Human Assets: Pass the Buck

Outsourcing benefits lowers costs and drives retention for one Wendy's franchisee.

By Donna Hood Crecca, Contributing Editor -- Chain Leader, 5/1/2004

(From l.) Director of Business Development and Information Planning Shea Smith, Vice President Emil Brignola and Chief Financial Officer James Isaacson outsourced BBB Service Corp.'s health-benefits program to a third-party administration firm.

Full-time-employee participation in BBB Service Corp.’s health-benefits program jumped from 43 percent in 2002 to 76 percent in 2003. The Atlanta-based operator of 39 franchised Wendy’s locations in Georgia and Florida ditched its HMO in favor of a more flexible program that educates employees about health-benefits options.

BBB’s intent was not only to control escalating health-insurance costs but also to make itself a more appealing employer.

“We’re in a highly competitive market for management talent,” says Chief Financial Officer James Isaacson. “We upgraded our benefits package in order to attract and retain quality personnel.”

“Offering benefits definitely drives retention, but we do know from our research that not all benefits move the needle equally,” says Joni Doolin, founder and CEO of People Report, the Dallas-based human resource-benchmarking firm. “Plan participation rate is key. Some companies have laundry lists of benefits that employees don’t use. If [BBB] is seeing an increase in participation, they can expect it to drive better retention.”

Part of BBB’s strategy involved outsourcing payroll and benefits administration to RSM McGladrey Employer Services, an Atlanta-based insurance brokerage and third-party-administration firm whose parent company is H&R Block.

“We wanted to take advantage of their clout in the marketplace when it came to sourcing insurance products and leverage their size,” says Emil Brignola III, BBB vice president. “It was important to us that we be able to access products from first-rate insurance carriers and provide more efficient programs to our employees.”

Bring in the Pros
By outsourcing, BBB relieved itself of much of the legwork of sourcing insurance products and about 80 percent of the paperwork involved in benefits administration, according to Shea Smith, director of business development and information planning at BBB.

Health plan providers educate BBB employees about the best options and coverage for their needs.

Outsourcing also transferred the burden of complying with federal regulations from BBB to RSM. While many major restaurant chains have long outsourced benefits administration, smaller operators are now catching the wave, thanks to technology—specifically online enrollment and other Web-enabled functions—and the most recent government regulation to cause human-resource executives high anxiety, the Health Insurance Portability and Accountability Act of 1996.

HIPAA rules regarding storage of protected health information on behalf of employees went into effect in April 2003 for large organizations and this April for small ones. The rules increase the liability for the entity holding that information, which alone is driving some companies to outsource.

“That risk transfer makes outsourcing very attractive,” says Ken Olson, divisional president of TJ Adams Group, a Chicago-based benefits broker and administrator for several Chicago-area franchisees.

Human-resources and benefits-administration outsourcing is expected to be a $60 billion industry in 2005, and demand for outsourcing services will grow 22 percent over the next five years, according to Lincolnshire, Ill.-based HR analyst Gartner Group Inc.

Cost Controls
Although BBB employs 1,200 people, only 160 full-time employees qualify for health benefits. With such a small number, BBB is unique in focusing on employee education and recruiting.

“They were so interested in employee education on health benefits and retention that we were really shocked,” says Kamala Boyd, benefits adviser at RSM. “Usually the conversation revolves around managing costs and making participation requirements for group plans. They were laser focused on getting the best products to encourage employee retention, coupled with the best price.”

The program that BBB rolled out last August offers POS (point of service) and PPO (preferred provider organization) options, with four levels of coverage: single, single plus spouse, single plus children, and family. Dental coverage is also available, along with company-paid long- and short-term disability insurance. Employees can contribute pretax dollars to flexible spending accounts for dependent care or medical expenses.

BBB offers health and disability insurance as well as flexible-spending accounts to the 160 employees eligible for benefits

“This is the type of coverage you would find in a white-collar environment,” says Boyd.

While quantifying the cost savings of moving from a self-managed HMO to the outsourced program is not yet possible, Isaacson already sees a financial advantage. “Benefits costs are absolutely increasing,” he explains. “Creating this program helped us mitigate that increase, benefiting not only the company but also our employees because we’re able to provide lower deductibles, co-payments and employee contributions.”

Right Fit, Right Price
Another savings comes from employees selecting appropriate levels of coverage. Representatives from the various plan providers participated in an insurance fair at last summer’s BBB manager meeting. The reps discussed plan options and coverage levels for managers’ individual needs. By educating employees, BBB avoids paying for coverage the employee will never use.

“This event was held a few weeks prior to enrollment so the employees had time to think about their needs and enroll in the programs they will actually use,” says Smith. “Our employees have been really receptive to the information.” Another fair will be held in June, with enrollment again in August.

To follow up, BBB management added an annual compensation statement to its benefits package. Outlining the total value of their salary and benefits package, the first statement was issued to each employee in December.

“The employee reaction was, ‘Wow, I didn’t know I had that much value by being here.’ This statement is a heck of a tool to demonstrate the total package in real dollars to someone who might be thinking of leaving the organization for more money,” says Brignola. “Seeing the actual value of your salary, health benefits, life insurance and 401(k) on paper is powerful. The employee can quickly and easily see that you can’t get this much value elsewhere.”

Unit-management turnover has held consistently at a respectable 25 percent annually for the past few years, but Brignola hopes the new benefits program and educational component will lower that number.

“Our turnover is stable, which we attribute largely to work environment, and now we’ve added enhanced benefits to the mix. This package should make us an attractive employer and help us hold onto our good employees longer,” he says.