MATTHEW C JOHNSTON - FitzpatrickLentzBubba.fall2011

Part III: Benefit Analysis | of 12

Benefits Analysis:Fitzpatrick, Lentz, and Bubba

Part III: Benefits Analysis

Matthew Johnston912732256

Mary Redding912032465

Dr. DrennanRMI 3501Fall 2011


IntroductionFitzpatrick, Lentz, and Bubba is a law firm located in Center Valley,

Pennsylvania. Established in 1988, the firm has now grown to over forty employees. In

2011, it was ranked 19th place in “Best Places to Work in PA.” The firm works with

brokers at Brown & Brown to offer benefit plans that best meet their employees’ needs.

Currently, all full-time employees are able to receive health care through Fitzpatrick,

Lentz, and Bubba. Additionally, both full-time and part-time employees can enroll in a

variety of voluntary benefits.

During the project, our communication has been through Joanne Casey. Joanne

Casey is the Executive of Human Resources at Fitzpatrick, Lentz, and Bubba. She works

directly with the brokers at Brown & Brown to offer benefits that best meet the

employees’ needs. After meeting with the owners of the law firm, Joanna Casey is able to

select and customize plans that remain in the firm’s financial limits while giving value to

their employees.

Employee Benefits Plan Design Considerations and Objectives

Fitzpatrick, Lentz, and Bubba offer two choices of PPO health care plans from

Capital Blue Cross. The premiums through Capital Blue Cross are quite expensive due to

small out-of-pocket costs and deductibles. In order to apply cost savings, the firm decided

to switch to an HMO with Aetna. Switching to Aetna ended up saving Fitzpatrick, Lentz,

and Bubba a little over $40,000 a year. However, they found that most employees were

dissatisfied. Employees were unhappy with minimal choices within the network, hassle


regards to referrals, and the services that were offered. Ultimately, an employee from

Fitzpatrick, Lentz, and Bubba played a large role in whether to continue with the HMO or

consider changing the plan. This particular employee has been diagnosed with diabetes.

Under Capital Blue Cross, the frequent treatments the employee needed were covered.

However, the costs of the treatments changed when implementing the HMO. The out-of-

pocket cost increased dramatically to $6,000 per session, causing it to be unaffordable.

As the firm watched this employee struggle to pay for treatments, it was unanimous that a

new health care plan was needed.

When interviewing Ms. Casey, it was very clear from the beginning that

Fitzpatrick, Lentz, and Bubba truly want to take care of their employees. Since the firm is

quite small, with only forty employees, a family environment is present. Although

staying with an HMO through Aetna was significantly less expensive, the firm wants

their employees to be satisfied. This is why they are willing to pay more for their

employees.

In order for Fitzpatrick, Lentz, and Bubba to contain costs, yet still offer a variety

of benefits, they offer voluntary benefits. A voluntary benefit is when the employee pays

the full costs. Fitzpatrick, Lentz, and Bubba offer these benefits to attract and retain

employees. It is understood that employees want the opportunity to be provided with

benefits that fit their specific needs. For example, employees are offered benefits for

disability, retirement, and personal issues that may arise. Furthermore, these voluntary

benefits will keep employees satisfied with having choices while reducing cost to the

firm.

Two Capital Blue Cross PPO plans, Life Insurance, and Long-Term Disability are


offered and financed on a non-contributory basis. In order to qualify, employees must be

full-time. To be considered full-time, an employee must work 30 or more hours a week.

The reason Fitzpatrick, Lentz, and Bubba only offer full-time employees these benefits,

on a non-contributory basis, is because the firm believes that these basic benefits will

fully take care of their employees. Anything beyond these, it is the employee’s

responsibility.

Multiple voluntary benefits including Individual Short-Term Disability, Term

Life Insurance, Specified Critical Illness Insurance, Accident Insurance, Cancer

Insurance and Critical Illness Insurance are offered to both full and part-time employees.

Part-time employees, those who work less than 30 hours a week, are eligible to join all

voluntary benefits. In addition, Fitzpatrick, Lentz, and Bubba allow coverage of

dependents at the expense of the employee using voluntary benefits. Covered dependents

are defined as spouses, children up to the age of twenty-six, children who an employee

has legal guardianship over, and adopted children. For domestic partners to be considered

dependents, they couple must be living together for at least six months. They

acknowledge both same sex and opposite sex couples as dependents. Ms. Casey further

explained the importance of this since the firm prides themselves on not discriminating

their employees. This is a huge step in attracting and retaining employees as many people

appreciate steps towards equality.

Problems, Issues, Concerns, and Considerations in the Design of the Health Benefits

Rising Costs:


Currently, the largest problem facing Fitzpatrick, Lentz, and Bubba in regards to

their health plan is the continual inflation and rising costs of healthcare. In this past

period, Fitzpatrick, Lentz, and Bubba spent over $323,000 in premiums for their

employees for the health plan alone. For the past several years, the most popular health

benefit plans among employees have all been given on a non-contributory basis; as a plan

to attract and retain employees in a very competitive market. In speaking with Ms. Casey,

she eluded that soon, both healthcare plans would become contributory, as well as

creating a third choice for healthcare; a prescription drug plan. The current health benefits

plan includes both the PPO 0, financed contributory, and the PPO 500, financed non-

contributory.

As aforementioned, Fitzpatrick, Lentz, and Bubba had the opportunity to save

over $40,000 if they returned to using Aetna as their provider for healthcare. Instead of

saving money on their premium, it was decided that they would continue their

relationship with Capital Blue Cross, and end up spending close to an additional $25,000

as a result of the PPACA, on top of the $323,000 they previously paid for in premiums.

With the cost growing astronomically for a small-sized company; Ms. Casey decided that

they would keep the PPO 0 contribution at $20 a month for employees, but raise the

contribution mark for the PP0 500 from nothing, to $10-$20 a month. This small

contribution factor alone would cut the new expense from $25,000 to $16,000.

On top of a new contribution for the PPO 500, Fitzpatrick, Lentz, and Bubba have

decided to enact a prescription drug plan. This plan would come in effect during the next

enrollment period, and would be offered on a contributory basis. Ms. Casey stated that,

“The premium would only be $100 a year for an employee, which will fulfill most of the


needs of our employees. This will cut the expense to $6,000 to the firm, which we’ll just

have to accept.”

Funding:

Aside from spending one year with Aetna; Fitzpatrick, Lentz, and Bubba have

been insured with Capital Blue Cross for the past twenty-three years, much before Ms.

Casey came into her position. When she arrived, there was a short discussion on the idea

of self-funding their medical benefits. After a short analysis on the pre-existing

conditions of the employees, it came to a close deciding that the firm was not large

enough to self-insure their own risks. One of the largest factors in this decision was the

secretary whom recently was diagnosed with diabetes; a serious disease that would cost

the firm $6,000 a month in out-of-pocket costs. With the costs of medical care ever

growing, and the backlash received from using Aetna, a much cheaper but less expansive

coverage, Ms. Casey stated, “Self-funding is not in reach for a firm of our size.” Through

their broker, Brown & Brown, they have already finalized what forms of coverage will be

used in the next period, insured still with Capital Blue Cross.

Problems, Issues, Concerns, Considerations in the

Design of other Types of Non-Retirement Benefits

Long-Term Disability

Fitzpatrick, Lentz, and Bubba’s philosophy is to offer benefits to their employees

so that they can maintain a healthy and happy life inside and outside of the work place.

Besides offering health care plans and retirement benefits, the firm offers a

comprehensive list of non-retirement benefits. Fitzpatrick, Lentz, and Bubba offer all


full-time employees Long-Term Disability Insurance (LTD) on a non-contributory basis.

This means all employees who work more than 30 hours a week can receive LTD without

having to contribute to the fund. The LTD policy has a ninety-day waiting period, and

covers 60% of Basic Earnings. The maximum monthly benefit the plan will pay is

$5,000. This LTD policy will only pay out for a maximum of two years. This LTD

benefit ensures that employees will be able to receive care disabled, yet the premium will

not drastically increase since the maximum is only two years.

Short-Term Disability

The firm also offers Short-Term Disability Insurance (STD) on a voluntary basis

to all employees. However, there is a fourteen day waiting period before the policy can

begin. This means that an employee must be out of work due to an illness or injury for

fourteen days before they start receiving their STD benefits. The coverage is given to

employees for a maximum of fifty-three weeks, and covers 60% of Basic Earnings.

Fitzpatrick, Lentz, and Bubba understand that many of their employees are women and

will need to receive STD during pregnancy. Also, the demographics of the firm are made

up of an older generation where they are more likely to face critical illnesses. If the

maximum of fifty-three weeks is not sufficient in meeting their needs, Accident, Cancer,

and Critical Illness Insurance are offered.

Accident, Cancer, and Critical Illness Insurance

Full-time employees, part-time employees, and eligible dependents of Fitzpatrick,

Lentz, and Bubba are able to obtain Accident, Cancer, and Critical Illness Insurance

through Colonial Life. These plans have relatively low premiums and assist with out-of-

pocket costs for treatments. All of the plans stress the importance of preventive care. For


example, cancer screenings and annual gynecologist exams are free. To even further the

incentive to utilize these programs, employees are eligible to collect $50 after filing with

the insurance company that they received one of these services. This is a strong way to

encourage employees to catch illnesses early on and potentially reduce the severity of a

loss. However, this may in fact result in overutilization. Individuals generally use health

services when not necessarily sick, creating moral hazard. When individuals are given the

chance to make money from using a service, it is very likely they will. The biggest issue

relating to collecting this money was that it could actually be collected three times. Ms.

Casey explained how a woman, who voluntarily enrolled in Accidental Insurance, Cancer

Insurance, and Critical Illness Insurance, could go to her doctor and receive a free

mammogram. After filing with each policy separately, she could be paid $50 from each

policy, adding up to $150. This is a huge moral hazard problem where people may start

receiving these services in order to get paid.

Asides from keeping employees satisfied, Fitzpatrick, Lentz, and Bubba benefits

from voluntary plan designs in that there are no discrimination issues. Since the employer

is not involved, there can be no favorable tax treatment to key employees or highly

compensated employees.

Also, voluntary benefits eliminate the adverse selection problem since high risk

individuals will identify themselves as high risk. In regards to non-contributory benefits,

since employees are automatically enrolled, there is no adverse selection because there is

no choice.

Regulatory Compliance

COBRA


Being that Fitzpatrick, Lentz, and Bubba offer group health insurance to over

twenty employees, they are liable for following the conditions of COBRA insurance.

According to PayScale, a site dedicated to helping employers understand the true costs of

employee benefits, they present that, “These conditions include providing employees

with eighteen to thirty-six months of healthcare continuation coverage… which can be

triggered every time an employee is terminated, quits, reduces work hours, or

divorces.”1Ms. Casey began to explain that their broker, Brown & Brown, relays COBRA

insurance through Ceridian, at no cost to the firm. The last time COBRA has been

enacted at Fitzpatrick, Lentz, and Bubba was in 2009. Although in the past employees

have been terminated, there was no other occurrences of COBRA being triggered.

Other Regulation Compliances

In only employing forty employees, Fitzpatrick, Lentz, and Bubba rely on outside

sources in helping them oblige with regulatory compliances such as ERISA and HIPAA.

As stated by Ms. Casey, the firm keeps a strong relationship and communication medium

between their current COO and Brown & Brown in order to affirm that the firm is

complying with these regulations. As for their retirement plan, the Vanguard 401(k),

Vanguard has a team which helps communicate all necessary information needed with

Ms. Casey.

Plan Communication

Before communicating a plan to the employees, Ms. Casey sits with Brown &

Brown before every enrollment period to discuss the needs of Fitzpatrick, Lentz, and

1 Event, Qualifying. "COBRA Health Insurance Plan Update - Compensation Today."PayScale Blogs. Web. 08 Dec. 2011. <http://blogs.payscale.com/compensation/2011/02/cobra-health-insurance-plan.html>.


Bubba employees. Brown & Brown presents a list of different possible benefits plan,

usually five or six different plans, and from their Ms. Casey picks the plan which suits

most of the employees’ needs, and sculpts it into the perfect benefits package. From

there, Ms. Casey relays emails to every employee showing the different options there will

be for the next enrollment period. In conjunction with Ms. Casey’s emails, Brown &

Brown also sends the employees their pamphlet, “The Health Advocate.” This pamphlet

includes information on insurance billing, finding the correct plan for employees’ needs,

and other voluntary benefits.

Aside from Ms. Casey’s emails, there are also a series of group meetings held at

the firm to communicate the various plans to the employees. Present at these meetings are

representatives from either Brown & Brown or Vanguard, depending on what benefit is

being discussed. Although these methods seem to be effective for their size of the firm,

Ms. Casey stated, “I don’t think I communicate with the employees enough about the

benefits package; I’m going to start sending more emails to more effectively

communicate the plans to our employees.”

Future Recommendations

For being a small business, it seems that Fitzpatrick, Lentz, and Bubba have taken

care of employee benefits in a way that keeps both employees and the firm happy.

Everything regarding the benefits plan has been looked at carefully in order to

strategically meet the needs of their employees. Unfortunately, with the rising costs of

health care and PPACA requirements, the firm does need to begin having employees

contribute to their health benefits plan. Aside from dealing with cost, the plan could be

communicated better to the employees, as Ms. Casey stated and promised to do.


Fitzpatrick, Lentz, and Bubba truly care about their employees, which can be seen

through the expense they put out for their employees. In the current market, Fitzpatrick,

Lentz, and Bubba is one of the biggest competitors in the market, and will do everything

they can to attract and retain their employees.


*Below is the thank you email sent to Ms. Casey*

December 9th 2011

Ms. Joanne CaseyExecutive of Human ResourcesFitzpatrick, Lentz, and Bubba4001 Schoolhouse LaneCenter Valley, PA 18034

Ms. Casey,

We cannot begin to thank you for taking time out of your schedule to meet with us on such short notice. We both know this time of the year is hectic, which means all the more reason to thank you! In sitting down and speaking with you, we both gained a great real-world experience in the employee benefits market. We cannot begin to describe what a great experience it was for the both of us, especially since you were so calming and down to earth just to speak to (you cannot imagine how nervous both of us were- especially in a law firm!). We would like to thank you again for your help, and wish you the very best in both Fitzpatrick, Lentz, and Bubba and your future.

As promised, attached is our project (only about twenty pages). It is broken down into three parts; a Loss Exposure Matrix, a Summary of Benefits, and an Analysis. If you have any questions or comments for us, please do not hesitate to send us an email (it would only be appropriate after asking you so many questions!). Hope to hear from you soon!!

With deep gratitude,Matthew Johnston and Mary Redding

MATTHEW C JOHNSTON - FitzpatrickLentzBubba.fall2011

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