When Marriott Corp. employes consider the company's cafeteria plan, they're not thinking about the Bethesda hotel and restaurant company's food-service operations.
Instead, they're making choices about their health, insurance, vacation and other benefits from an array of options offered through the company's flexible benefits program.
For instance, Marriott employes can choose from four levels of medical insurance or a health maintenance organization plan. Under the four insurance plans, deductibles range from $150 to $500, coverage ranges from 70 percent of costs to 90 percent, out-of-pocket requirements vary from $750 to $1,350. Two of the plans cover routine office visits and two do not.
In addition, Marriott employes are permitted to set up pretax reimbursement accounts to pay for medical and life insurance deductibles. This has made employes more willing to pay higher deductibles, company officials say.
Employes also are allowed to trade one-fifth of their vacation and sick-day time to pay for their contributions to any of the insurance programs.
Marriott, whose 210,000 employes make it one of the Washington area's largest employers, is one of several local companies that have adopted flexible benefit programs, or "cafeteria" plans, to allow employes to tailor their benefits to their needs.
In a move away from traditional strictly defined benefits plans, in which young employes with no dependents, single parents, double-income couples with children and workers with grown children all were thrown into the same benefits pot, a small but growing number of companies around the nation are adopting cafeteria-type benefit programs.
According to Hewitt Associates, a management consulting firm that specializes in employe benefits and compensation programs, the number of U.S. companies offering flexible benefits has increased sharply in recent years. In 1980, according to Hewitt, just eight U.S. companies offered flexible benefits. But by the end of this year, more than 600 major companies are expected to be offering some sort of flexible benefits plan. About 18 percent of American companies have flexible benefits plans, according to Hewitt.
There is similar interest in cafeteria benefits plans among local firms, according to a new study by Towers, Perrin, Forster & Crosby, a New York City-based management consulting firm specializing in compensation issues.
The survey of 182 companies in the southeastern United States, including 42 companies in the Washington, Richmond and Baltimore areas, found that while only 18 companies -- less than 10 percent -- offered flexible benefit plans, 67 percent of those that did not offer such plans were either considering the idea or planned to do so within the next 12 months.
Employers and consultants say there are two major reasons behind the sudden interest in flexible benefits. One is an effort to get control of the costs of medical benefits, which have been skyrocketing out of control in recent years.
The second reason for the move to flexible benefits is a growing realization that the demographics of the work force have changed significantly since many benefits packages were designed two or three decades ago.
Back then, the work force in many industries was thought to be comprised mainly of men who were the sole supporters of a wife and two children at home. With more working women, single and divorced employes, many of those benefit plans have become outdated.
"The one-size-fits-all benefits plan is no longer going to be as applicable as it was 20 years ago," said Jean Boyle of Hewitt Associates.
According to the Towers, Perrin survey, which covered a cross section of companies in manufacturing, wholesale, retail, health care, utilities, banking, insurance and real estate with 1,000 employes or more, companies that do not now have flexible benefits but are considering adopting such a program cited such reasons as a desire to be viewed as a progressive employer (63 percent), a desire to contain health care costs (59 percent) and a desire to better meet employes' needs (56 percent).
The companies said the major drawbacks to such a program would be concern over increased administrative burdens (59 percent), problems communicating the program to employes (56 percent) and lack of staff resources (56 percent).
Bob Dankmyer, director of employe benefits for Marriott, said employes at the company have responded enthusiastically to the flexible benefit program, which was established in 1982. He said there is heavy use of the more innovative features, such as the pretax reimbursement accounts and the program allowing vacation and sick days to be traded in.
"We're primarily nonunion, and in order to stay nonunion we have to be sensitive to employe needs," Dankmyer said.
He also said flexible benefits have saved money for Marriott. Because those employes with the fewest medical problems tend to get the least extensive coverage and those with chronic problems tend to get the highest coverage, "we are not having to set aside funds for people who don't use the benefits," he said. In addition, he said, administrative costs are minimal because the program is handled through the company's computerized central payroll and benefits system.
Roxanne Horning, director of employe benefits for Gannett Co. Inc. of Rosslyn, said flexible benefits have helped make employes at the media company more sensitive and knowledgeable about the costs of medical care and the problems of cost containment. She said Gannett switched to a flexible benefits approach in 1983.
"We wanted to make some plan improvements, such as adding dental, vision and hearing coverage," said Horning. "The company was also looking for ways to contain costs and educate employes" about medical benefits and costs.
Gannett's alternative medical plan adds an incentive for such cost-saving procedures as second opinions for surgery and the use of outpatient facilities. It pays a higher percentage of the cost of generic drugs than for brand name drugs. It offers better catastrophic coverage than the standard plan, but requires a higher deductible for routine office visits.
In addition to joining either of the two company-sponsored plans, most Gannett employes also have the option of enrolling in a health maintenance organization.
Gannett employes are split fairly equally among the plans, according to Horning. About 35 percent have remained with the original health plan, which requires premium payments that range from $18 to $30 per month for individuals, and $50 to $70 for those with families. Another 35 percent have opted for the cost-containment plan, which does not have premium payments but requires out-of-pocket payments up to $1,000. Thirty percent have taken the HMO offer, which does not require the employe to make any premium or deductible payment, but which restricts the patient's freedom to choose doctors and type of treatment. Horning said a small percentage of Gannett's 140 newspapers are located in towns that are too small to have HMOs.
Unlike Marriott, Gannett found that setting up and running the flexible plan was an enormous administrative undertaking. "It's a big job," Horning said. "Any sort of flexible benefits program is a challenging thing for a company to do."
But Horning said preliminary studies indicate that the cost-containment feature seems to be paying off. Premiums for the cost-containment plan have gone up very little in the past four years, she said, while premiums for the regular health plan have risen far more rapidly.
Likewise, Web Chamberlain, spokesman for Chesapeake & Potomac Telephone Cos., said the company has found that its cafeteria benefits program -- which offers four different types of medical coverage along with optional plans covering such areas as vision care and long-term disability -- has helped keep rising health care costs under control.
In a study of 20 companies that began flexible benefits in 1982 or earlier, Hewitt Associates found that the rate of increase in medical costs for those companies dropped significantly below the national medical cost inflation rate. A year before starting their flexible program, those companies had an average rate of increase that was 14.5 percent above the medical inflation rate. Three years after the programs began, the average rate of increase was 5 percent below the national medical inflation rate.
"Experience is showing that flex's cost containment capability offsets or outweighs the implementation costs," Park said.
Donald L. Park, the flexible benefits expert at Towers, Perrin's Washington office, said he expects last year's tax law changes to convince more companies to switch to flexible benefits. Previously, companies with flexible benefits plans had to prove that certain benefit plans did not discriminate in favor of better-paid employes. But under the new tax law, all employers must comply with the nondiscrimination requirements, so there is no added paperwork burden on those with cafeteria plans.
But Dankmyer and other benefit specialists say that tax changes are a mixed bag. For instance, they said that flexible plans might be discouraged by a proposal now moving through Congress that would limit to $500 the pretax contributions that employes can make to accounts that they can later use for insurance payments.