Valuing and comparing physician benefits. (Your Money).

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Imagine this.

You recently received several employment offers from group practices and are deciding which one to choose. Or perhaps you've been working for a hospital system for years and are questioning whether you are being paid what you deserve.

In answering these questions, one component of your total reward that you need to understand is the employee benefits package. Employee benefits packages vary significantly from employer to employer and can easily exceed 25 percent of the total reward package.

As physicians gain a greater appreciation for benefits, their value as an effective tool in recruiting and retaining talent will continue to increase.

What do you value in a benefits package?

As physicians move through various points in their career and personal life, the items they consider important change. The "perceived" value of various components of compensation, including physician benefits, also changes.

For instance:

* A recently graduated physician may be primarily focused on the ability to reduce medical school debt and only value cash compensation.

* Physicians planning a family may value the comprehensiveness of health care coverage, family leave policy or child adoption benefits.

* Physicians with significant others and established income levels may value life and disability insurance to protect themselves and loved ones in the event of a catastrophic event.

* And physicians who already have adequate medical, life, and disability coverage may be unilaterally focused on long-term capital accumulation opportunities.

One size does not fit all when it comes to a physician benefits package. While the financial value of two different employee benefits packages may be exactly equal, the perceived value to individual physicians may vary significantly.

Prevalence of physician benefit practices

To explore the prevalence of physician benefits, let's look at information from the 2001 Hay Group Physician Compensation Survey, which includes 10,865 physician incumbents and 24,719 allied health incumbents from 51 organizations. Of these, 32 organizations submitted comprehensive benefits data.

Benefits reported in this survey generally fall into two separate categories:

1. Physician benefits

2. Physician perquisites

The primary differences

The organizations surveyed all had comprehensive offerings for survivor, disability and health care benefits.

The major difference in availability of survivor benefits between group practices and hospitals had to do with access to supplemental coverage for employees, dependents, travel and accidental death.

Disability benefits were equally available. Health care availability during active employment was equally available, yet access to retiree health care coverage was twice as prevalent in group practices as in hospitals.

Retirement/savings plan prevalence varied significantly.

A large part of the difference is due to the non-profit tax status of hospitals that provide tax-deferred annuity 403(b) plans versus 401(k) plans.

Also noticeably different is the prevalence of defined benefit plans, which provide monthly annuities at retirement as opposed to a defined annual contribution.

This difference may be due to the difficulty in allocating individual annual costs to physicians, as well as higher administrative costs and complexity.

Common physician benefits practices

Here are some common physician benefit practices found among the survey participants.

Survivor benefits

Survivor benefits for physicians are most commonly employer paid at the 1 to 2 times pay level with maximums of over $250,000. Physician paid supplemental group life is usually 1 to 5 times pay.

Disability income

Short-Term Disability  Accrue 12 days or
                       less per year at 100% of
                       pay to a maximum of
                       30 to 180 days

Long-Term Disability   97% provide, after 6
                       months, 60% of pay
                       continued up to age
                       65 or 70, with maximum
                       benefit of $10,000 to
                       $15,000 per month

Employee Cost          84% are employer-paid
                       13% are physician-paid
                        3% involve cost sharing

Health care

HMO/PPO plan with 100% of inpatient and surgical charges reimbursed and didn't have out-of-pocket maximums.

For employee coverage, 38% are employer paid with 56% involving physician cost sharing.

For dependent coverage, employer paid drops to 25% with 59% involving cost sharing. Finally, 41% of the surveyed organizations provide retire coverage, primarily on a retire paid or cost-sharing basis.

Retirement benefits

For those offering defined benefit pension plans the most common benefits are:

Normal Retirement  Final average pay
Benefit            formula based on highest
                   5 of final 10 years,
                   1.01% to 1.24% of pay per
                   year on all compensation
                   and an additional .50% to
                   .99% of pay in excess of
                   Social Security
                   covered compensation

Cost to Employee   None

Early Retirement   Reduced benefit payable
Benefit            after age 55 and 5
                   years of service Cost-
                   of-Living Adjustment
                   (COLA)--41% have granted
                   a COLA in the last 10
                   years

The most common benefit practices of those organizations offering capital accumulation (i.e. defined contribution plans) are:

Physicians Compensation Survey Participants

401(k) Plans with an     28% provide a plan,
Employer Match           organization matches
                         100% of physician
                         contributions of 4%
                         to 6% of pay

Tax-Deferred Annuity     23% provide a plan;
403(b) with an           organization matches
Employer Match           50% to 100% of
                         physician contributions
                         of pay

401(k) Salary Reduction  12% provide a plan
Only Plans

Tax-Deferred Annuity     35% provide a plan
403(b) Salary Reduction
Only Plans

Employer matching for those physician organizations providing 401(k) or 403(b) plan are:

401(k) Plans with an
 Employer Match

Maximum Physician     38% permit a maximum
Contribution Matched  contribution of 6% of pay
by Employer

Employer Matching     67% match by specified
                      uniform percentage,
                      of these, 50% match 100%
                      of the physician
                      contribution

Tax-Deferred Annuity
403(b) Plans with an
Employer Match

Maximum Physician     43% permit a maximum
Contribution Matched  matched contribution of
by Employer           1% to 3% of pay

Employer Matching     86% match by specified
                      uniform percentage;
                      of the 50% match 50% of
                      the physician's
                      contribution, 50%
                      match 100% of the
                      physician's
                      contribution

So what do all these numbers mean to you?

First, keep in mind that there are more types of physician benefit plans than there are physician specialties. Compare your current plan to the common practices above to determine what gaps may exist. Then, see if you can explain these gaps.

For example, you may have limited retirement benefits but very rich medical and survivor benefits. Determine what is important to you, what benefits will help retain you in your current job and engage in a discussion with medical leadership on these issues.

The best benefit plan is one that changes as the needs of those it covers changes.

Ask physicians about true value of benefits

If you're managing a medical group and are concerned about recruitment and retention, make sure your benefit offerings are competitive. Also, make sure they are relevant to your population.

The value perceived from a benefit should be equal to or greater than the cost of administering the benefit to make it worth offering.

Take, for example, health insurance. Suppose you're funding family coverage at 100%. The cost of this coverage is significant. If most of your physicians' spouses work and have coverage through their employers, the value of this benefit does not equate to your cost.

You may be better off taking those dollars and applying them to other benefits, like an enhanced pension plan, for example. The easiest way to determine what benefits are most valuable is to ask the question of your physicians. Once you have an understanding of their needs, you can craft a benefit strategy that will be most valuable to them.

Also, make sure that you are communicating your benefits adequately so that your physicians have a clear understanding of their value. Benefit plans can be complex. If they are not easily understood, they will likely be undervalued.

If you're a physician considering changing employment or joining a group practice or hospital for the first time, make sure you take a total remuneration perspective. In your decision-making process, study the benefit offerings carefully so that you have a clear understanding of what the benefits will cost you and what value they will provide you.

Physician Benefits in Group Practices and Hospitals

Survivor Benefits

Benefit Category                          Group Practice  Hospital

  Basic Group Life                             89%         100%
  Supplemental Group Life                      44%          89%
  Basic Accidental Death                       78%          89%
  Dependant Group Life                         44%          78%
  Voluntary Accidental Death                   33%          59%
  Business Travel Accident                     33%          50%
  Group Universal Life                          0%          11%
  Group Survivor Income                         0%           0%

Disability Benefits

Benefit Category                          Group Practice  Hospital

  Short-Term Disability                       100%         100%
  Long-Term Disability                        100%          94%

Health Care Benefits

Benefit Category                          Group Practice  Hospital

  Hospital/Medical Plan                       100%         100%
  Dental Coverage                             100%         100%
  Separate Prescription Drug                   89%          89%
  Vision Care                                  56%          50%
  Retiree Coverage                             44%          22%

Retirement/Savings Benefits

Benefit Category                          Group Practice  Hospital

  Tax-Deferred Annuity 403(b) Plans            33%          83%
  Defined Benefit Pension Plan                 33%          56%
  Money Purchase Plans                         33%          17%
  401(k) Matching Plans                        44%          17%
  401(k) Plans without an employer match       11%          11%
  Profit Sharing Plans                         33%           0%
  Post-Tax Employee Contribution Plans         22%           6%
Physician perquisites

Here's a look at the perquisites available to physicians in the survey:

Perquisites

Licensure Fees             63%
Malpractice Insurance      97%
Malpractice Tail Coverage  69%
Office Space               86%
Patient Referral Services  62%
Personal Computer at Home  69%
Professional Dues          77%
Tuition Reimbursement for  88%
Continued Medical
Education
Company Car/Car Allowance  29%
Physician's Compensation Survey Participants

Reimburse physicians for
licensure fees -- The
average cost per
physician is:

88%                        $1 to $500
12%                        $1,001 to $2000

Provide, all of which are
76% to 100% company-paid
Provide and of these,
100% cover all physicians
Provide office space for
physicians, and of these:

80%                        fully subsidize the
                           office space,
20%                        partially subsidize
                           office space

Provide a service, and of
and of these services:

89%                        are formal referral
                           services such as a 1-800
                           phone number
11%                        are informal referral
                           services such as ER
                           referral list

Provide PCs for online
access to lab results,
admission and discharge
information, and of
these:

85%                        provide to medical staff
                           only.

Reimburse physicians for
dues in professional
societies, and of these,
the average cost per
physician is:

50%                        $1 to $500
25%                        $501 to $1,000
25%                        $1001 to $3,000

Provide, and of these:

88%                        have an annual dollar
                           maximum.
78%                        limit the number of
                           days that can be taken
                           for CME, and of these:
94%                        allow 1 to 10 days.
6%                         allow 11 to 20 days

Provide, and of these:

78%                        provide car allowance
                           only
22%                        provide both


Of those that provide
a car,

100%                       permit personal use of
                           car
89%                        provide additional
                           salary/car allowance

Frank A. Casagrande is a consultant in the Hay Group's Atlanta office. His focus is executive compensation and benefits in health care and educational institutions. In addition, be is an enrolled actuary with expertise in all forms of retirement programs. He can be reached by phone at 770-901-5600

Doug Sturnickis a consultant with the Hay Group's Atlanta office. His focus is organizational effectiveness in the field of health care providers. In addition, be is an expert on physician contracting and medical loss management. He is also a Certified Employee Benefits Specialist. He can be reached by phone at 770-901-5600.