Taming the Employee Benefits Monster

Agile handling is required to keep the beast from devouring practice revenues.

BY RENÉ LUTHE, SENIOR ASSOCIATE EDITOR

The problem of dealing with the formidable financial burden imposed by employee benefits packages, particularly health insurance, has been much in the news of late. Usually, the story is whether the public sector will be able to continue to pay for the “Cadillac” plans of its large and growing roster of employees. But of course, small businesses such as medical practices are also facing — and feeling the strain of — dealing with the “monster” that may have gotten too large during the boom years of the 1990s to be sustainable ever since leaner years set in earlier in this decade. And while medical practices don't have the funding of the public sector to keep the beast fed, they do have more leeway in altering policies to keep it from devouring the practice. Here are some of the tools practice administrators from across the country have brought with them to tame the problem.

Cornering the Health Insurance Issue

Health insurance contributions seem to be the most fearsome employee benefit for any business in any industry to tackle, but particularly for small businesses. And while healthcare reform has been a popular topic in the media this year, it's typically viewed through the prism of what changes patients can expect in their coverage. Less has been said about the doctors who dispense that medical care: many physicians run small businesses themselves and thus have to worry about providing health insurance to their employees. With escalating costs for employee health benefits and declining reimbursements for physicians, the health insurance industry's pincer movement severely squeezes the practice's finances.

Health insurance is definitely the most frustrating benefit to manage,” says Elise Levine, MA, CRC, OCS, practice administrator at the North Valley Eye Medical Group in Mission Hills, Calif. “Prices are skyrocketing and we have had to forgo salary increases to ensure that our staff has adequate access to good health care via good insurance plans.” Health insurance premiums have jumped 17% in the last year, she notes, and because the staff has an average 10-year tenure, the practice may see many employees age up into higher-priced age bands.

In an effort to continue to offer that health insurance and yet not go broke paying the lion's share of the policies, practices are getting creative in designing benefit options. Possible solutions include healthcare savings accounts (HSAs), periodically rebidding your practices insurance contract and offering some employee-paid plans.

► HSAs. An increasingly popular one is tax-advantaged, individually-owned accounts into which funds are paid for current and future medical expenses. HSAs are used in conjunction with a high-deductible health plan.

Beverly M. Loney, practice administrator at Fishkind and Bakewell Eyecare and Surgery Center in Tucson, reports that the practice has been offering both an HSA and the more traditional PPO health insurance policies for the past three years.

“The first two years, HSAs gave us a good 30% lower premiums, and we've educated staff enough so that a lot of them are taking advantage of the new plan. For 2010, we looked at it again and while we're still offering two plans, we were forced to go less rich with the PPO plan to offset a 10% increase in premiums over last year. Now the HSA premium is only about 20% less than the PPO,” she says. Still, more staff have signed up for HSAs, enabling the practice to save some money and still offer employees affordable coverage.

The practice pays 70% of PPO fees and puts the same sum toward an HSA.

Ray Mays, practice administrator of Eye Centers of Tennessee, says that practice offers HSAs exclusively to its employees after formerly offering health insurance plan options. “The costs were just getting insane.” With HSAs, the practice matches employees' contribution each month, and he says that while staff initially resisted HSAs, they are now fans.

“Suddenly, people have maybe $7,000, $8,000 in their health savings account and now they have incentive not to use it, because they like seeing that balance grow every month,” Mr. Mays explains. “My insurance agent tells me that's everybody's experience with HSAs — they hate it until they see the money in their account. Because once you see that in there, you decide that maybe aspirin will work just fine when you're not feeling well.”

Ms. Loney points out that HSAs do have a downside, however — their high deductible. “Some of our staff have had some medical expenses that they didn't anticipate during the year and they've got a $2,600 deductible to meet. They're struggling to pay their bills. They didn't think that when they elected the HSA.”

She says that the practice has also learned what it is like to have patients with HSAs instead of more traditional plans. “We're seeing patients come in who have these high-deductible plans and we're having to go to them to collect the fees. Whereas with the PPO, we just got the payment from the insurance company along with a copay from the patient.” Despite this potential shortcoming, though, Ms. Loney notes that HSAs are helpful in controlling the costs of benefits packages.

Mr. Mays has advised his staff to deal with the HSA deductible through negotiation with their physician's office.

“I tell staff, ‘You're in this industry, you know the deal; most places would rather be paid at the time of service even if it's the Medicare rate rather than risk waiting 30 to 90 days for a maybe. Get on the phone and ask if they'll take the Medicare rate.’”

► Another option for controlling a practice's health insurance contributions is rebidding your contract each year. Laurie K. Brown, COMT, COE, OCS, administrator at Drs. Fine, Hoffman & Packer, LLC, in Eugene, Ore., notes that insurance premium increases have been in the double digits nearly ever year recently. Rebidding can be an important tool in keeping costs down, allowing you to take advantages of, for example, staff turnover that might qualify you for a lower premium. She also recommends investigating other insurance companies.

“New insurance companies are popping up all the time,” she says. Another possibility to consider: “Not every company will give a bid to your practice, so having an agent who will work for you and each year start afresh to get a better rate than what you have” can be very helpful in keeping costs down.

► Still another way to reduce benefit costs is to offer some of the less commonly used insurance choices as employee-paid options. Short-term disability or dental insurance might fall under this heading, Ms. Brown points out. “These are things that not everyone needs nor wants, so committing your practice to paying for things that don't necessarily have value for everyone is just adding to your expenses. What you can do instead is negotiate with your agent for good policies and a good rate, but the employee can decide whether or not they want to buy that coverage.”

Raises vs. Bonuses

Next to healthcare insurance premiums, pay increases are another potentially costly burden on medical practices — and one that comes up every year. Here too, practice administrators report how they've been able to create solutions that will reward valuable employees without breaking the bank. One essential step to keep this employee benefit from getting out of hand is to know the pay scale for the positions in your practice. Ms. Brown says that her practice researches salary surveys from both local and national sources for their industry.

“Each year, we look at industry data and research by geographic area and we evaluate our scales. We also look at our salary matrix within our practice itself,” she says. Should they find at the time of an annual review that the employee is at the top of her range for the position, they examine what that employee has contributed to the practice that year and then decide on an amount for a bonus. “This can keep your employee costs at a more manageable level.”

Ms. Loney reports that her practice has substituted a profit-merit system for annual pay raises. “We do a percentage of profit bonus and over the years we have been able to give staff more than they would have gotten if they had had a normal wage increase,” she explains. “It keeps us from being locked into annual pay increases if the practice isn't flourishing.”

Sixty percent of the bonus is based on performance, 20% on tenure and the final 20% on responsibility. Ms. Loney says that when she informs prospective hires during the job interview that they are not guaranteed a raise every year, they look nervous. “But when they see what the bonus actually is later, it's pretty sizable — and at the end of the year, they receive a nice check.”

Still, transitioning away from the annual-raise model was not easy.

“At first, we had a Mutiny on the Bounty situation on our hands,” Ms. Loney says. “The staff literally signed a petition. I just said, ‘Okay, we'll go a little more gradually into this.’”

Options for Time Off

According to Maureen Waddle, senior consultant at BSM Consulting, the trend in ophthalmic practices, as in many other businesses, has been to combine the average 10 vacation days and five sick days per year (after one full year of employment) into 15 paid-time-off (PTO) days per year. “This seems to reduce administrative headaches for managers,” she says.

The practice administrators who spoke with Ophthalmology Management agree. Ms. Brown points out that sick days don't mean a lot to healthy people. A separate fund of sick days that employees either use or lose incentivizes them to take paid time off that they wouldn't have otherwise. Having a PTO system in place eliminates that issue.

“Then people make decisions such as, ‘Gee, if I call out sick for this slight headache, I'm going to lose vacation time because of that.’ It sort of aligns things the way you want your practice to be aligned and I think a lot of people have gone to PTO, which is very helpful in keeping your clinic covered,” Ms. Brown points out.

Additionally, the practice allows employees to carry over a certain number of unused PTO days to the next year. These can serve as a sort of “short-term disability plan,” she explains. By only allowing a modest number of days to be carried over, the practice avoids the potential difficulty of having to grant a large block of time off and possibly decreasing productivity.

Ms. Loney's practice also offers a PTO bank of vacation, holidays and sick days, but this year it has instituted the policy of allowing employees to take unpaid time off.

“People would say, ‘I've got some PTO, but I'd rather save that and take some unpaid time off’ and the doctors aren't here. And we would say, ‘No, you need to work or you need to use your PTO.’ But we've looked at that again, and now if the workflow allows it and the employee forfeits the pay, we allow it. It saves the practice a little bit of expense.”

Scheduling Strategies

Flexible scheduling can function as a very desirable employee benefit, and one that has the advantage of costing the practice nothing, according to veteran practice administrators.

Mr. Mays points out that work schedules that offer some accommodation to an employee's home life can be as attractive a benefit as a “Cadillac” health insurance plan, yet cost the practice nothing.

“There are things that women value more than men would,” he explains, pointing out that women comprise the vast majority of ophthalmic practice personnel. “The ability to come in at seven and leave at three so that they can pick their kids up from school — that's important to them. We can work around that.” The practice also offers a schedule of four 10-hour work days for those who want it. “That gives you an extra day to go and do all the things that women have to do, because their jobs aren't over when they go home at the end of the day. We try to be as flexible with people's schedules as we can and not get locked into, ‘If you can't work from 8 to 4:30, we don't need you.’” An employee who brings value to the practice, Mr. Mays says, is worth accommodating.

In addition to being an employee benefit, a flexible approach to scheduling can also function as a “revenue defense” when times are lean. Gaining popularity in some ophthalmic practices is a “low census” policy toward scheduling. With physicians often out of the office in order to attend medical meetings or teach, resulting in fewer patients scheduled, there are periods when a full staff is not required. For these lulls, administrators can offer staff the opportunity to take unpaid time off.

“Each department manager, mainly the tech manager, has a rotating schedule and if the work is done and the docs aren't here, we send the employee home,” explains Ms. Loney. “They're given a choice of using PTO or not.” Employees who don't have PTO, or who are saving their PTO for a vacation, are often glad for the opportunity to seize some additional time off.

“We've done this informally at holiday time before we instituted the policy; our doctors often will all be gone between Christmas and New Year's. We were calling it a holiday special, but now we have the policy that lets us do it any time of the year” says Ms. Brown.

Ms. Loney calls the low-census policy a sort of insurance measure for a practice during slow periods. Both administrators agree that employees view the policy as advantageous to them as well.

“If one person says, ‘Oh, gosh, I really need to work, I'm counting on a full paycheck and can't afford unpaid time off’, there's usually someone else who's not on the rotation schedule who is very happy to go home,” Ms. Loney says.

The Part-Time Route

The strategy may get negative press, but hiring employees for part-time work rather than full-time in order to avoid having to pay benefits remains an effective way to keep costs down.

“If it's between a full-time candidate and someone who is happy working part-time, I'm going to go with the part-time person. Just because of the benefits,” Mr. Mays explains.

If prospective employees are unhappy about not being offered a full-time position with benefits, many practice administrators may feel that they have no choice. The financial pressures on a practice as a small business are great and growing. “So many things are now being mandated by the government,” he points out. “Our unemployment insurance for the state, which is broke like every other state, went up 25% this year.”

401(k)s in the Near Term

If health insurance is the most frustrating employee benefit to manage, Ms. Levine says that 401(k)s are the most difficult. “Most office managers/administrators are not financial planners,” she points out. She believes that many smaller practices may be rethinking their matching policies.

“We have closed our profit sharing plan and opened a non-matching 401(k) for employees,” Ms. Levine explains. “At some point in the future, matching may be discussed, but for now we are providing a means for employees to shelter pre-tax monies with no participation by the physicians.”

Ms. Brown reports that at her practice as well, matching employee contributions to 401(k) plans is not an option. “Due to our practice design, we are unable to match contributions, which is a disappointment to us,” she says. “We have looked for other ways to enhance our benefit package, such as profit sharing and the other benefit items, to compensate. It is almost expected these days for employers to contribute with the employee in such a plan.”

However, employees are offered enrollment in a 401(k) plan with both traditional and Roth options.

Eye Centers of Tennessee currently has a hybrid profit-sharing plan. “Basically, on our plan, you don't have to contribute to get to get the 3% back; there is no match,” says Mr. Mays. However, he says, the practice may have to change to the straight 401(k) in which employers match up to whatever percent of the salary the employee put in.

Ms. Loney notes that her practice has also had to scale back 401(k) contributions. “We keep our contributions at the Safe Harbor match, which is approximately 4% of the total pay for the fully vested,” Ms. Loney says. “We don't put any additional into that any longer.”

Don't Neglect Morale

If there is an upside to the current economic downturn, it's that most employees are realistic enough to understand that practices must control benefits in order to survive.

“Everything right now is so tight that you can't afford to waste a penny on anything,” says Mr. Mays. “This whole year has just been month to month.”

Ms. Loney reports that retaining employees while limiting or reducing benefits has not been a major problem, given that the unemployment rate in Arizona was 9.4% at press time. “Everybody is really aware of that,” she says.

However, Ms. Loney says her practice does not just rely on employees' awareness of high unemployment rates to make them accept any changes the practice must make to their benefits packages. Communication is essential to keep employees' morale up, to keep them from perceiving any necessary cuts as something the employer is arbitrarily withholding from them.

“We really hammer hard on reimbursement cutbacks and insurance premiums increasing, practice expense, what's upcoming with electronic health record expense, all that,” Ms. Loney says. “We keep them in the loop, and they know what we are doing to try to maintain their benefits.”

Monthly departmental meetings always include updates on the status of the practice. Should changes to benefits become necessary, Ms. Loney says, employees understand why. She says that the practice brings in its insurance agent who informs them about what the health insurance trends are elsewhere. “He will tell how he just did a practice that had to give its employees a $5,000 deductible without paying any of the premium. So it's not just me or the owners asserting this.”

Mr. Mays anticipates that when the economy improves, benefits packages will resume a prominent position in employment negotiations. But in the meantime, he says, “staffing is an expense. You bid whatever the market will let you bid. Benefit packages are the same way.” OM