Controlling the rising cost of employee benefits is a challenge that never seems to get easier. Though escalating health insurance premiums get the lion's share of attention, business owners must consider the full range of worker benefits, which together comprise 37.2 percent of the average payroll, according to the U.S. Chamber of Commerce.

Of course, doing away with benefits is not an option. Hourly workers and salaried staff demand them as part of the employment agreement. The challenge is to offer attractive plans that encourage quality employees to remain on board while maintaining a healthy bottom line.

To do this, make sure you aren't paying for benefits your staff doesn't need, advise various consultants. Being all things to all people is more expensive than narrowing in on what your employees really want. To find out the latter, survey your employees. This will help you put your energy where there's 'value added,' as opposed to offering a little bit of everything.

Your goal is to select the most affordable quality plans and administer them as cost effectively as possible. Technology can help.

“A number of new Web-based services offer plans and quote prices so certain choices can be made over the Internet,” says Tim Harrington, a principal with Mercer Human Resource Consulting, a Chicago-based consulting firm that has tracked benefits costs for more than 25 years.

The automation inherent in the Internet allows Web-based services to offer comparison-shopping of products from a broad range of carriers. They can also reduce the overhead involved in processing employee claims, educate new employees on your benefits plans, and answer common questions.

Various Web services handle benefits such as health insurance and retirement plans, and offer clients the opportunity to create custom Web pages for use by their employees. In many cases these services allow employees to access information on the plans without having to call their human resources departments, saving your business time and money.

Health insurance, by far the most popular benefit, is offered by 96 percent of employers, according to Business and Legal Reports, a human resources research organization based in Old Saybrook, Conn. Premiums for such coverage rose an average 7.7 percent in 2006, a rate more than twice as great as workers' wages (3.8 percent) and overall inflation (3.5 percent). The figures were announced in the 2006 Employer Health Benefits Survey from the Kaiser Family Foundation.

When containing costs, your first line of defense is to join purchasing groups.

“When you join forces with other employers you bring more leverage to the negotiating table,” says Larry Boress, president of the Midwest Business Group on Health, a Chicago-based consortium of 80 employers.

The second step on the cost savings journey is to shift costs to employees. Cost sharing occurs when employees make greater co-payments and/or pay higher annual deductibles for services received.

Employees become more prudent consumers of health care when they pay a greater portion of the costs. At the same time, insurance companies fund less of the total annual health care expense. Both phenomena translate into lower risk for the carrier and lower premiums for the employer.

Life insurance is both inexpensive and popular, with 89 percent of employers offering it. Because it's a commodity item, employers should shop around for the best rate. You may find you can save money by purchasing group life from one carrier and accidental death and dismemberment from another. Be aware that some life carriers have divisions that compete with each other. One division may offer both life and AD&D while another may offer just life. The prices of the life insurance may differ in the two divisions, so shop around.

A common but costly error is to save time by purchasing different forms of insurance from the same broker. If you don't have time to comparison shop and need to use a broker, ask other employers which ones have proven to be highly knowledgeable about carriers.

Workers compensation is a mandated benefit that can erode your bottom line if you don't watch it carefully. Premiums are increasing nationwide at about 10 percent to 15 percent annually, according to a spokesperson for Sullivan Curtis Monroe, an insurance brokerage in Irvine, Calif.

“It's starting to hit businesses in the pocketbook,” he reports. “They are asking 'What can we do now?'”

Premium increases represent only one part of your cost. Other, indirect costs can be two to three times as great. They include the overhead to administer a claim, supervisory time in investigating an accident and lost time from the injured individual. Here are suggestions for cost containment measures:

• Run physical tests for applicants. Include “range of motion” tests for jobs that require much lifting, stopping and standing.
• Improve your workplace. Adjust work stations to reduce claims that result from repetitive stress injuries.
• Choose an experienced carrier. Don't just buy insurance from the carrier with the lowest price. Choosing the cheapest carrier can end up costing you more when it fails to handle claims properly. Instead, look for a company with a good claims-handling history. Meet with the individuals who will handle your claims, and determine their operating philosophy. And get feedback from other businesses that have experience with that carrier.

You can also reduce premiums, or keep them from increasing unnecessarily downstream, by taking some proactive steps.

“Overcharges by insurance companies are very common,” says Edward Priz, principal of Advanced Insurance Management, Riverside, Ill.

To keep them from occurring, Priz says you need to audit your own classification codes to assure accuracy with the workplace conditions to which your personnel are exposed.

You also need to assure the accuracy of your “experience modification factor.” That term refers to the number used to modify your charges, based upon the accident history of your workplace. Consider having an outside auditor review your records.

Workers compensation protects your workers from financial disaster if they're injured on the job. But what if the injury takes place outside of work? That's where long- and short-term disability comes to the rescue. It can be a valuable benefit, offered by 68 percent of employers nationwide.

How can you control the rising costs for this insurance? The Washington Business Group on Health, an organization that assists businesses in this area, has three suggestions:

• Form early “return to work” policies. You want to encourage people to return to work as soon as possible. That's because the costs of an illness go far beyond disability payments and insurance premiums. They also include lost productivity, overtime for employees required to accomplish the missing person's work, and re-training time.

To encourage early return, develop workplace programs that will accommodate workers who suffer from temporary disabilities. Many employers have these in place for staff members covered by workers comp, but have not extended the programs to cover people absent under short-term or long-term disability. Now is the time to do so.

• Pick the right plan. Be aware of policies that encourage workers to stay home longer. For example, some plans allow no payments unless a person stays out for two weeks, at which time the payments become retroactive to the first day. Under these plans, individuals often stay out longer because it is in their self-interest.

• Select your carrier wisely. Not all insurance companies are equal. Select a company that will help you increase your productivity by helping injured people return to work more quickly.

Ask the right questions of any prospective company: Do they spend money on rehabilitation? Do they have good medical resources? Do they have doctors and nurses on staff? What training do they provide their people? Check with other businesses in your area to discover what insurers they use and their level of satisfaction.

Finally, put disability insurance in context. It's all about productivity. You can push down cost by choosing a plan that is less expensive, but the result may be longer periods of time during which people are away from the workplace. The savings you pick up on the health side can be cancelled out by losses on the productivity side.

Left uncontrolled, the rising costs of employee benefits can erode your bottom line and lead to staff discontent when draconian measures are needed to cap spiraling expenses.

Take action now to review your entire benefits package. Survey your staff to find out what benefits they really want, in contrast with the benefits you have always assumed are most important. And finally, share information on costs with your employees. When employees know the effect benefits have on the health of your company, they'll be more willing to help by cost sharing and responsible utilization of benefits.