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Designing benefits to survive in today's business environment.

Long-term care providers face unprecedented financial pressures. Regulatory standards are getting tougher as third-party reimbursement gets shakier, professional labor markets become tighter, and resident acuity levels intensify. The interesting irony is that, in the long-term care industry, there is little long-term stability.

This reminds me of the Wall Street Journal commercials--as in any other industry, we in long-term care have to be "smarter, tougher, faster." We need to apply the best management techniques available, use state-of-the-art personnel management skills, and constantly remember that a long-term care facility is no better than its staff.

Labor Markets

Today's labor market is as tough as has ever existed. The Ozzie and Harriet world of 1962 is long gone, and employers now must serve the needs of two-career families, single-parent homes, employees needing flex-time arrangements, employees with minimal literary levels and work skill training, employees who consider English a second language, and a work force whose average age is much higher than it was twenty years ago.

Add militant unions and a bewildering maze of federal and state employment regulations, and employers face a labor market unlike anything we have ever seen. This means that employers have to be more preemptive, more creative, and maintain better communications with employees. A big part of this process is designing and maintaining fringe benefit programs.

Types of Benefits

Benefits fall into the following five general categories: 1. Premiums and encouragement (bonuses,

stock options). 2. Hazard protection (health, life, and

disability insurance). 3. Time not worked (vacation pay, sick

pay, paid leave). 4. Legally mandated benefits (workers'

compensation, unemployment insurance). 5. Benefits offered at the employer's

convenience (meal privileges, uniform


The mix of benefits in any particular facility is the result of labor market pressures, government mandates, the employee mix, cash flow, reimbursement systems, and the desires of the owners.


Taxes are the "cart that pulls the horse" of modern American economic life. Few business decisions can be made without considering tax effects. Every administrator should be conversant in the major effects of taxation on long-term care facility operations.

There are four basic categories of compensation to consider in compensation management: 1. Those deductible compensations

from the employer and taxable to the

employee (example: wages). 2. Those compensations deductible

from the employer and nontaxable

to the employee (example: health

care insurance premiums). 3. Those compensations nondeductible

from the employer and taxable to the

employee (example: certain "key-employee"

benefits). 4. Those compensations nondeductible

from the employer and nontaxable

to employee example: unpaid leave


The majority of compensation items will fit into categories 1 and 2, with category 2 being the most advantageous category for the for-profit employer.

Congress began to clarify the benefits area in the Tax Reform Act of 1984. The act created three classes of fringe benefits: 1. Benefits specifically excluded by law

from being taxed. 2. Benefits in four categories excluded

from being taxed. 3. Other benefits, which are taxable.

The first class includes such common benefits as health insurance. The second represented a major clarification of the law. The four tax-excluded categories are as follows: 1. "No additional cost" services. 2. Qualified employee discounts. 3. Working condition fringe benefits

(uniform allowances, free hepatitis

shots, etc.). 4. de minimis (trivial) fringe benefits

(company picnics and parties,

awards, small gifts, etc.).

NOTE: Categories three and four are the most important in long-term care facilities.

Nondiscrimination Rules

Owners, officers, and highly compensated employees cannot exclude most fringe benefits from their gross incomes unless the benefits are available on substantially the same basis to a "group" of employees that has been designated under a "reasonable" nondiscriminatory classification determined by the employer. If not reasonably nondiscriminatory, then the owners, officers, and highly compensated employees will have to include the benefits (or some portion thereof) in their gross incomes.

Health Insurance

One could write a book on health insurance problems, except that the book would be out of date before the author reached the last chapter! Health insurance is the biggest benefits problem facing employers, with little likelihood of any short-term relief.

There are more options that some employers suspect (see cafeteria plan discussion below and in accompanying sidebar), but employers must be good planners and wise shoppers. Health insurance plans should be reviewed annually, and the review should be conducted at least four months before your current policy expires, to allow for possible changes.

Keep in mind that switching health care policies is a major project, and should be done only when there are major cost savings or you have no choice. And be careful, because many less than scrupulous companies are preying on smaller businesses, taking premium monies and then not meeting claims requirements.

Cafeteria Plans

Flexible benefit, or "cafeteria," plans are exactly what the name implies: Employees can choose among various benefits, depending on personal circumstances. A common case is the employee whose spouse already has full health insurance. Under a traditional arrangement, such an employee either can elect to have redundant insurance or can simply receive fewer benefits than other employees. By contrast, under a cafeteria plan, the employee could choose an alternative benefit and receive economic benefits equal to those of other employees. Flexible benefit plans require careful design, and clear communication with employees. You should be fully aware that there is an administrative burden to consider.

Cafeteria plans can be designed and operated only with extensive professional advice. Because of the increase in the number of these plans, many consulting and insurance companies now offer design and compliance services at quite reasonable fees.

Compensation and Benefits Planning

To be truly effective, compensation and benefits planning must balance a series of objectives: 1. Must be effective for recruiting and

retention, to be competitive in the

immediate labor market 2. Must be in compliance with myriad

government regulations 3. Must be reasonable within facility

cash flow 4. Should have a positive effect on

morale 5. Should be as effective as possible

within your reimbursement situation

This is not an easy task, nor one that is ever finished. The key is to be preemptive rather than reactive. Every facility needs to have an effective professional team (attorney, CPA, insurance agents, etc.) available to design, monitor, and adjust the compensation and benefits program.

Skilled benefits design means that the long-term care industry must truly become smarter and faster, and will help it survive an environment that is becoming tougher and tougher.

Thomas Ealey, MA, CPA, is managing consultant of The EALEY GROUP, Inc., of Findlay, OH, is the author of a compensation and benefits self-study seminar offered by the American College of Health Care Administrators, and edits a long-term care newsletter. He writes and lectures extensively on long-term care management.
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:managing long-term care facilities
Author:Ealey, Thomas
Publication:Nursing Homes
Date:Jan 1, 1993
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