Outsourcing and health costs

The U.S.

business paradigm is constantly changing, and the smart business owner needs to stay ahead of the game.

Some of the changing conditions are obvious, but others are more esoteric in nature.

One large hidden expense in business is the cost of employee turnover, which has been estimated as high as $2,500 to hire and train an employee.

The best way to avoid this cost is to give employees incentives to stay with a company.

One of the best incentives is the company-paid medical plan.

Historically, company-paid medical started after World War II, when wage and price freezes forced companies to find creative ways to recruit, retain, and compensate employees.

Company-paid medical was one of the tools used, and over the years became a normal part of compensation at many companies.

However, with the increasing cost of health care, companies began shifting the cost of premiums to employees as company funding became prohibitive.

This perceived burden on employees was eased somewhat by pretax employee deductions (Cafeteria 125 plans), but more and more of the cost of health care is being shifted to the employee as health insurance premiums have skyrocketed in recent years.

Today, the typical premium for full medical coverage (HMO or PPO type plan) exceeds $300 per month per employee, and annual increases of 20 percent to 60 percent are common.

In addition, individual and small group plans are individually underwritten, which means that pre-existing conditions are excluded and older employees pay much higher premiums than younger workers.

Only large group plans have across-the-board premiums, guaranteed issue, and no exclusions.

Unfortunately, most companies in Nevada aren't large enough to participate in large group plans on their own, although some may do so through trade organizations or other industry-specific affiliations.

For those who can't there is a viable alternative, a concept called human resource outsourcing.

This is essentially a co-employment arrangement wherein the human resource outsourcing company becomes the employer of record of the client's employees and assigns those same employees back to the client as leased labor.

The human resource outsourcing firm, with hundreds or thousands of employees working at client companies, can set up group health plans with all the advantages noted above.

The premiums can be paid by the employer, by the employee (pre-tax through Cafeteria 125), or by a combination of employer and employee contributions.

Some forward-thinking human resource outsourcing companies even contribute toward health-care premiums.

The rationale for doing this is to help with risk management by reducing workers' compensation costs and retaining trained employees.

Statistically, employees without any medical coverage have a higher rate of workers comp claims and significantly increased turnover.

For companies that have employees with widely varying incomes and differing health needs, some human resource outsourcing firms offer a menu of health plans, ranging from simple reimbursement "mini-med" plans to full-service HMO and PPO plans.

If the client company elects to pay all or part of the premiums for different plans, they must be very careful to treat all employees equally.

Federal ERISA laws are very specific about equal treatment in this area, but employers can legally determine qualification criteria such as length of service.

Another tool to help with employee retention is the pre-tax deduction for medical savings or medical reimbursement plans.

There are some new developments in this area that are very attractive to both employers and employees.

A properly structured plan allows both the employer and the employee to contribute to such a plan with no tax on the contributions.

Also, some plans allow a carryforward of a percentage of unused funds, and also provide a debit card.

The employee can use this card for co-pays, dental care, vision care, and many other out-of-pocket medical expenses, which are not normally tax-deductible.

Some progressive human resource outsourcing offer such plans in conjunction with their group medical coverage.

Of course, human resource outsourcing has many other benefits.

The human resource outsourcing company takes care of payroll, payroll taxes, workers compensation insurance, and human resource issues.

A truly professional human resource outsourcing will have a progressive risk management program to help its client companies meet all government regulatory requirements pertaining to Equal Employment Opportunity and workplace safety.

This can significantly reduce client companies' exposure to fines and legal actions stemming from non-compliance.

Roger Diez is the sales manager for Odyssey Business Services, a payroll/human resources outsourcing company in Carson City.

Odyssey provides payroll and outsourced human resources services to hundreds of companies in northern Nevada and northern California.