Aptech Medical Laboratories Case Study
Sara Ipsides, senior vice-president HR, sat across the meeting room table from Bennett Fox, Aptech Medical Laboratories’ CEO. Bennett had called Sara to a meeting to discuss the lab’s benefit expenses. Both came prepared with copies of their recent annual financial statement. The report indicated that the lab’s benefit expenses had reached almost 40 percent of the company’s total payroll. Bennett also produced benchmark data from a survey that showed that the health sector average was closer to 30 percent.
“Sara, why are our benefits expenses are so much higher than those of our competitors?” he asked.
Sara was prepared for the question. Over the past two-and-a-half years, Sara had made some purposeful increases in the health benefits offered to staff across their medical laboratories. Specifically, she had worked with their health insurance provider to add a health care spending account in the amount of $1,000 per employee in an effort to add some flexibility to the company’s otherwise uniform benefits offerings. In addition, and with executive and board of director approval, Aptech had implemented a health benefits program for all part-time staff working 20 hours per week or more. Sara had also diligently read communications from the health insurance provider announcing that the cost of offering the same coverage in terms of health, dental, and travel insurance was rising at a rate faster than inflation. In short, some of the higher benefits expense was due to increases in benefits offered to staff, some was due to offering benefits to staff that previously had not qualified for the company’s benefits package, and the remainder was due to escalating costs from its health insurance provider.
As she looked at the benchmark data that Bennett passed across the table, Sara pointed out that the data Bennett was referring to had assessed the health sector as a whole, not just medical laboratories, and that the sector included medical equipment manufacturers. Medical equipment manufacturers typically had much lower benefit levels than laboratories—which, by and large, had benefit expenses similar to those of Aptech. Undeniably, however, Aptech certainly occupied the high end of the scale.
Bennett wondered whether these expenses were really justified. “Where is the payoff?” he asked.
Sara had no problem defending the laboratories’ benefits outlays. She pointed out that Aptech had the lowest turnover rate among large medical laboratories—nearly 2 percent lower than any other—and that every employee engagement survey showed that Aptech staff felt that the lab was a very good place to work; job satisfaction and engagement were high. In particular, because the company’s diagnostic and imaging staff was largely female with nearly half working 20 to 30 hours per week, Sara felt strongly that providing health insurance benefits to its part-time staff was a huge retention incentive and the right thing to do. She also mentioned that Aptech was able to recruit top-flight new hires. She was convinced that the lab’s generous benefits package contributed significantly to this level of satisfaction.
She concluded her explanation by saying, “Bennett, look at the level of customer satisfaction. We beat out every other lab company on this measure. I am sure the reason is that happy employees mean happy customers. And there is the main payoff.”
Bennett appreciated Sara’s explanation. He always had been proud when he saw the results of Aptech’s employee engagement surveys. There was no doubt that people liked to work for Aptech. “Still,” he wondered, “are there ways to cut the expenses without doing too much damage to employee satisfaction?”
Sara agreed to look into that matter and to make suggestions regarding more efficient methods of delivering benefits services.
Sara headed back to her office, logged onto Aptech’s intranet, and created a new file folder she named Benefits Audit and Changes. She had been keeping current on trends for benefits offerings and knew that some organizations were reducing the amount of coverage they offered, or increasing employee deductibles. Sarah thought that she could probably work with Aptech’s health insurance provider to come up with a list of potential cost saving changes. However, Sara also wanted to be sure that the company did not cut benefits that would endanger employee attachment to it. She would need some employee input into coverage reductions. Sara realized it had been a couple of years since Aptech’s last benefits audit. It was time to take a fulsome look.
The lab’s benefits package included supplementary health and life insurance, child care, elder care, a prescription payment plan, an EAP, educational support in the form of tuition reimbursements, and financial advising. It was also possible to purchase more vacation time pro-rated based on the employee’s salary. These benefits were standard to all employees across the labs who worked 20 or more hours per week. There was also the new health care spending account in the amount of $1,000 per employee, which added some flexibility and responded to staff requests for coverage for massage, vision care, and physiotherapy and chiropractor expenses. The health insurance provider, Magenta Providers Cross, managed all of Aptech’s benefits, and employees were able to access their benefits resources through its website.
1. What are the steps that Sara will need to take to conduct a benefits audit?
2. What are some suggestions you would have for Sara on how to save money on the benefits package? In addition to reducing benefits coverage or increasing employee deductibles across all staff, what other options could Sara explore?
3. As part of the audit process, Sara will gather information relating to employees’ understanding of the company’s current benefits offerings. How might information about staff understanding of current benefits be useful in her decisions on where to make cuts?
4. What recommendations would you have for Sara about how to communicate the changes in the benefits package once they are determined? Discuss whether you think staff should be involved in the process of changing the benefits package.
5. One option could be to retract the benefits package offering to part- time staff. What are the pros and cons of this strategy?