Trends in Employee Benefits

By Jeffrey Coulter

Vice President

DODGE, WARREN & PETERS

INSURANCE SERVICES

One of the most difficult and time consuming jobs performed by Human Resource professionals is the design and implementation of employee benefit programs. These programs can represent a significant percentage of a corporation's annual budget, and the prospect for confusion in the marketplace is quite high. Traditionally, employers have opted to provide benefits in order to attract and retain competent employees. In addition, a properly constructed employee benefit program can promote increased productivity and efficiency.

The term "Employee Benefits" can best be defined as those company sponsored plans made available to employees in addition to salary. The employee benefit most commonly made available is employer sponsored medical insurance. Other benefits include group dental, vision, term life, and disability insurance. Some employers provide ancillary coverages such as employee assistance programs and pre-paid legal programs. Employee contributions for such plans can be deducted on a pre-tax basis through Section 125 of the Internal Revenue Code.

Human Resource and payroll professionals are also charged with the duty of complying with new regulations such as COBRA and HIPAA.

In the interest of brevity, we will focus on group health insurance trends. The health insurance market has been volatile over the course of the last year for a number of reasons. An unprecedented wave of industry consolidation has resulted in record mergers and the elimination of alternative markets. Within the last three years, the California market has seen Health Net merge with Foundation, FHP with Pacificare. and most recently, CareAmerica with Blue Shield. This trend is not limited to the large HMOs. Aetna recently acquired New York Life's NYLCARE unit and is currently working on concluding an agreement to acquire Prudential's health insurance business. These mergers are driven in part by the desire of the companies involved to improve efficiency, reduce costs and increase market share. Of course, the goal of increasing market share can be achieved more quickly by acquiring existing business than by creating new business.

Rates will continue to increase for many reasons. Many carriers have engaged

in a virtual price war for members over the last two years. In the pursuit of these

members, programs were installed at rates that could not support costs. Two years ago it was possible for an employer to purchase an HMO program at a rate of $80 per employee per month; the same plan now would cost $12- $15 more per employee per month. Some of these carriers were so successful at writing undervalued business that they have found it difficult to provide quality care due to the influx of these new members. Kaiser, for example, has been forced to send members to outside facilities for (oftentimes quite expensive) care. Kaiser's spokesperson recently alluded to this situation while discussing the company's performance over the last quarter. They have indicated that they will need to continue to raise rates to meet these unexpected costs. Over the last year, Kaiser's rates have increased by 10 12% from the year previous. Projections for 8% this year may be optimistic. Kaiser is not alone.

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