Keeping the cost of benefits in line

Keeping the cost of benefits in line

A fulfillment manager who had been working for the company for a number of years was unaware that when his wife had a baby he had to inform the personnel department to add the baby to his coverage. He thought it was automatic. "Hospitals and insurance companies talk to one another, don't they? Aren't they able to communicate by computer in this age of high technology?'

Two months later when the baby required major surgery, the insurance company refused coverage. After four months of haggling, the company agreed to cover 50 percent of the costs of the surgery, and the insurance company covered the other 50 percent. This lack of communication cost the publishing company over $10,000. It also cost the company in lost time, productivity and aggravation. It left the manager with a negative feeling about the company, its insurance plan and his value. He rightfully believed that this information should have been clearly outlined to him. It wasn't. Although this was an oversight, perhaps, it cost real and hidden dollars to this publishing company.

Has something like this happened to you? Could it?

The cost to publishing companies of providing benefits to employees is rapidly escalating as new laws seek to shift an increasing burden of personal and societal needs onto the shoulders of business. The result is an era of hard choices for companies in the publishing industry. Faced with an upsurge in the number and scope of government-mandated benefits, particularly in health care, employers are threatened with runaway costs.

In 1985, after several years of decline, employee benefits jumped to an average of 37.7 percent of overall payroll costs, according to Employee Benefits 1985, published by the U.S. Chamber of Commerce. That's the highest percentage of total payroll since its first survey more than three decades ago. In terms of dollars, the Chamber found that benefits cost employers $8,166 per employee.

What's behind this trend? One force fueling the upward rise in benefits expenses is the Federal Government. COBRA (the Consolidated Omnibus Budget Reconciliation Act), approved by the President and Congress in 1986, requires employers to provide optional continuation of health care coverage to employees and their dependents who previously lost that coverage because of termination, death, divorce, layoff or work reduction.

Although it is the individuals covered by COBRA who currently pay the full premium for benefits, a pending bill in Congress would require employers to pay all or a portion of the premium for at least the first four months. In the wake of last year's Supreme Court ruling that upheld a California law requiring employers to grant pregnant women disability leave and reinstatement, Congress is considering bills that would require employers to grant 18-week parental leaves and 26-week medical leaves to employees virtually on demand, and provide them with continued health care coverage and full reinstatement. It is not unlikely that lawmakers in the near future will pass legislation mandating employer participation in the programs for child care, drug rehabilitation and AIDS.

Review benefits and costs

Faced with this proliferation of demands on their resources, what can publishing companies do to control the costs of employee benefits? For most, the first step is to examine their entire benefits package and analyze what each benefit costs, both on a per-employee basis and as an annual expense.

You may want to bring someone from outside to do this. One advantage to using a good consultant is that he or she will be knowledgeable about benefits being offered by other employers of similar size and in the same geographic area, and will know how much those benefits should cost. In some cases, this initial benefits analysis reveals that a company is already paying above-average rates for benefits.

Once the benefits package has been analyzed in terms of cost, its individual elements can be examined. Some publishing companies conduct employee surveys to determine which benefits are most important to employees, and which ones employees would be willing to support with individual contributions. Here, too, companies often find they are overspending on benefits that employees don't view as important, while underspending on others their people consider vital.

Employees at The Taunton Press verbalized their interests to management and in the last year have improved their benefits package with a 401K plan, dental plan and a wellness program (that will include classes and programs on exercise, weight control, stop smoking, blood pressure screening and stress management).

Having established the relative cost and employee preference for each of the elements in the company's benefits package, you will be in a much better position to consider options.

One way to cap or reduce benefits exposure is to increase employees' contributions. The employee survey will indicate which benefits are most valuable to them, and it's likely they can be persuaded to increase their contributions to those benefits with minimal resentment. One way to reduce or eliminate that resentment is to make the benefits more attractive; for instance, reducing the deductible on health insurance.

Another way to control the cost of benefits is to offer employees options under a flexible benefit plan, often called a "cafeteria' plan. This means that rather than all employees receiving identical benefits, each person chooses from a benefits "menu,' tailoring a package of benefits that best suits his or her personal needs.

The cafeteria approach is being weighed by Ziff-Davis Publishing in light of the spiraling benefits costs the company has experienced in recent years. Ziff-Davis is also considering an individual case management program that entails looking at hospital admissions on an individual case basis with the goal of improving both the quality of care provided to their employees and the cost effectiveness of the company's health coverage.

Establishing Employee Assistance Programs can have a long-term impact on benefits cost reduction, although initial implementation costs may be hish. Times Mirror Publishing, among others, uses this approach to provide education and assistance to its employees while controlling the company's benefits costs.

Trading benefits

An effective method that can help any publishing company control benefits expenditures is to swap existing, expensive benefits for newer, less costly ones. This does not have to be as Scrooge-like as it sounds. And again, the employee survey can be an excellent guideline.

For example, giving employees an extra week's vacation may be more cost-effective than providing dental coverage--and can also improve morale and productivity. Increasing disability and life insurance coverage is relatively inexpensive and can be swapped for an existing, costly benefit such as vision care.

A company can even reduce the cost of its existing benefits package. Stop-smoking clinics, company-sponsored memberships in health and fitness clubs, annual physical examinations and wellness programs all can result in lower health and life insurance premiums. Many smaller publishing companies are either using or considering these types of programs because they are inexpensive and can have a significant impact on benefits costs, even without the participation of a large number of employees.

Last but not least, a review of the company's benefits administration itself can help reduce costs.

One thing is clear: For publishers and employers in every industry, the trend toward higher benefits costs will continue. The sooner a company takes control of its benefits costs, the more money it will save.

Table: Calculating your company's benefit cost

Your cost is calculated by taking your total benefit costs as a percentage of your total employee payroll.

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