Valuing and comparing physician benefits - Your Money - Statistical Data Included

Physician Executive, March, 2002 by Frank A. Casagrande, Doug Sturnick

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Imagine this.

You recently received several employment offers from group practices and are deciding which one to choose. Or perhaps you've been working for a hospital system for years and are questioning whether you are being paid what you deserve.

In answering these questions, one component of your total reward that you need to understand is the employee benefits package. Employee benefits packages vary significantly from employer to employer and can easily exceed 25 percent of the total reward package.

As physicians gain a greater appreciation for benefits, their value as an effective tool in recruiting and retaining talent will continue to increase.

What do you value in a benefits package?

As physicians move through various points in their career and personal life, the items they consider important change. The "perceived" value of various components of compensation, including physician benefits, also changes.

For instance:

* A recently graduated physician may be primarily focused on the ability to reduce medical school debt and only value cash compensation.

* Physicians planning a family may value the comprehensiveness of health care coverage, family leave policy or child adoption benefits.

* Physicians with significant others and established income levels may value life and disability insurance to protect themselves and loved ones in the event of a catastrophic event.

* And physicians who already have adequate medical, life, and disability coverage may be unilaterally focused on long-term capital accumulation opportunities.

One size does not fit all when it comes to a physician benefits package. While the financial value of two different employee benefits packages may be exactly equal, the perceived value to individual physicians may vary significantly.

Prevalence of physician benefit practices

To explore the prevalence of physician benefits, let's look at information from the 2001 Hay Group Physician Compensation Survey, which includes 10,865 physician incumbents and 24,719 allied health incumbents from 51 organizations. Of these, 32 organizations submitted comprehensive benefits data.

Benefits reported in this survey generally fall into two separate categories:

1. Physician benefits

2. Physician perquisites

The primary differences

The organizations surveyed all had comprehensive offerings for survivor, disability and health care benefits.

The major difference in availability of survivor benefits between group practices and hospitals had to do with access to supplemental coverage for employees, dependents, travel and accidental death.

Disability benefits were equally available. Health care availability during active employment was equally available, yet access to retiree health care coverage was twice as prevalent in group practices as in hospitals.

Retirement/savings plan prevalence varied significantly.

A large part of the difference is due to the non-profit tax status of hospitals that provide tax-deferred annuity 403(b) plans versus 401(k) plans.

Also noticeably different is the prevalence of defined benefit plans, which provide monthly annuities at retirement as opposed to a defined annual contribution.

This difference may be due to the difficulty in allocating individual annual costs to physicians, as well as higher administrative costs and complexity.

Common physician benefits practices

Here are some common physician benefit practices found among the survey participants.

Survivor benefits

Survivor benefits for physicians are most commonly employer paid at the 1 to 2 times pay level with maximums of over $250,000. Physician paid supplemental group life is usually 1 to 5 times pay.

Disability income

Short-Term Disability  Accrue 12 days or
                       less per year at 100% of
                       pay to a maximum of
                       30 to 180 days

Long-Term Disability   97% provide, after 6
                       months, 60% of pay
                       continued up to age
                       65 or 70, with maximum
                       benefit of $10,000 to
                       $15,000 per month

Employee Cost          84% are employer-paid
                       13% are physician-paid
                        3% involve cost sharing

Health care

HMO/PPO plan with 100% of inpatient and surgical charges reimbursed and didn't have out-of-pocket maximums.

For employee coverage, 38% are employer paid with 56% involving physician cost sharing.

For dependent coverage, employer paid drops to 25% with 59% involving cost sharing. Finally, 41% of the surveyed organizations provide retire coverage, primarily on a retire paid or cost-sharing basis.

Retirement benefits

For those offering defined benefit pension plans the most common benefits are:

Normal Retirement  Final average pay
Benefit            formula based on highest
                   5 of final 10 years,
                   1.01% to 1.24% of pay per
                   year on all compensation
                   and an additional .50% to
                   .99% of pay in excess of
                   Social Security
                   covered compensation

Cost to Employee   None

Early Retirement   Reduced benefit payable
Benefit            after age 55 and 5
                   years of service Cost-
                   of-Living Adjustment
                   (COLA)--41% have granted
                   a COLA in the last 10
                   years