As health insurance premiums continue to soar, more businesses are attracting and retaining employees by increasing benefit options.

In 2005, employer-based health insurance premiums rose by 9.2 percent, according to a report released in September by the Henry J. Kaiser Family Foundation. The report also found that the average annual premium for a family of four was $10,880 -- more than the total yearly salary of a minimum-wage employee. Since 2000, premiums have increased a total of 73 percent, the report said.

To cut costs, many employers have offered plans with higher deductibles, passing the costs on to the employees. But at businesses where ample benefits are necessary to attract and retain employees, many companies have implemented flexible benefit programs to sweeten the pot and sometimes even lower the employer's expenditures.

"The concept that some are approaching now is they have held pat as long as they could with low-deductible plans," said Matt Wheeler, business development consultant at Holmes Murphy & Associates Inc. "Many companies are coupling the move to high-deductible plans with other alternatives and offering cafeteria (plans) and other fringe benefits."

A 12 percent increase in health care costs was what prompted Kansas City-based Sturges Word Inc. to overhaul its program.

Jeannie Matteson, the company's controller, said the increased costs prompted management to look for alternatives to the traditional health plan. What the company found was greater variety and extensive savings.

Matteson said that by switching to a cafeteria-style flexible benefits plan, the company saved 38 percent compared with the previous year's spending, even though more employees applied for coverage. The company now gives each employee an equal amount of money to use for a variety of benefit options. This allows the employees to shape their plans and the company to fix costs.

"We tried to avoid inequity and ensure that each employee had enough for health and dental basics," Matteson said. "It allowed us to have substantial savings, and at the same time, we were able to offer more benefits to our employees."

Cafeteria plans often are used as a supplement to traditional health insurance to allow employees to choose from a pool of benefits to meet their specific needs. Available options typically include long-term care insurance, 401(k) plans and child-care reimbursement. Flexible spending accounts allow employees to set aside pretax wages for qualified expenses, such as medical costs or child care.

Matteson said that employees have been extremely receptive to the policy and that it works for employees with very different needs.

Two Sturges Word employees with divergent plans are Justin LaBerge and Kent Wilson.

LaBerge, a young singleton, was able to allocate a portion of the benefits money to health insurance and the remainder to help pay for a gym membership.

"From my perspective as a single, 20-something male, it was a great opportunity for my health coverage to be taken care of and to join a gym and take care of myself -- something I really needed to do," LaBerge said. "It was tremendous for me."

Wilson, a husband and father, said he uses the money predominately for family expenses. Some of his benefits money goes toward child care and preschool for his 4-year-old. Although his wife's company provides health insurance for the family, Wilson said he will use his pretax flexible spending account to pay for medical co-pays and prescriptions.

Although implementing a flexible benefits plan has worked well for Sturges Word, these kinds of benefits have not always been an option for small businesses, said Kevin Brennan, a partner at Benefit Brokers LLC.

The advantage of flexible benefits plans is that they are designed specifically for each business, said Brennan, who set up the program for Sturges Word. But he also said there are some catches in each of the programs, such as health insurance participation requirements.

"All of these products have different stipulations, so you have to have the right insurance products and/or the right administration," he said.

He also said the cost of processing the paperwork for these programs has long been prohibitive for smaller companies. But because many of the plans are now administered over the Internet, Brennan said costs have been dramatically reduced.

A flexible benefits plan for a group of 10 employees previously would have cost $3,000 to $4,000 a year to administer, Brennan said. That same plan now would cost a company of 10 around $800 annually.

"An employee can go to Sprint with good benefits or to Sturges Word with good benefits," Brennan said. "We are finding out now that smaller companies can have Fortune 500 benefits."

Chris Becicka, managing partner of HCap International LLC, said larger companies have been offering expanded benefit packages for some time as a means of employee retention.

"When you get the right people on the bus, you want to keep them," she said. "If you don't have the old traditional paths open for those wanting to move forward in their careers, you better have something else for them."

Jim Davis, president of Tri-D Innovations, said he found that as his company expanded, so did the need for perks.

"I noticed as we started adding employees ... that in order to have higher-quality employees -- ones you can build a company around -- you have to have more benefits," Davis said.

When Tri-D opened five years ago with three employees, there was no health insurance, Davis said. But two and a half years ago, when he began to expand the business, Davis said he knew he would need more benefits to be competitive. Davis added medical and dental insurance, a 401(k) and a Section 125 flexible spending account.

He said the product development company is now staffed with 11 employees who have close to 100 years of past experience at Hallmark Cards Inc. He also employs former Sprint Nextel Corp. and Applebee's International Inc. staff.

Davis said the cost of the plans has been worth the benefits to employees. He said that medical and dental are the most costly and most important but that the fringes -- the 401(k) and the flexible spending account -- are relatively inexpensive and easy to implement. He said the Section 125 plan costs about $4 to $6 per employee per month to implement.

In the end, Davis said he thought that offering benefits added legitimacy to the company.

"When you are small or just starting out, the question is always: 'Will you make it through the first year?' Once you start seeing these things (benefits) going into place, there is a sense of permanence that might not be there before," he said.

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by Tammy WorthContributing Writer

Tammy Worth | Worth is a freelance writer in the Kansas City area

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