Employee Benefits Business Planning

1. Employee Benefits Business Planning Businesses don’t plan to fail…they failed to plan… Controlling costs long-term eflexgroup.com ©

2. What we will cover • Trends • Current “general” state of benefit management • What is changing and why? • How can the employer be a better consumer of health care? • Creating a benefits business plan eflexgroup ©

3. Trends • By several measures, health care spending continues to rise at the fastest rate in our history. • In 2004 (the latest year data are available), total national health expenditures rose 7.9 percent -- over three times the rate of inflation • Total spending was $1.9 TRILLION in 2004, or $6,280 per person • Total health care spending represented 16 percent of the gross domestic product (GDP). eflexgroup ©

4. Trends • Premiums for employer-based health insurance rose by 9.2 percent in 2005, the fifth consecutive year of increases over 9 percent. • 1994 lowest premium increase 3% • Stock Market was at it’s highest this year • 2001-2002 was highest premium increase at 25-60% • Stock Market was lowest eflexgroup ©

5. Trends • The annual premium that a health insurer charges an employer for a health plan covering a family of four averaged $10,800 in 2005 • Workers contributed $2,713, or 10 percent more than they did in 2004 (3). But the figure that prompted Wagoner, CEO of GM to raise his voice is $1,500. That is the amount of money added to the price of every single vehicle to cover health care, a cost that his foreign competitors do not bear. Washington Post February 11, 2005 eflexgroup ©

6. Trends • The annual premiums for family coverage eclipsed the gross earnings for a full-time, minimum-wage worker ($10,712). • Since 2000, employment-based health insurance premiums have increased 73 percent, compared to cumulative inflation of 14 percent and cumulative wage growth of 15 percent during the same period (3). eflexgroup ©

7. Trends • According to the Kaiser Family Foundation and the Health Research and Educational Trust, premiums for employer-sponsored health insurance in the United States have been rising five times faster on average than workers' earnings since 2000 (3). eflexgroup ©

8. Trends • Health insurance expenses are the fastest growing cost component for employers. Unless something changes dramatically, health insurance costs will overtake profits by 2008 (6). Source for Trends; National Coalition on Health Carehttp://www.nchc.org/facts/cost.shtml eflexgroup ©

9. “American manufacturers are losing their ability to compete in the global marketplace in large measure because of the crushing burden of health care costs”, General Motors Corp. chairman and chief executive G. Richard Wagoner Jr eflexgroup.com ©

10. Current State of Benefits • 1960s-mid 80s standard indemnity plans/major medical • Mid 80s to current: Managed care of some version • Very few employers below fortune 500 have a comprehensive business plan for employee benefits • Budget and business plan are not the same • Current delivery system for health care is through the employer • Pre-tax plans to help: HSA, HRA, FLEX, MSA • Consumerism=buzz word eflexgroup ©

11. Trends-What are people buying • Individuals to small groups—HSAs • Expected growth to be 6.3 million HSAs in 2010 (hsafinder.com) • HSAs have issues not addressed in this talk • Larger groups 50 plus are purchasing HRAs for the control factors • HRAs outsell HSAs however, HSAs appear to be exploding because they are new and HRAs are in market longer eflexgroup ©

12. Current State of Benefits • Consumerism for employees • Means “I have to pay more” • Cost shifting: The economist Milton Friedman in the NYTimes (Jan 2006) said that people are gravitating to consumer plans because they are cheaper. They are cheaper because the consumer has to pay more. • But employers are footing the bill for benefits • What about consumerism for employers? eflexgroup ©

13. How do you control benefits cost? • Reactive approach? • Quote each year approach? • DIYer • No Agent? • Save commission? • Proactive approach? • Regardless, how much of your time is taken each year to prepare for benefits? • Discussions eflexgroup ©

14. Many companies spend 30-60% additional money when an employee is hired for benefits Recruiting Expenses Basic Salary Employment Taxes Benefits Space Summary Total compensation Taxes-State Federal Local Benefits Bonuses Land (an economic term for desk, equipment and miscellaneous) Why is a benefits plan important Source: Joe Hadzima, MIT School of Management eflexgroup ©

15. Thanks but you didn’t tell us anything new! • But do you have a formal business plan for benefits? • Discuss Yes or No • Criteria: Yes= must be written as a business plan or in addition to a business plan • No= it can’t be in your head and no a budget doesn’t count • It must be a dynamic strategy eflexgroup ©

16. Refresher=Overview of Business Plan • Banks/Investors require a detailed business plan • Purpose is to think through your business • Research on markets • Research on competitors • Infrastructure • Research on staffing needs • Research on sales expected and by when • Research on ROI • Sub plan-marketing plan for the growth and income generation • Becomes the annual strategic plan, thus dynamic eflexgroup ©

17. Concept Employee Benefits Contain and Control Costs Marketing/Sales-Growth/income Business Plan Investors/Strategic Planning eflexgroup ©

18. Why a benefits business plan? • Most employers have a budget but no plan • Reactive verses pro-active • Most employers/HR spend 35% of their time quoting, maintaining and communicating benefits • Have you calculated the magnitude of that cost in staff effort? • If you quote each year with a new agent or are a DIYer why are you doing the insurance agent’s job? • But no formal plan to control costs= a reactive not proactive strategy eflexgroup ©

19. But where do we start?Big picture of end goal Aggregate Subsidy:Target total dollar or percentage support Consumer Decision Support:Tools and content related to pricing and design changes Funding:Insured/Self-insured decisions • Core Health Care Strategy Design:Specific options offered Disease Management/wellness Pricing:Subsidy allocation methodology Employee Communications:Specific information and messages to describe short and long-term strategy changes eflexgroup © Source: Hewitt Associates, 2002

20. Wait aren’t we at the mercy of the insurance carrier? • Yes and no • Yes for premium increases • But you are at not at the mercy for long-term planning • There are strategies that you can employ eflexgroup ©

21. What causes increases? • Low deductibles increase utilization • High claims • Family coverage • Older employees • Insurance company risk pools • Technology • Stock Market eflexgroup ©

22. What… the Stock Market has an affect on premiums!!! • Yes. Just like property and casualty • Let’s look at history eflexgroup ©

23. Stock Market 94-2006 eflexgroup © Source: MSN Money

24. eflexgroup © Source: Kaiser Foundation

25. Ok let’s do planning • First get a model business plan • Change to accommodate benefits • Start writing • Start watching trends in the stock market • Examples • Get an agent that knows this stuff • Don’t focus on ability to quote • Focus on compliance • Leverage with carriers • Quality status with carriers • Involve employees eflexgroup ©

26. Model Business Plan • UW has model business plans • Internet • eflex business plan • We have a mission and philosophy • Create several goals • Create ROIs of all • Created trigger points. If xx% increase happens we will consider HSAs or HRAs • Project management eflexgroup ©

27. Any market economist would tell you that things that are 'free' are overconsumed," says Greg Taxin, chief executive of Glass, Lewis & Co. eflexgroup.com ©

28. Planning-Timelines? • What plan year are you on? • Are benefits cycled together? • Section 125/Cafeteria plan • Health (save money on non 1-1) • Voluntary • Retirement • Type of benefits do we want to purchase eflexgroup ©

29. Contents of Plan Outline • Determine mission • Benefits philosophy • Goal of plan • Should tie closely with company vision and mission • With your agent and solid empirical data where are you in relation to other competition • What is the purpose of your benefits? • Any immediate goals? • Review historical perspective of past benefit focus • Is there a Union in place? • Employees in different geographies? • Issues with carriers in your locale? • 3-5 year plan eflexgroup ©

30. Overview • Does it correlate with your mission? • What changes need to be made? • When will you implement? • How will you implement? • Incremental or drastic change? • Where does voluntary benefits fit? eflexgroup ©

31. Benefits • Type of health? • Fully insured • HMO • PPO • Combo: High deductible mini-self funded and fully insured (HRA, HSA, FSA) • Self-funded eflexgroup ©

32. Triggers • Set a series of triggers and timelines for events • If XYZ event or percent of increase takes place we will look/move/change • Triggers can be placed over 3-5 years • Discussion on other trigger events eflexgroup ©

33. Focus on triggers points • Benefit planning should focus on timelines and triggers • Example: Assume the stock market drops again. Find out the exact percentage of drop. 01-02 more than 50%. That will be the indicator • Example, eflexgroup 04-05 • Triggers are % of increase or decrease eflexgroup ©

34. Next--Hire Agency • Stop doing their job • Agents have access to all products and the majority of their job is product information and placement • Employee communication • Field underwriting • Insurance company negotiations • Renewal shopper eflexgroup ©

35. Agency • Compliance • Education and experience • Show business plans and references • Don’t expect perfection • Demand that your time is minimal on benefits • Detail services and require performance benchmarks each year eflexgroup ©

36. Employee Benefits Committee • Don’t work • If their mission is to buy insurance • Will work if agent is given budget and shops insurance • Committee’s mission is to communicate benefits and make planning decisions • Management oversees results and final approval • Agent brings products to committee • Committee selects products within budget and plan • Committee is responsible to communicate benefits with agent eflexgroup ©

37. Committee make up • Type of individuals: case review • Complainers • Staff you trust • Unofficial centers of influence • Staff that can communicate • In all cases (groups measured in from 65 EEs to 250) very successful eflexgroup ©

38. Pros • Manages grapevine • Employer is no longer “bad guy” • We begin the process of acknowledging that our health care deliver mechanism is the employer • High deductibles and consumerism • Involved in the process • Employer becomes manager • Employer can move time spent on benefits to growing business • Saves money • Creates efficiencies • Manages largest expense besides labor eflexgroup ©

39. Cons • Employer loses control of process- outsourced • Employer has upfront cost in planning and interviewing agents • Same for employees to be on committee • Employer still must review plan yearly for changes or updates • Change and paradigm shift • HR threatened? eflexgroup ©

40. Case studies • Hewitt survey to employees • Be careful what you ask for • Survey results—employees wanted choice • Created elaborate plans and choices to match survey • What happened at enrollment? HR was overwhelmed eflexgroup ©

41. Case Studies • WIS Specialization Clinic • Community College in the northwest • LP company in southwest WI • Eflex • Manufacturing firm eflexgroup ©

42. Finishing your plan • Create a conclusion • Create and demonstrate models that are realistic • Yes you can plan • Yes you should because you are in a rut and wasting money • Yes you need to outsource this to agents or competent consultants eflexgroup ©

43. Finish • Give the plan to committee • Post the plan • Work the plan • Modify at each renewal • Secret: Once plan goes forward each year it is extended forward so in theory you only do this once! eflexgroup ©

44. Outside the box • Put something IN the box • Use what you have in front of you • Insanity definition= doing the same thing over and over expecting different results! • Take the time to plan and really dive into • Stop being an insurance agent • If your agent doesn’t know this stuff move on eflexgroup ©

45. Resources • MSN Money stock market trends • http://moneycentral.msn.com/investor/charts/chartdl.asp?Symbol=INDU • Health insurance trends • Kaiser foundation: http://www.kff.org/ • National Coalition on Health Care: http://www.nchc.org/ • HSAfinder.org • Business planning • http://www.businessplans.org/ • http://www.sba.gov/starting_business/index.html eflexgroup ©

46. eflexgroup.com COBRA HSA HRA FLEX COBRA Help Desk Consulting Ric Joyner, CEBS, GBA, CFCI 2740 Ski Lane Madison, WI 53713 608-206-2255 rj@eflexgroup.com End eflexgroup ©