Like many San Fernando Valley companies, Fleming Entertainment Centers faces another year of rising insurance costs. How the company copes with an expected 13 percent increase this year will take some ingenuity. “We can’t absorb that,” company president Dave Fleming said. “We have to get as creative as we can.” Whether the size of Fleming Entertainment owner of Skateland in Northridge and Mountasia in Santa Clarita with its seven full-time employees or a corporate giant with hundreds of workers, companies are getting creative to deal with the heavy burden of insurance costs. Ken Keller, president of the Renaissance Executive Forums of North Los Angeles County, a leadership and management training organization with over 60 member companies, has heard the concerns from company executives and seen them take a number of methods to cope increasing employee contributions, participating in group insurance plans, offering health savings accounts. What strategy a company goes with depends on its size and what it considers is best, Keller said. “Some are looking at what their industry is offering and go with that,” Keller said. “Others look at what the entire labor pool is offering.” In the long term companies will adapt, although no single strategy has yet to emerge, said Brett Good, district president with Robert Half Management Resources. Having to pay more for employee insurance causes a strain on a company’s ability to invest in other areas in order for it to grow, Good said. “Employees will also see different types of programs emerge,” Good said. “Companies will go with education programs to show employees what the cost of their health care is. They will go with wellness programs to keep employees healthy so they are less prone to need health care and reduce expenses for the organization overall.” A survey released in March by Good’s firm of 1,400 chief financial officers from companies with 20 or more employees found that 49 percent named rising cost of insurance and healthcare as their biggest concern. Cutting costs The main strategy employed to adapt to those rising costs was by cutting costs in other areas of the company, with 53 percent of the respondents saying they’ve taken that action. Companies have also increased employment payments or co-payments (46 percent of respondents), increased costs to customers for company’s products or services (34 percent of respondents) and reduced employee benefits offered (24 percent of respondents). Those numbers are similar to what other organizations have found when executives have been surveyed of their strategies for dealing with rising insurance costs. “We’re seeing in some cases increased layoffs, decreases in hiring, decreased pay or increase in cost products to consumers,” said Jen Jorgensen, spokeswoman for the Society for Human Resources Management. A September 2005 survey of randomly selected human resources professionals by the society resulted in 48 percent of the respondents saying it was somewhat likely or very likely their organization would increase expectation in employment productivity, while 34 percent responded that it was somewhat likely or very likely their organization would increase the cost of their products or services to the consumer, At 60 percent, California is above the national average in the number of companies offering health benefits, a California Health Care Foundation study released in December 2005, said. Premiums, however, are increasing faster than the state’s rate of inflation, the study said. In 2005, insurance premiums went up 8 percent. The foundation’s study also found that only three percent of small firms offered a high deductible health plan with a health savings account, putting Fleming’s firm in the minority. As the first company employee to take advantage of a health savings account, Fleming said he’s had a good experience with it. The account allows a worker to contribute pre-tax dollars into a savings plan that is then used for medical and dental expenses. “The employer is allowed to contribute to that account and it’s tax free,” Fleming said. “When the employee leaves, they take it with them.” Bearing the burden While the surveys indicate that having employees kick in more for their health benefits is a popular strategy, at least one Valley company still opts for paying 100 percent of the cost. Newmark Advertising Chairman Stuart Newmark said the Encino firm’s specialized service make it easier to continue to pick up the costs of health benefits for its 35 employees. “We can do this because we are able to get more out of our employees and have streamlined the system for productivity,” Newmark said. “Our structure is effectively low cost.” Perhaps 40 years ago companies could pass increases off to their eventual customer but not anymore, Newmark said, adding, “That’s not so easy to do now because the competition will knock you off.” Another strategy that Renaissance’s Keller is aware of is companies using group insurance rates to take advantage of a large company discount purchasing power. That was the route taken by Apex Voice Communications when it joined the American Electronics Association (AeA), a trade organization for the technology industry that offers group insurance rates. The company’s Los Angeles area office saved $25,000 its first year in the plan, said JoElla Lapiana, Apex’s former vice president for human resources who is now executive director for the Los Angeles Council for the AeA based in Woodland Hills. “It does help when you can get better benefits and save money,” Lapiana said. “I could get one bill for five offices because we were all under the same umbrella. So we didn’t have five offices doing five different things.”
