Getting a grip on employee benefits.

• Author: Campbell, Malcolm

If executives think the amount of money they contribute to employee benefits will shrink any time soon, they had better think again, says John Hood, vice president of the John Locke Foundation, a public-policy think tank in Raleigh. "From the workers' or employees' perspective, there's an incentive to demand noncash benefits that are free of taxation. Benefits have become a popular thing for businesses to do."

In fact, government regulations coupled with corporate competitiveness have made nonsalary benefits essential for attracting and retaining top-flight employees. On average, benefits command a whopping 40% of payroll expenses. To keep these folks happy, executives must craft benefit packages to be as competitive - not to mention cost-effective - as possible.

Insurance companies, the health-care community and other benefit providers have responded with a dizzying array of options. Never before have human-resource officers been faced with such choices. Here's a selection of what's available in North Carolina and some of the things managers should consider when trying to narrow them down.

The mantra "Cut health-care costs at all costs" has echoed through boardrooms and living rooms across the country. With the health-care reform in limbo on the federal level, employers, insurance companies and health-care providers are scrambling to heal what they view as an ailing system.

The push is to hold down price escalation. "We're never going to get anybody back to the 10-cent phone call," says Frank Mascia, president and CEO of PHP Inc., a Greensboro-based health-maintenance organization. "Managed care is not a quick fix for health-care costs. It's designed to manage rising costs over time by keeping the increases lower."

"What you find is that employers have become better consumers in shopping for medical benefits for their employees," says Beverly Karasick, director of medical-management-delivery systems for W.R. Berkley Corp., a Greenwich, Conn.-based insurance company. "They're making the switch to managed care."

The choices of health-care benefits are as varied as a company's reasons for wanting them. Some companies have to slash personnel costs while others are interested in improving their benefit levels. Depending on what the company wants to achieve, options range from the traditional indemnity plan to preferred-provider organizations.

The traditional indemnity program in which the patient selects the doctor, the doctor selects the hospital and the employer and insurance company pay 80% of the medical expenses is not extinct. "A traditional indemnity plan might still be attractive to a company with operations in several states," says Mike Waltemyer, a consultant with Sedgwick James of North Carolina Inc., a Charlotte insurance brokerage. "If the employer wants to ensure he's making health-care options equal to all his employees, he may select an indemnity plan."

Most indemnity plans cost the employer more, which is why managed care came into being in the first place. "A good managed-care system is the most effective delivery system and will reduce all employers' cost - even if you have low, low costs," says Paul Kersting, a benefit consultant and principal of Buck Consultants in Atlanta.

What managed-care administrators usually offer is a much lower copayment - between $5 and $10 per office visit. The patient, however, is restricted to practices, clinics and hospitals where volume discounts have been negotiated. The result is greater cost control. In return, the doctor's office or the hospital is assured a steady stream of patients.

Under the managed-care umbrella of health-care financing, there are several options. Preferred-provider organizations offer discounted medical services as long as users stay within a defined network of physicians and hospitals. These networks can compete with health-maintenance organizations but allow patients to opt out and receive treatment elsewhere - provided they're willing to pay a premium for it. Dick Dunn, vice president...