Savings by design: IBM's Dr. Martin Sepulveda saves millions with employee benefit design

WHEN YOU'RE IN THE INNOVATION business, you take some risks and temper your expectations. When one of your innovations produces $100 million in annual savings, you know you're doing something right.

For global tech giant IBM, innovations to save healthcare dollars among the 340,000 people enrolled in its benefit plan fall squarely on the shoulders of Martin Sepulveda, MD, vice president of global well-being services and health benefits. Dr. Sepulveda, an approachable, easy-going executive, doesn't seem the type to brag about saving the self-insured corporation $100 million on its healthcare bill or about the fact that employees never pay a dime in premiums, but deep down, he probably knows that other employers would love to know his secret.

Health benefits are usually the biggest non-cash portion of employee compensation. Higher-paid workers tend to prefer health benefits, while lower-income workers often prefer to have more money in their paychecks instead of generous health benefits, says Devon Herrick, senior fellow, National Center for Policy Analysis (NCPA), Dallas.

"Employees often do not even know what their health plan is costing," NCPA's Herrick says. "Also, getting to the point where employers understand the amount of cash wages that workers are willing to forgo for a variety of different benefit levels can be hard to ascertain."

Herrick believes that, hypothetically, if IBM were to stop offering health benefits altogether, most if not all of the employees would probably be willing to stay with the company if they were offered higher salaries to compensate for the lost health coverage. With an optimal mix of cash and non-cash compensation, companies can attract and retain a skilled workforce, but a mix that works for one company or one industry might not work for another, he says.