January 17, 2008

Insurance Benefits

Some of your responses (to my post about employee compensation) have reminded me of an ethical dilemma faced by boards of directors and executives, at least by those with consciences perhaps as refined as the Bishop of Digne's or Jean val Jean's, both of Victor Hugo's "Les Miserables."

In many companies, when group medical plans are established and administered, distinctions are made for purposes of setting the amount an employee pays for the annual premium.

For example, at the administrative level, the employee may pay $330 a month for family enrollment in the group medical plan. For the same benefits, however, at the executive level, the employee may pay $120 a month for family enrollment in the group medical plan.

Thus, the employee with the least amount of annual salary is required to pay the greatest amount of the employee portion of the group medical premium.

And the employee with the greatest capacity to pay the larger employee portion of the group medical premium pays the lowest possible amount.

I personally know, and admire, several executives who have recognized this lopsided and nearly arbitrary differentiation of employee cost of medical benefits.

EBay is a good example. It has built into their cost structure the full group medical premium for each employee: it pays 100% of the group medical premium. If you make $26,000 as a inbound call customer service representative, or $126,000 as a brand manager or power channel coordinator, eBay pays 100% of your group medical benefits.

I have done many budgets where the group insurance benefit line item has increased an average of 12% to 15% a year, year in and year out. There are prevailing macro-economic forces beyond most employers' control (and most employers are small to medium sized businesses) that cause the steep premium escalation.

But where possible, I personally would seek other areas to control costs besides passing the bulk of the burden on to the employees with the smallest capacity to pay for group medical premiums.

Does that make me a socialist in your eyes?