If you are reading this it is likely because you have taken me up on my offer to chat with you about employee benefits in general and our DMCO DigitalFLex solution in particular.
As I mentioned in the email that invited you, I am new to this Internet marketing business. I can promise you insights on creative 21st Century solutions for your benefit challenges, and I can promise you that I will also make a mistake or two on this blog as I try to figure out the protocols and procedures. I trust you will find straight forward unfettered information worth the odd mistake I make on this blogging deal. On to the post.
I contacted you in the first place because this is "renewal season" for many (if not most) employers. Practically speaking, it is likely too late to put our DigitalFlex solution in place for January of 08, but it is certainly the perfect time to discuss it - while the annual madness is front and center and on the top of your "to do list".
Our premise is pretty much focused on these three ideas:
1) You need to control your costs either through a "total compensation" approach or "benefit budget" approach
2) You need to outsource every aspect of your business that does not increase your revenue or lower your costs
3) Your employees will appreciate choice for their benefits and control of their total compensation
Here is my speech - though greatly oversimplified: "You need to get OUT of the benefit business. You need to focus on manufacturing, selling, and/or servicing your widgets - focus on doing whatever it is you do. Provide us with your budget for benefits and we will take care of the rest".
Internet tools, software, and applications now make outsourcing a sound business decision for any non core endeavors. And the last thing small employers need is being tied to legacy costs and legacy systems.
At the heart of the problem for almost all small businesses today is the fact that the cost of group health insurance is "crowding out" wages. Most small employers are faced with the dilemma of trading wage increases for premium sharing. It is not uncommon to have health premiums equal to 25% of base wages.
DigitalFlex puts the emphasis on multiple plan choices for all benefits: health, dental, vision, life and disability and 401(k). Actually, we have used the 401(k) "model" to guide us - that is using an employer contribution to provide the funding for employees to build their plan from a menu of choices. If practical financial realities are going to limit how much any employer may be able to provide for benefits, why not allow employees to have great choice in how they take that allowance?
I will break down the various parts of DigitalFlex in future posts. In the meantime, please ask any questions and offer comments and I will respond as quickly as I can. I look forward to "chatting" with you on this topic.
Dick
Sunday, November 11, 2007
Monday, February 19, 2007
Digital Administration
Nothing fits employee benefit plan administration better than the digital solutions offered here in the 21st Century. After all, what we really are dealing with is simply information and there is no better way to handle that than with a digital platform.
Most surveys I see say that admin costs average in the neighborhood of $9/10 per employee per month (PEPM) when the employer is using a traditional paper based system. This compares to less than $2 PEPM with a digital solution.
The key of course is to eliminate the tyranny of the file folder and the horrid paper chase that follows. The magic of digital admin is the ability to literally touch something one time and use programming and bandwidth to move the information everywhere it needs to go. All the while creating as many copies as needed by storing it in cyberspace.
Phase one is the data entry which is done by each employee - well in a perfect world anyway. Phase two is the movement of that data to the appropriate party - insurance company, investment account, TPA, etc. Phase three is any necessary "tweaks" or changes to the data as employee circumstances change. But no one need enter any data twice. The time saved and mistakes eliminated raise productivity to previously unheard of levels.
As younger people move into the work force at all levels and as all of us become more comfortable with the Internet and keyboards, it becomes even easier to put the digital solution in place. The real lag right now - believe it or not - is with the insurance companies. Most have legacy computer systems that cannot be upgraded to handle a true state of the art solution. More and more employers of all sizes are being frustrated by the behemoths that cannot get out of their own way when it comes to a nifty digital solution.
However, we continue to drag them kicking and screaming into the 21st Century. More on our efforts in this regard shortly.
RAM
Most surveys I see say that admin costs average in the neighborhood of $9/10 per employee per month (PEPM) when the employer is using a traditional paper based system. This compares to less than $2 PEPM with a digital solution.
The key of course is to eliminate the tyranny of the file folder and the horrid paper chase that follows. The magic of digital admin is the ability to literally touch something one time and use programming and bandwidth to move the information everywhere it needs to go. All the while creating as many copies as needed by storing it in cyberspace.
Phase one is the data entry which is done by each employee - well in a perfect world anyway. Phase two is the movement of that data to the appropriate party - insurance company, investment account, TPA, etc. Phase three is any necessary "tweaks" or changes to the data as employee circumstances change. But no one need enter any data twice. The time saved and mistakes eliminated raise productivity to previously unheard of levels.
As younger people move into the work force at all levels and as all of us become more comfortable with the Internet and keyboards, it becomes even easier to put the digital solution in place. The real lag right now - believe it or not - is with the insurance companies. Most have legacy computer systems that cannot be upgraded to handle a true state of the art solution. More and more employers of all sizes are being frustrated by the behemoths that cannot get out of their own way when it comes to a nifty digital solution.
However, we continue to drag them kicking and screaming into the 21st Century. More on our efforts in this regard shortly.
RAM
Tuesday, January 30, 2007
Choice Is A Very Good Thing
Since employees are actually the people that pay for the cost of health insurance (through the reduction of wages otherwise received), it stands to reason that they be allowed as much choice as possible when it comes to selecting a benefit plan provided by their employer.
Personally I don't think it is possible to have "too many choices". Unfortunately for small groups (25 to 250 employees) in most cases plan benefit choices are limited to two - sometimes three at the most. Usually there is an HMO, a PPO and now some sort of high deductible or consumer driven plan.
The problem in most cases right now - at least in the 11 states in which I do business - is that the premium differential between these current choices are very minimal. And this means that employees have very little control over their total compensation.
What we need to see is a plan design that has very significant premium differentials and true risk management options. We need more choices so that employees can really generate control over how much of their compensation is taken as taxable wages or tax favored benefits.
Because the small case market has limited options in this regard, we have taken to trying a new approach - with some limited success thus far. Our latest idea is to establish a single "base" plan with the lowest possible premium and significantly reduced benefits. If possible we make this base plan one that qualifies for and HSA (assuming the premium savings will justify it).
For employees that wish to little or nothing in premium share, they now have that option. They can take the extra risk and deal with it as they see fit. Where we have a qualifying plan in place, they may establish an HSA if they wish to do so. Otherwise, they pay for claims from their existing resources as needed.
For those employees that cannot tolerate the risk we offer "gap" coverage. These plans provide benefit coverage to fill in the gaps from the new high deductible or catastrophic comprehensive plans sponsored by the employer. The premiums are pre-tax under Section 125 and in most cases we can eliminate pre-existing condition provisions by meeting participation requirements.
The idea here is pretty simple and straight forward. We want employees to have a real choice in how they each take their compensation and handle risk. This is really no different that what employees must do for their automobile and homeowners coverage. Why not let them do the same with health insurance?
RAM
Personally I don't think it is possible to have "too many choices". Unfortunately for small groups (25 to 250 employees) in most cases plan benefit choices are limited to two - sometimes three at the most. Usually there is an HMO, a PPO and now some sort of high deductible or consumer driven plan.
The problem in most cases right now - at least in the 11 states in which I do business - is that the premium differential between these current choices are very minimal. And this means that employees have very little control over their total compensation.
What we need to see is a plan design that has very significant premium differentials and true risk management options. We need more choices so that employees can really generate control over how much of their compensation is taken as taxable wages or tax favored benefits.
Because the small case market has limited options in this regard, we have taken to trying a new approach - with some limited success thus far. Our latest idea is to establish a single "base" plan with the lowest possible premium and significantly reduced benefits. If possible we make this base plan one that qualifies for and HSA (assuming the premium savings will justify it).
For employees that wish to little or nothing in premium share, they now have that option. They can take the extra risk and deal with it as they see fit. Where we have a qualifying plan in place, they may establish an HSA if they wish to do so. Otherwise, they pay for claims from their existing resources as needed.
For those employees that cannot tolerate the risk we offer "gap" coverage. These plans provide benefit coverage to fill in the gaps from the new high deductible or catastrophic comprehensive plans sponsored by the employer. The premiums are pre-tax under Section 125 and in most cases we can eliminate pre-existing condition provisions by meeting participation requirements.
The idea here is pretty simple and straight forward. We want employees to have a real choice in how they each take their compensation and handle risk. This is really no different that what employees must do for their automobile and homeowners coverage. Why not let them do the same with health insurance?
RAM
Monday, January 29, 2007
The Employee Pays for Everything
One of the great mistakes we all make (myself included) is to refer to benefits as paid for by the employer. Indeed, much of the tax law refers to "employer provided benefits".
This is quite misleading in that it establishes and reinforces the idea that employers pay for these benefits - when in all but the most extreme cases, this is never the case. The employee pays for benefits through a reduction in wages they would have othewise received.
Countless studies now show this to be true. Any of you that have worked with the challenge of annual double digit rate increases for health insurance premiums know that the decision comes down to how much wage increase will need to be sacrificed to pay the higher premium, or in the alternative, how deeply the benefits will have to be reduced to keep the premium at the same level. Either way the employee is the one that pays - not the employer.
I w0n't argue that there are certain exceptions to this - Google and Microsoft come immediately to mind. They can afford to pay the highest salaries and provide the best benefits and they must do so to compete for the highest level of employees. But they are the exception that proves the rule.
The tax code is the major driver behind this misleading situation. The tax preference for employer provided health care is now the largest single tax break available to Americans - exceeding retirement contributions and the personal mortgage deduction. It is the only tax preference that exclueds BOTH the employer and employee contributions to FICA, and is not taxed at any state or federal income tax level. (All of this while Medicare and Social Security are in financial crisis.) This is clearly a "behavior modifyer" that exacerbates the pressure on the demand side of the equation and drives up the cost of health care and health insurance.
President Bush's latest proposal goes right to the heart of the matter. While he retains the tax preference on an individual basis (not my favorite solution but at least he levels the playing field for those folks that don't have insurance provided by their employer), he eliminates it from the employer side of the ledger. This is a major move toward "Total Compensation" where employers simply pay people for the job they do. Under this proposal employees would have a great deal more choice and say so in how they spend their compensation. This proposal puts the focus squarely on the fact that employees earn all compensation - and redicrect it as they each see fit on an idividual basis. And yes, the FICA breaks remain but that is a topic for another discussion. The key here is that we get a much clearer recognition that employees pay for everything - one way or the other.
This is quite misleading in that it establishes and reinforces the idea that employers pay for these benefits - when in all but the most extreme cases, this is never the case. The employee pays for benefits through a reduction in wages they would have othewise received.
Countless studies now show this to be true. Any of you that have worked with the challenge of annual double digit rate increases for health insurance premiums know that the decision comes down to how much wage increase will need to be sacrificed to pay the higher premium, or in the alternative, how deeply the benefits will have to be reduced to keep the premium at the same level. Either way the employee is the one that pays - not the employer.
I w0n't argue that there are certain exceptions to this - Google and Microsoft come immediately to mind. They can afford to pay the highest salaries and provide the best benefits and they must do so to compete for the highest level of employees. But they are the exception that proves the rule.
The tax code is the major driver behind this misleading situation. The tax preference for employer provided health care is now the largest single tax break available to Americans - exceeding retirement contributions and the personal mortgage deduction. It is the only tax preference that exclueds BOTH the employer and employee contributions to FICA, and is not taxed at any state or federal income tax level. (All of this while Medicare and Social Security are in financial crisis.) This is clearly a "behavior modifyer" that exacerbates the pressure on the demand side of the equation and drives up the cost of health care and health insurance.
President Bush's latest proposal goes right to the heart of the matter. While he retains the tax preference on an individual basis (not my favorite solution but at least he levels the playing field for those folks that don't have insurance provided by their employer), he eliminates it from the employer side of the ledger. This is a major move toward "Total Compensation" where employers simply pay people for the job they do. Under this proposal employees would have a great deal more choice and say so in how they spend their compensation. This proposal puts the focus squarely on the fact that employees earn all compensation - and redicrect it as they each see fit on an idividual basis. And yes, the FICA breaks remain but that is a topic for another discussion. The key here is that we get a much clearer recognition that employees pay for everything - one way or the other.
Sunday, January 28, 2007
This should be fun
Hello - and welcome to RAMdom Musings, my blog for just about everything one can imagine on the subject of employee benefits for small employers. My name is Richard A Matthews (hence the incredibly clever name of the blog) and I have been designing, selling and servicing employee benefit plans since 1973.
We will define small employers as those with 25 to 250 employees. And the topic of employee benefits will include products, strategies and 21st Century solutions. Health insurance will play a major role of course, but many other topics will be addressed in detail. In particular we will focus on plan design strategies and administrative solutions that help employers attract and reward quality employees in a Web 2.0 world.
Though I may correctly be identified as a "one trick pony" based upon my approach to problem solving (much more about that shortly), I will post on all sorts of ideas that are germane to the vision expressed above. In the meantime, click onhttp://www.dmcollc.com so you may get better acquainted with me and my organization.
RAM
We will define small employers as those with 25 to 250 employees. And the topic of employee benefits will include products, strategies and 21st Century solutions. Health insurance will play a major role of course, but many other topics will be addressed in detail. In particular we will focus on plan design strategies and administrative solutions that help employers attract and reward quality employees in a Web 2.0 world.
Though I may correctly be identified as a "one trick pony" based upon my approach to problem solving (much more about that shortly), I will post on all sorts of ideas that are germane to the vision expressed above. In the meantime, click onhttp://www.dmcollc.com so you may get better acquainted with me and my organization.
RAM
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