Employee Benefits 101

Vinyl Profiles Gets $150K Plan Refund

Last month, Employee Benefits 101 examined the innovative strategies that two local employers, Compco Industries and Potential Development, are using that have allowed them to offer their employees better benefits while significantly lowering their health-care spend.

This month we will showcase a third local company, Vinyl Profiles, which recently received a $150,000 return of unused premiums on the company’s 32-employee medical plan.

Vinyl Profiles, a custom extruder of vinyl and cellular foam products, was founded in 1987 in Boardman. In 2000, having outgrown its plant in Boardman, the company moved to its current location in North Jackson.

As the business grew, so did the need for qualified employees. In order to recruit and retain top talent, Vinyl Profiles recognized the importance of not only offering competitive wages but a comprehensive benefits plan as well.

For most employers, employee benefits are a top-three expense on the profit and loss statement, rising each and every year with little or no explanation and discussed only once a year.

For decades, the insurance industry has conditioned employers to look at their company’s health-care plan only once a year at renewal time.

Bucking that industry trend, Vinyl Profiles chose to be proactive and began evaluating options outside of its plan renewal window. In doing so, the company eliminated the artificial time constraints created by the insurance industry.

Stripping away renewal deadlines and broker parlor tricks allows for an objective evaluation of whether or not value is being gained.

Vinyl Profiles executives were concerned that while they were taking numerous measures to control costs in every other aspect of their business, they did not feel that they had the partners in place to help them manage their health-care spend in that same fashion.

While conducting due diligence and objectively evaluating the company’s situation, executives discovered that they had outgrown their current broker relationship in the same way they had outgrown their previous manufacturing facility.

Although it can be easier to break a lease than a relationship you’ve had for decades, making difficult decisions is part of running a business.

Even though it is rare for employers to switch brokers and administrators midway into a plan year, Vinyl Profiles began working with DCW Group and based on our recommendation, changed its third-party administrator just four months after its renewal.

Twelve months after making changes that most would consider unconventional, Vinyl Profiles received a $150,000 check for unused premiums from its medical plan. Money that the company can reinvest in its employees and help grow the business.

According to multiple studies, health-care costs are rising from 8% to 12% every year, which means your benefit plan is going to double in cost every seven to 10 years.

Employers need to be asking themselves:

1. Is this type of cost escalation for a top-three expense sustainable at our company?

2. Are we doing everything possible today to avoid future increases in health-care costs?

3. Is keeping the current relationships we have in place, be it a broker, a carrier or a pharmacy benefit manager worth the cost of our plan doubling in seven years?

Even though the answer to all three questions for most employers is “no,” many do not take action or make changes.

The key players in the insurance industry have conditioned employers to conform to what is best for their businesses, not what is in the best interest of each employer.

Imagine if one day you were told by Joe, your long-time vendor partner who sells you the coffee you serve in your breakroom, that the cost of your coffee was going up by 12% (but thankfully he negotiated it down to 9%).

Joe provided no real explanation for the increase, but also warned you that you can expect another 12% increase in 12 months.

I would be willing to bet that you would be out talking to other coffee vendors to see which vendor offers the highest quality, lowest cost coffee.

We hear it in the marketplace all the time.

“We’ve bought our coffee beans from Joe for 10 years,” or “But Joe and I are golf buddies.”

When we hear from employers this type of rationale to stay with the status quo, our advice is always the same: Feel free to keep golfing with Joe, but buy your coffee beans from someone else.

For Vinyl Profiles, switching partners resulted in being able to purchase the same coffee beans and receive a check for $150,000. Alternatively, they could have paid Joe to stay away from their benefit plan, hired DCW Group and still saved well over $100,000 for the same coffee beans.

Relationships and loyalty are just as important to us as anybody else, but if someone mismanages a top-three expense to the degree that it’s more cost effective to pay them to not do their job, it’s time for a change.

The take away for employers from this most recent case study should be that you do not have to accept yearly increases as an inevitable part of your health-care renewal.

You also do not have to wait for your annual renewal to begin evaluating whether or not the relationships you have in place are delivering value.

The insurance industry created these deadlines by which you need to decide (renewal date) in order to put the leverage squarely in the court of the seller (insurance carrier/broker).

To compound things, brokers will delay starting the renewal process with employers to decrease the time they have to evaluate options, which makes it harder to change brokers or carriers.

Like any negotiation, the renewal process is about building and preserving leverage.

Employers need to seek out partners who are going to work on their behalf, present all their options and create a strategic plan to create long-term cost containment.

The good news is that employers like Vinyl Profiles, Compco Industries, and Potential Development that take these actions are already enjoying the financial returns and so can you.

For more helpful information on controlling health-care costs, recruiting and retaining talented employees, and growing your business go to DCWGrp.com/blog.

Pictured: Bob Gearhart Sr., partner at DCW Group and Justin Best, CFO of Vinyl Profiles at the Vinyl Profiles Plant in North Jackson.

Published by The Business Journal, Youngstown, Ohio.