a matter of desire than mastering a complex process. When operating managers possess the desire, they will always find a way to achieve results." Therefore, the key to successful long-term workers’ compensation cost control is motivating operating managers to want to control the cost.Department heads, line managers, and front line supervisors are critical to managing risk. They control the work environment, design the work processes, and manage the safety standards that prevent injuries and illnesses. Operating managers also set the expectations for those who manage the internal workers’ compensation process, and they control internal personnel practices, such as return-to-work programs, that determine the ability to mitigate claim costs.
To motivate workers’ compensation cost control, start by providing operating managers with an economic incentive for improved results. Also plan to increase the visibility of safety programs and claims management results. According to McGavin, "using three internal management processes will create the necessary visibility and economic incentive. The processes are measurement, cost allocation, and developing performance information." For a detailed article on each of these processes, please refer to Mr. McGavin’s expert commentary at http://www.irmi.com/expert/articles/mcgavin002.asp.
UNCOVERING Hidden Opportunities
Plenty of other opportunities for cost savings can be found in tweaking qualified retirement plan designs and using technology to streamline benefits administration. Some of these opportunities include:- Temporarily suspending 401(k) matching contributions until earnings rebound.
- Re-evaluating agreements with retirement plan administrators to reduce record keeping and asset management fees.
- Web-based retirement vendors as an alternative to the traditional service-delivery model. Given the power of automation, it’s important to consider that technology can provide numerous ways to reduce administration costs for all benefit plans.
- Subrogation, a legal practice which can recoup 4% to 5% of claims processed in the areas of workers’ compensation, Medicare, third-party auto liability and dual-coverage issues. More self-insured groups, HMOs and insurers are tapping this specialized field to recover substantial duplicate claim dollars.
- Integrated benefits management in which disability, workers’ comp, group health and paid time off are administered under the same umbrella to streamline record-keeping and speed return to work for injured claimants.
- For employers that seek to go the extra mile, work-life benefits offer promising cost-cutting solutions while also increasing employee satisfaction and easing the sting of benefits reductions. Benefits such as flexible work schedules, compressed work weeks, and fitness center memberships may cost the least, but they often produce the most morale mileage for organizations that want to be known as an employer of choice.
An alternative FLIGHT PLAN
What’s your biggest benefits expense? It’s not health care or insurance. Your biggest expense results from the number of FTEs you employ. The more people, the higher your costs. And conversely, the lower your headcount, the less you’ll spend...A tempting strategy to DRAMATICALLY reduce payroll and benefits costs
To minimize payroll and benefits expense, implement a planned staffing model. Here’s how the process works:- Determine the minimum core staffing levels necessary to keep your operations running smoothly during slow periods.
- Identify methods by which you could staff up as needed to manage increases in demand--whether those increases are driven by seasonal needs or project work. These methods may include: temporary and contract personnel, independent contractors, interns, volunteers, and outsourcing.
- Reduce core staff to levels necessary to maintain normal operations, which can be accomplished over time through attrition or more aggressively by downsizing.
- Proactively plan (as accurately as possible) the timing and duration of hiring needs. Be sure to clearly define the skills you will require and the number of people that will be needed.
- Partner with one or more qualified temporary staffing vendors to supplement your staff with trained temporary personnel to meet peak production demands as needed.
Using This Strategy, You Will Benefit
Here are the kinds of results you can expect!· Reduce payroll costs - you will only be paying for the time when additional staff is needed.
· Reduce benefits expenses - on average, benefits cost 20% - 25% in excess of payroll expenses. When temporary and contract employees are used, you pay no additional benefits costs.
· Slash overtime - using temporary employees in place of overtime can reduce labor costs by 20% or more.
· Shift administrative burden - when you use temporary staff, all costs associated with processing and administering payroll and benefits are transferred from your company to the staffing firm.
· Prevent unemployment claims - unlike short-term direct employees, temporary personnel work for your staffing partner--not you. Consequently, their unemployment claims don’t affect your rating or your bottom line.
· Reduce the risk of hiring mistakes - a bad hire can cost you between two and seven times the employee’s annual salary. By following rigorous screening procedures for both temporary personnel and direct hires, staffing firms increase your chances of getting the right person. Most firms also offer guarantees on placements.
· Eliminate capacity constraints - Labor constraints may affect the throughput of a plant or the productivity of an executive. To ease the bottlenecks, consider:
o Bringing in administrative support to free key personnel to focus on core job duties (not only do you get a more productive employee, but the administrative work gets done for significantly less cost).
o Adding labor to relieve process constraints and improve productivity.
o Using technical and professional temps to keep projects on track.
o By adding the right people, work will get done more efficiently, with less administrative headache, and for less cost.
· Improve quality and reduce turnover - Many companies may take the concept of "lean thinking" too far. They push direct staff to produce more with fewer resources. And as the stress increases, so do problems with quality, productivity, absenteeism, and turnover. Take the pressure off by using temporary employees. The additional personnel will help your staff avoid burnout, reduce the cost of defects, avoid productivity losses, and limit turnover expense.
The information contained in this article is intended to provide useful information, but it should not be construed as legal advice. For specific legal requirements regarding co-employment and the use of temporary employees, please consult your attorney.