Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
When Gary Wert founded Minnetonka-based Unison Inc. in 1980, employer-sponsored health-care packages cost individuals as little as $34 a month and families about $100 per month, says Wert.
Oh, how times have changed. A recent survey of 75 Twin Cities companies between 50 and 500 employees by Unison, which helps small to mid-sized businesses design and implement health and retirement plans, showed that the average health-care premium for employees is about $50 for individuals and $250 for family. Wert says it’s not uncommon to see plans that cost individuals as mush as $300 per month and families up to $1,000 to $,1,500 per month.
“The fact that medical costs are rising at a rate that small businesses can’t keep up with is no secret,” says Wert. “Everybody is trying to attract and retain good employees, and in today’s market, a comprehensive benefits package — including health and retirement benefits — is the key. The problem is, it’s getting too expensive for small-business owners to pay for these benefits, and as a result we are seeing a cost shifting that is putting more of the burden on the employee.”
Cost increases are also forcing small-business owners to reevaluate their health and retirement packages to fit a changing market. While many of the traditional health benefits (such as medical, dental and vision) and retirement packages (such as an employer-matched 401(k)) are still intact, employers and insurance companies are working together to provide these benefits in a more cost-effective manner.
Bottom line: Small-business owners are trying to educate employees on the value of maintaining good health, while also showing them just how a benefits package works, what it costs the company, and how it fits into the total compensation package of an individual’s salary.
The term “total compensation package” is a new buzzword for small employers such as Stuart Management Corp., a property management firm with headquarters in Bloomington and branches in Wisconsin and Nebraska. Deb Stachowski, director of human resources for the company, says this year for the first time the company will present its employees with a total compensation statement, which will show how much the company pays toward its benefits, retirement and salary, adding up to the total compensation package each employer receives annually.
“If our employees understand what they are making related to what things cost, it will help them better understand the way we do things, and in turn help us retain employees,” says Stachowski.
Rex Kohl, a broker with CFG Insurance Services in Minnetonka, says revealing the total compensation package is a trend that small-business owners should consider following. He also says it’s impossible for employers to meet the health care needs of every employee, no matter how good the plan is.
Another growing trend is a medical savings account where employers still take out a monthly premium for health care benefits, yet set aside money — as much as $5,000 in some cases — that the employee can use as cash to pay for any medical costs they incur. New IRS rules make this more attractive for small employers as well.
While the employee may earn a salary of $40,000 per year, adding in the medical savings account, employee-paid health benefits, and a company-matched 401(k) plan, the total compensation package for this employee can quickly exceed $50,000.
“As costs escalate, employers are looking for new ways to present benefits packages to its employees,” says Kohl. “By putting this money into an account, the employee can pick and choose what medical expenses it covers, and the employer doesn’t look like the bad guy if the plan doesn’t fit everyone.”
Stachowski said her company is feeling the effects of rising health-care costs. While it stayed with Medica as its insurance provider for 2003, she says managers had to take a long, hard look at its plan and evaluate how to better meet company needs. For 2003, Stuart Co. pays 70 percent of the health costs per month for each single employee, and 50 percent of the costs for single, plus one and family.
One piece of advice Stachowski offers to small-business owners: Put together a benefits package that is competitive within your industry, not with dissimilar companies.
“We feel our plan is highly competitive for the property management industry,” says Stachowski. “What we don’t do is compare rates to a larger firm like a 3M or Honeywell. That’s not a good way to analyze things.”
Another change this year at Stuart Co. is with prescriptions. Instead of employees paying a flat co-pay of $11 like last year, employees now pay a percentage of each prescription, with a minimum of $10 up to a maximum of $25. And if the prescription is not on Medica’s formulary list, then the employee must pay for the entire prescription.
The company is trying to make its employees better aware of just how expensive prescriptions are, and how those costs can drive up expenses. Each prescription will also show the actual cost without insurance.
Stachowski says that is part of an effort between employers and health-insurance companies to make employees better managers of their health, and better consumers of their health-care plan. Many small businesses are spending more on educating employees about health issues, and offering programs such as memberships to fitness centers and stop smoking plans.
Officials from Twin Cities insurance companies agree that because today’s consumers expect the company insurance to cover so much of their health needs, they often take unnecessary trips to the emergency room when a clinic visit would fit needs.
Douglas E. Franzen is a small group community accounts market representative for Blue Cross Blue Shield of Minnesota. He covers the Minnesota market south and west of St. Cloud. Franzen says it’s important for employers to encourage employees use good judgment when analyzing the need for health care.
“We have two things going on,” says Franzen. “We tend to be more of a whiny society, where we seem to go to the doctor for every little ailment without thinking about the costs or burden it puts on the company or providers. And in the same sense, technology is better than ever, and more people are going to the doctor for things they never did before. Combine those two things and it’s no wonder costs are going up.”
Franzen also mentioned that the growth of specialty clinics and remodeling of many aging Minnesota hospitals have also driven up costs.
“Eventually it comes back to the consumer, they are the ones paying for it,” says Franzen.
The rising costs — and lower percentages covered — of medical plans are one reason catastrophic plans offered by companies such as AFLAC are becoming more important to small businesses.
Matthew Lorenz, training coordinator for AFLAC Minnesota, says more employers are offering this insurance as an “extra” benefit to employees. While the employer may already offer a company-paid benefit plan, it gives employees the option to purchase supplemental insurance through AFLAC. This pays a cash allotment to the employee to help pay for the costs of major medical expenses such as a stroke, heart attack, cardiac surgery or major burns, or expenses for a trip to a far-away doctor or hospital. This is offered at no cost to the employer, and Lorenz says plans start for as low as $10 a month.
“It gives employers another option to give its employees, but it doesn’t cost them anything,” says Lorenz. “AFLAC is by no means a replacement to the company-sponsored plan, but it is another way to provide benefit options to its employees.”
Local Motion, an Eden Prairie-based moving and storage company that also has an office in Coon Rapids, is one company that offers AFLAC supplemental insurance as an option.
“We want our employees to have as many options as possible,” says David Seeley, president and founder of the 80-employee company. “We have a lot of younger employees who may not realize the importance of good benefits yet, but we communicate with them all our options and why we have the plans we do.”
Seeley said while many companies experienced a 30 percent increase in health-care costs from last year to this, the low number of claims from his company helped keep overall costs down in 2003. When new employees start at Local Motion, Seeley goes through an orientation that covers the company health and retirement plans, and other benefits, such as a cell phone, gratuity on the job, and in-house recognition programs.
“For a lot of these guys this is the first time they have had to deal with benefits plans on their own,” says Seeley. “As a growing business we want to keep our turnover rates as low as possible, and the first step to keeping good employees is not only having attractive benefits packages, but making sure employees understand what those benefits are.”
Joe Best, a retirement specialist with Unison and a registered representative with Princor Financial Services, tells small-business owners that a good benefits package must also be equipped with a retirement plan. Best says one of the latest trends is professionally managed portfolios.
Instead of picking from a combination of stocks, bonds and mutual funds and investing in funds offered through a standard 401k, employers are know offering employees the chance to invest based on their risk preferences in a conservative, moderate or aggressive risk plan.
With a professionally managed portfolio, employees simply take a quiz and meet with an adviser to discuss their retirement goals and needs, and after that, a financial professional manages their account based on their risk tolerance.
“I would say 65 to 70 percent of the population has no idea on how to plan their investments and retirement,” says Best. “This takes the onus off the employee.”
Best says employers can keep costs down by bundling all the administrative duties of managing a company retirement account with a single provider. This includes things such as record keeping and administration, Internet and phone services, management of employee statements, and personal assistance.
Another rising concern, especially with an aging population, is the need for long-term and short-term disability and life insurance. More and more small businesses are offering long-term and short-term disability, as well as life insurance as an option, says Geoff Widlak, national practice consultant for Unum Provident of Bloomington, which provides disability insurance to employers, individuals and families.
While these options are common in big businesses, small businesses are finding them more attractive because costs are not rising as rapidly as for major medical benefits. Now, Widlak says, all small employers who take out a long-term disability plan with UnumProvident automatically qualify for a companywide employee assistance program.
“There are a tremendous amount of people who will become disabled during their working years,” says Widlak. “That lost income can be too much too overcome without disability insurance.”
The hardest part of making sense of all this, says Wert, Kohl and Widlak, is that there are so many directions and options available, small-business owners need to take the time to find out what work best for their company.
“What works for one company might not be best for your company, keep that in mind,” says Widlak.
“The cost is shifting to the employees,” says Wert. “Ten years ago the employer could practically pay the entire cost of a plan, or at least incur little out-of-pocket expense. Today it’s tough to find a company that provides that. Things are changing fast — faster than most employers are ready to handle.”
Contact
Joe Best, Unison Inc.: 952.345.2309, jr****@*******nc.com. Douglas E. Franzen, Blue Cross Blue Shield of Minnesota: 651.661.1517, ******@**********ce.com“>Do***************@*********mn.com. Rex Kohl, CFG Insurance Services: 952.945.0200,******@**********ce.com“> re******@**********ce.com. Matthew Lorenz, AFLAC Minnesota: 952.882.9288, ma************@******ac.com. David Seeley, Local Motion: 952-474-6683, Da****@*********on.com. Deb Stachowski, Stuart Management Company: 952.948.9540, ds*********@******co.com. Gary Wert, Unison Inc.: 952.345.2301, We**@*******nc.com. Geoff Widlak, Unum Provident: 952.346.4524, gw*****@***********nt.com.
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