Practice Strategies

A Successful Cafeteria Plan Provides "Just Desserts"

Given the fierce competition for experienced nurses and other qualified health care professionals, it is essential that medical practices offer attractive employee benefits packages. One answer to satisfying valuable members of your team is the use of flexible benefits, often known as cafeteria plans. These flexible plans allow employees, within limits, to choose the benefits they want, including health insurance, pension options, dental coverage, etc.

The challenge to practice managers and physician owners is to design a cafeteria plan that satisfies employees, yet is manageable and makes economic sense. In the most effective plans, both the practice and the participating employees share in the cost of optional benefits. The employer contribution often takes the form of spending credits. Using the credit system, employers signal their commitment to fund a benefit plan, while also setting a definite limit on what they will pay.

The challenge in designing a successful benefit program comes in pricing the credits and choosing the benefits to offer your employees. Surprisingly, some of the benefits that employees find most attractive are the same ones that work to control and stabilize a practice’s financial commitment. For example, many employees appreciate a health plan with a higher deductible but lower premiums more than a plan with much higher premiums but no deductible; because of the savings, so do employers.

Practices can direct employees toward more economical choices by pricing the benefit credits accordingly. To encourage economy in the use of the medical plan, you can make several choices available but price the more expensive, less efficient plans at a higher percentage of their total cost than the economical HMO, often the least expensive option.

Generally, the most well-received cafeteria plans are those that include various life insurance benefits, a choice between traditional medical benefits and an HMO, a dual choice option offering co-insurance for those covered by a spouse’s plan, and employee-funded spending accounts for unreimbursed medical expenses and dependent care expenses, such as child care and elder care. Employees also like supplemental insurance for dependents, as well as short-term and long-term disability coverage. Many practices also offer managed care options, such as a higher-percentage reimbursement at preferred providers, which can be added to—or substituted for—the traditional health coverage.

The dual choice option for co-insurance is a good example of how flexible options can benefit both employees and the practice. At a lower cost than full coverage, this option covers only those amounts otherwise excluded under the deductible and co-insurance provisions of the spouse’s medical plan. Employees get the additional coverage they want, plus a credit for choosing a lower-cost plan. In addition, the company gets a reduction in overall cost and reduced exposure to potential liabilities.

Selecting a menu of benefits is an exercise in providing enough choices to meet employer and employee objectives without building a system too complicated to understand or administer. A cardinal rule is to keep the program simple. Too many choices can produce errors, particularly in calculating the credit use, since each credit is priced differently. As you and your employees become more familiar with the way the chosen plan works, new options can be added.

For more information about our services to the healthcare industry, Contact:
Maxine Lawyer, Director of Healthcare Services at 972.448.6905.

The articles in this newsletter are general in nature and are not a substitute for accounting, legal, or other professional services. We assume no liability for the reader's reliance on this information. Before implementing any of the ideas contained in this publication, consult a professional advisor to determine whether they apply to your unique circumstances.
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