Benefits

Purpose of Process:

To provide benefits to employees that are attractive (to applicants as well as employees), competitive with other companies, cost effective and cost manageable, and minimize administration time and disruption to employees.

Recommended Steps in the Process:

1. Select a reputable health insurance broker (See the process on Selecting a Health Insurance Broker). Their support is invaluable, as they are experts in negotiating with insurance companies, understand the nuances of insurance contracts, can assist in ERISA reporting requirements (Form 5500), and can help settle claim disputes with insurance companies. A broker carries more clout with an insurance company, since they typically represent a larger potential block of business to the insurance company than a single company.
   
   
2. Select health plans:
   • Medical plans are offered by virtually all companies. The most common type of medical plan is the traditional indemnity/fee-for-service plan. Medical plans with the most restrictions are typically the most cost effective, but too many restrictions can be unattractive to employees.
     Selecting a plan with a Preferred Provider Organization (PPO) Network, can attain the right balance of restrictions. The PPO network is typically established by an insurance company. The insurance company negotiates reduced rates with a group of providers (physicians), in exchange for the prospect of securing more business for the physicians. The medical plan encourages employees to use providers in the PPO network, by providing better coverage. Typically 80% to 100% of PPO physician costs are reimbursed while only 50% to 70% of non-PPO physician costs are reimbursed. Before selecting a PPO network, review the list of participating physicians (and hospitals, if applicable) to ensure good geographical coverage. Companies with more than 50 employees may consider offering a second medical plan to employees
     Another medical plan option is a Health Maintenance Organization (HMO). HMO's can be more cost effective than indemnity plans, but they include greater restrictions than indemnity plans.
     To reduce health plan costs, some employers have adopted medical plans with high deductibles.  Health Savings Accounts (HSAs) were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses.  HSAs involve setting up a tax-exempt trust or custodial account to which the employee and/or employer can contribute on a pre-tax basis.  Related plans are Medical Savings Accounts (MSAs) for small employers and Health Reimbursement Arrangements (HRAs) which must be funded solely by an employer.
   • Dental plans are equally popular. A typical dental plan has a deductible and an annual maximum. Routine care is usually fully covered while 50% of cost of major treatment (e.g. bridges, crowns, etc.) is covered. Dental PPO's are also available.
   • Life insurance is offered by most companies, usually a fixed amount of $50,000 or less for all employees.  Some companies offer a variable amount of life insurance based on the employee's annual pay.
     
   • Vision care plans are provided by many companies. Vision plans subsidize the cost of eye glasses or contact lenses, and eye exams.
   • Orthodontic plans (subsidies for braces - usually part of the dental plan) are also offered by many companies, typically 50% of the cost up to a lifetime maximum.
   • Paying insurance premiums on a pretax basis is an option offered by over 90% of companies. This is a good benefit to employees in that it reduces their tax liability. For the company, it reduces payroll tax and is very simple to set up and administer.
     
     
3. Select disability plans (See also the Paid Time-Off process):
   • Long term disability benefits are provided by almost all companies. Benefits are paid after an employee has been disabled for a period of time, typically three to six months. (The longer the waiting period before benefits begin, the more affordable the coverage.) The benefit amount ranges from 60% to 70% of the employee's salary.
   • Short term disability plans or salary continuance plans are offered by over 60% of companies. Most of these companies provide salary continuance (continue to pay the employee's full salary) for the first month of disability, then a short term disability benefit that ranges from 60% to 70% of the employee's salary for up to three months of disability. These benefits are coordinated with state disability plans, in states where they are mandated (such as California, New Jersey, New York, Hawaii).
     
     
4. Install Government Mandated Benefits:
   • Social Security provides limited disability, survivor, and retirement benefits. Employee contributions to social security are matched by the employer. A company has no control over this cost, other than by reducing payroll.
   • Workers Compensation provides medical and disability benefits for work related injuries and illnesses. An effective safety program can minimize these costs (see the Workers Compensation process).
   • Unemployment Insurance provides some income for a temporary period of time, if the employee looses his or her job due to no fault of their own. A company can control unemployment premiums through effective management of claims (See the Unemployment process) and by maintaining hiring controls (see the Job Opening Approval process).
     
     
5. Install other cost effective plans
   • Employee Assistance plans (EAP) (provides counseling for employees) and wellness plans (provides subsidies for routine exams) are offered by about two-thirds of companies. Both these plans can pay for themselves by helping to promote employee wellness, both mentally and physically. Also see the procedure on using EAP's.
   • Flexible Spending Accounts (FSA) allow employees to set aside money on a pre-tax basis to pay for either non-reimbursed health care costs or dependent care expenses. There are a number of administrators who can install and administer these programs. They are an effective way of reducing payroll costs and providing benefits that are too costly to fully reimburse (e.g. orthodontia). An employer can provide a health care reimbursement account, a dependent care reimbursement account, or both.
     
     
6. Consider other popular benefits:
   • Wellness programs are also prevalent. These include company sponsored CPR/First Aid, weight/nutrition education, health fairs, cholesterol/blood screening, smoking cessation, etc.
   • Recreational facilities include basketball courts, volleyball courts, on-site aerobics/fitness center, and company provided shower facilities.
   • Educational Assistance is a common benefit in which all or part of employees' higher education expenses are reimbursed. Typically course work must be related to company business.
     
     
7. Determine the amount of the health insurance premium that you wish to charge employees. A typical amount is 20% of the medical and dental premium.
   
   
8. Select the insurance providers from which you will request a bid. The Insurance Broker can provide assistance in recommending various insurance providers. Also consider associations which offer group insurance rates such as the American Electronics Association. Insurance providers will typically bid a standard insurance package which may vary slightly from the package you developed above. You and/or the Insurance Broker may wish to negotiate modifications to their standard package.
   
   
9. Estimate the cost of the proposed benefits package. The health insurance broker and/or your insurance provider can help provide these cost estimates.
   
   
10. Obtain top management approval on the benefit package.
    
    
11. Inform employees of the new benefit package (or changes to the existing benefits).
    
    
12. Establish a period of time (typically one month) in which employees can enroll in the new health plans. The insurance carriers will provide literature and enrollment materials. The enrollment period should end two to four weeks before the insurance plan implementation (or change) date.
    
    
13. Work with the insurance broker to create (or modify) the Summary Plan Description (SPD).
    
    
14. Distribute the required communications (e.g. SPD updates) to all eligible employees.
    
    
15. Work with the insurance brokers to ensure that the ERISA filing requirements are met. (See the process on regulatory reporting).
    
    
16. Publicize the benefits periodically to employees so that employees can appreciate the value of the benefits that the company is providing. Issuing annual benefits statements can be an excellent means to achieve that goal.

Process Tips:

Before choosing a benefits package, assess what benefits are typically offered by competitors and other regional companies. This information can be obtained from benefit surveys conducted by private companies or industry groups, or through your benefits broker. Then select a benefit package which will be attractive to employees and applicants relative to those offered by other companies.

Work with the Finance department to ensure that the company costs have been correctly computed. See also the processes on Selecting a Retirement Plan and Establishing a Paid Time-Off program.

The courts have defined the employer's ERISA's fiduciary obligations broadly, holding them responsible for loss or damage to an employee, caused by a health care provider that the company selected. Therefore, the company must ensure that only reputable health care providers are selected.

How HRnetSource™ Can Help:

HRSource™ and SelfSource™ help support benefits administration in several ways:

• Employees can view their benefit elections and related costs in SelfSource™.
  
• Employees can enroll in benefits using SelfSource™ and make benefit election changes during open enrollment.
  
• Benefit deduction changes can be electronically transmitted to payroll via the HRSource™ payroll interface.
  
• HRSource™ can generate employee benefit statements that itemize benefits, display the value of benefits, and tally benefit costs to calculate total compensation.
• HRSource™ can generate data needed for the benefit census.
• HRSource™ provides alerts for upcoming benefit eligibility or ineligibility.
• HRSource™ can reconcile the monthly benefit statements issued by benefit providers.