The benefits dilemma
Companies can lose employees in trying to cut costs

by Heather B. Hayes
for Virginia Business
October 2005

Without warning earlier this year, Zeller + Gmelin Corp., a commercial ink manufacturer based in Richmond, got hit with a 23 percent hike in its group health-care premiums. With the price tag closing in on $500,000 a year, the company scrambled to find ways to offset the expense. The officials eventually decided to drop the company's short-term disability coverage, renegotiate its life insurance premiums, and downgrade its health-care benefit package. That last decision means that employees will have to pay a greater percentage of the premium and a higher out-of-pocket co-payment at the doctor's office.

Nonetheless, Patricia Nowell, director of human resources at Zeller + Gmelin for the past 13 years, was careful to keep the company's cost-balancing efforts from having too harsh an effect on its 96 employees. Their benefits package, while less rich than it used to be, remains more attractive than that of many of the company's competitors.

That competitive edge is important, Nowell says, because, increasingly, the so-called perks of the job can determine if a job candidate joins a company or an employee stays on. "Health benefits used to be the last thing a prospective employee asked about," she says. "Now it's the first thing." Nowell worries that, if the company can't stay ahead of its competitors, employees will begin jumping ship in search of a better package. "We're really biting our nails about what will happen next year."

A new reality
eller + Gmelin's story illustrates a growing dilemma for companies, especially those competing in low-margin and global industries. Just as HR officials are struggling to mitigate the rising costs of medical insurance, employees have suddenly put a premium on health care and other benefits.

In a recent job satisfaction survey conducted by the Society for Human Resource Management (SHRM), employees ranked benefits as the No. 1 factor in whether or not they consider their jobs satisfying. Further down the list were considerations such as compensation, work/life balance, job security and feeling safe in the work environment. SHRM Research Quarterly expects this high priority on benefits to continue as the work force continues to age and health-care costs climb an estimated 54 percent during the next five years. "A good benefits package used to be a certainty for employees and now it is not," says Dawn Sherrill, CFO for Standard Calibrations Inc., a Newport News-based provider of measurement tools and services. "So it's become a bartering tool."

Jennifer Jorgensen, a spokeswoman for SHRM, says news coverage of business issues in recent years have helped bring health and retirement benefits to the forefront of worker consciousness. Those issues have included the cost of health insurance and prescription drugs, corporate corruption scandals and their effect on employee pensions, and the ongoing debate over the future of Social Security. But a lot of employees also have become more focused on benefits because of their personal experience. If they have been laid off or have attempted to start a business, they have a better understanding of the economics involved in employee benefits.

That's especially true with health insurance, which has experienced double-digit cost increases for the past four years. Health insurance has become almost inaccessible to workers unless it is provided through their employer. "Before the last few years, employees really weren't aware of how much businesses paid out of pocket for their health-insurance premiums; they only knew about the small percentage coming out of their paychecks," Jorgensen explains. "Now they realize what an incredibly valuable benefit it is. And they also know how risky it is not to have those benefits."Only a few options

For this reason, most employers aren't even considering dropping their group health insurance coverage, says Jim Slabaugh, co-founder of Keiter, Slabaugh, Penny and Holme LLC, an employee-benefits consulting firm based in Richmond. But a growing number of companies — especially those who, for competitive reasons, can't raise prices on customers — have been forced to shift more of their costs to employees.

For most companies, Jorgensen says, dropping their financial responsibility from, say, 85 percent to 82 percent of the premium cost will do enough to offset the cost. Zeller + Gmelin was forced to drop its cost percentage to 65 percent. Some companies, says Jorgenson, have gone as low as 50 percent.

Other companies are trying different tactics. Some are raising deductibles and co-pay limits, downgrading the quality of their health plans or changing their coverage policy on new employees from 30 days after hire to 60 or even 90 days.

A few have even researched the possibility of providing high-deductible, catastrophic-type coverage, but Slabaugh says that strategy is a nonstarter for now. He recently looked into helping a 100-employee company change its coverage from an HMO with a $20 co-pay to a plan with a $3,000 deductible. The best quote produced a mere 8 percent reduction in cost. "No company can go to their employees with that," he says. "It ought to be an option, but the value is just not there."

The majority of companies, meanwhile, are doing their utmost to maintain the status quo — despite the potential hit to their bottom line. Robbins-Gioia, a project management specialist based in Alexandria, offers a generous package to its employees, paying more than 90 percent of health-care premiums and offering, among other things, matching contributions to 401(k) plans, life insurance, paid family leave, tuition assistance and professional development opportunities.

Robbins-Gioia has a reputation for being among the most employee-friendly small companies in Northern Virginia. Nonetheless, Michelle Neal, the company's director of human resources, believes that any cutback in the benefits or increase in maximum out-of-pocket cost for employees would hurt its ability to retain and recruit top employees.

With today's health-care costs, a lower-quality plan, she says, "could actually wipe out an employee's savings, and people are aware of that fact. If you start messing with the health benefit, it doesn't matter what else you offer. It's not going to make up for it as far as employees are concerned."

Finding a balance
Benefits consultants and HR specialists say that companies can navigate this new benefits squeeze, but it will take an open mind, a willingness to try new approaches and a bit of creativity. Among their suggestions:

Know your employees. Health care is important, but it's not all things to all people. What's important to employees will clearly vary by industry, geography and age and their stage in life. Younger workers are likely to put more emphasis on work/life balance, for example, while older employees are concerned about retirement. Jorgensen suggests that employers conduct frequent job satisfaction surveys. "Get out of the office and walk around and talk to employees," she says. "Know which benefits are important to them and which ones aren't and that you're delivering what's important to them."

Tailor your offerings. The Titan Group, a small benefits consulting firm in Richmond, was recently able to hire a highly qualified employee — despite the fact that it provides no group health coverage, only a $150 reimbursement towards an individual policy. But the company made the most of the job candidate's concern for professional development and career advancement. During the interview, Genevieve Roberts, the firm's managing partner, played up the company's willingness to help out with tuition and scheduling flexibility so the employee could attend classes at a nearby college.

Offer voluntary benefits. This hot new trend in benefits means that employers set up programs for their employees offering group pricing on auto, home and property casualty insurance, legal services, life insurance for dependents, pet insurance, mortgage and home equity loans, and discounts on health services like fertility, eye care, chiropractor care, cosmetic surgery and alternative medicine. "You can score points with your employees without having to pay much out of pocket," says Slabaugh.

Improve your health rating. At Zeller + Gmelin, employees can get flu shots, attend Weight Watcher meetings and be screened for blood pressure and cholesterol levels. Oth-er businesses now offer smoking cessation programs, on-site gyms, health-club membership discounts and high-nutrition choices at on-site snack machines and cafeterias. Slabaugh also suggests incentivizing employees by providing, say, $10 more money towards policy coverage if employees lower their blood pressure or cholesterol by 10 percent or stop smoking. Businesses can also encourage retention by offering a larger percentage of coverage based on an employee's years with the company.

Think small. The little things can add up, says Richmond headhunter Patricia Haynes, so she advises companies to sweeten their benefits package with perks that are low cost to the business but of high value to employees. These include monthly or yearly performance-based bonuses, financial assistance for daycare, half-pay maternity leave, tuition reimbursement, telecommuting and even half-day Fridays during the summer months. The latter, she says, can be especially significant for parents. "Anything you can do to make your employees' lives easier and happier at home will make for better, more productive employees on the job," Haynes says. "It's hard to put a price on that."

Communicate. If you have to change or downgrade your benefits plan, make your employees aware of the business reasons behind it and the costs involved — to the employee and the business. "It puts in it context for them," Jorgensen says. "And if they have context, they're more likely to be understanding about your position."

Finally, says Slabaugh, recognize the reality of health-care economics. If a group policy costs $600 per month, it will cost an individual $800 to $1000. "Employees need health care and they simply cannot afford it to get it on their own," he says. "So anything you can offer under a group policy — even if it's a degraded package or a high deductible — you need to offer that to your employees. Otherwise, you're going to force your employees to go work someplace else."

Poll Question
Will your company be able to maintain your current level of employee benefits despite rising costs?
Vote at www.VirginiaBusiness.com

Family-friendly benefits
Work/life balance is increasingly important to employees. The most popular family-friendly offerings being made by employers are:
• Dependent-care flexible spending
accounts
• Life insurance for dependents
• Flextime
• Health-care benefits for dependent
grandchildren
• Telecommuting on a part-time basis
• Domestic partner benefits
• Compressed workweek
• Paid family leave
Source: 2005 Benefits Survey Report, Society for Human Resource Management