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Is the time ripe for flexible benefits?

Is the time ripe for flexible benefits?

Fringe benefits, as the name indicates, were originally intended to be a nicety that would supplement weekly paychecks. What started out as a modest concession, however, now accounts for more than 40 per cent of payrolls, according to studies conducted by the U.S. Chamber of Commerce. Employees view their benefits as an entitlement and expect them to grow each year.

Current fringe benefits have evolved from programs developed 30 years ago to meet the needs of the "average' worker of the 1950s and '60s--a married man with 2.3 children. The work force has changed significantly since then. Most women now work outside the home, and more than half the nation's 59 million families have two or more breadwinners.

The large number of two-pay-check households creates considerable overlap in benefit programs. This is costly for employers, who pay premiums for unused or underutilized benefits without getting a return in terms of employee satisfaction. Consider also the huge cost of providing and administering benefits, and it's clear that changes are in order.

Employers have turned increasingly to flexible or "cafeteria' benefits as a way to control benefit costs and still fulfill employee expectations. Flexible benefit programs vary widely, but they usually include critical "core' benefits that employees must retain, such as basic health coverage, some form of disability insurance, and a pension plan. Beyond mandatory items, employees have a fixed total of benefit dollars to spend on a menu of options. A young, single worker who lives for today may favor more vacation time over added pension contributions, while an older worker may opt for higher medical or disability coverage.

There's an obvious advantage for employers: They can continue to expand the benefit menu while limiting costs (determining the amount of benefit credits due each employee puts a cap on total spending). A flexible plan also encourages employees to view benefits as part of their total compensation package. This helps improve morale, decrease turnover, and enhance recruitment.

Given the high percentage of heath care professionals with working spouses, such a program would seem to be a natural for our industry. Yet relatively few hospitals offer flexible benefits.

Perhaps the effort and expense of converting to these benefits have played a part in deterring some hospitals. Any major change in the compensation package requires extensive communication, including home mailings, literature, and employee meetings. Another drawback is that costs may rise initially--employees tend to pick benefits they will use most frequently.

Then, too, a flexible benefit program can be an administrative headache. Imagine the benefit permutations you have to monitor when each employee has a choice of several types of health insurance, disability programs, dental /vision coverage, and so on. Most programs also allow employees to adjust their benefits annually or on the occasion of a major event, such as marriage, death of spouse, or the birth of a child.

Nevertheless, rising health care costs are forcing administrators to take a hard look at both pay and benefits, which together form the largest part of hospital operating expenses. And despite concern about high start-up costs and running complexities, flexible benefits have an impressive track record. In a recent survey of companies offering flexible benefits, 82 per cent believed the programs reduced or contained costs. The other 18 per cent were still evaluating the impact, so no company had yet concluded that benefit costs increased.

Because they can better meet employee needs, improve job satisfaction, and check the ever-increasing cost of providing benefits, flexible benefits may be an idea whose time has come.
COPYRIGHT 1987 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1987 Gale, Cengage Learning. All rights reserved.

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Title Annotation:employee benefits programs
Author:Maratea, James M.
Publication:Medical Laboratory Observer
Date:May 1, 1987
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