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Complying with changes mandated by the Health Insurance Portability and Accountability Act and other new federal benefits laws are among the issues that preoccupied employers during 1997.

And benefit managers expect more legislative changes to fill their plates in 1998, especially since President Clinton and Rep. Charlie Norwood, R-Ga., have already started promoting new federal health care consumer protection legislation.

However, not all of the past year's developments were viewed negatively.

For example, some benefit managers believe the spate of HMO mergers will produce some benefits for employers.

"To a certain extent, it probably makes life easier for us" because "it gives us a handful of less people to have to contact and deal with," said Paul Jemison, corporate benefits manager in Palo Alto, Calif., for Hewlett-Packard Co.

"I think the most significant change that has affected everyone throughout the industry during 1997 has been the recognition by the Congress and the president that they can legislate incrementally, that they can mandate benefits most people would consider so tiny but are sometimes very expensive in their implementation," observed Helen Darling, manager of international compensation and benefits at Xerox Corp. in Stamford, Conn.

"For example, if you were going to mandate anything, wouldn't you pick a second hospital day for healthy moms and babies?" she asked.

"For governing officials, it's the best of all possible worlds. They can look good and please constituents, especially narrow special interests and groups that want some special consideration," Ms. Darling said.

"But neither the special groups nor the ones doing the mandating have to consider the implications" of their actions, she pointed out. Instead, employers and the health care industry end up picking up the tab, she said.

For example, even though the cost impact of these new benefit laws will be negligible for Hartmarx Corp., the communication effort has been significant, according to Michael Pikelny, benefits consultant and corporate actuary in Chicago.

As mandated, Hartmarx on Jan. 1, 1998, will comply with the new federal law prohibiting lower annual and lifetime benefits for mental disorders than for physical disorders. However, most of the work of reorganizing the company's plan and notifying 1,600 employees of those changes occurred during 1997, Mr. Pikelny said.

"It's a communication project to let everyone know," he said.

That project consisted, in part, of sending out a benefits bulletin, which is likely to be followed with a newsletter article on plan changes.

Complying with a HIPAA mandate that companies certify employee coverage created additional work for Tresia A. Franklin, director of benefits administration for Hallmark Cards Inc. in Kansas City, Mo.

"I hope we have everything put to rest," she said after a year spent fine-tuning her company's benefits package so that it mixes well with new federal laws, including one that requires health maintenance organizations to pay for two-day hospital stays for normal child deliveries.

Ralph Kimmich, director of benefits and compensation for Southwest Airlines in Dallas, predicts that too many mandates may eventually do to health plans what the Employee Retirement Income Security Act of 1974 did to pension plans.

"While ERISA provided protection for pensions, the administration was so onerous that companies stopped starting defined benefit pension plans," he said. That led to the growth of defined contribution plans such as 401(k) plans.

"The same is likely to happen with health plans," he said.

Instead of offering defined benefit health plans, such as HMOs, Mr. Kimmich predicts that employers will increasingly offer medical savings accounts, which let workers use their discretion in purchasing health care services.

Not all the issues the benefit managers dealt with in 1997 were externally influenced.

For example, Hewlett-Packard's Mr. Jemison spent much of his time working on the centralization of personnel records and benefits management for the company's 68,000 U.S. employees.

Many of those functions previously were carried out by local benefits representatives at company locations in several states.

While Hewlett-Packard moved toward centralization at the end of 1996, many of the adjustments and learning experiences came in 1997, Mr. Jemison said.

"It took more of our time and it was very much a big structural change," he said. "We had so many locations in the United States that the expertise and experience varied. As our organization gets bigger and crosses more locations in the country, it was going to be harder for managers and employees to get the quality and service we would like them to have (from dispersed locations)."

By comparison, tackling the HIPAA and mental health parity changes were simple, he said, partly because HIPAA requirements were handled by a third-party administrator.

For many employers, like Public Service Electric & Gas Corp., 1997 was a year of rolling out innovative new communication tools, many using Internet technology.

"Our greatest accomplishment was taking the next step in innovative employee benefit communications and administration by establishing an employee benefits Web site on the Internet and using it for our annual open enrollment and in making access to an array of benefit information available to our employees and retirees worldwide 24 hours a day," said Richard Quinn, director of performance and rewards for the utility in Newark, N.J.

Corporate restructuring as a result of merger and acquisition activity in recent years also created some challenges for benefit managers this year.

"It's been very, very difficult in merging benefits, and merging culturally and merging policies. That has been our biggest issue," said Triny Jauco Lee, manager of employee benefits for Lockheed Martin Missiles & Space in Sunnyvale, Calif. Lockheed and Martin Marietta merged in 1995.

For her Lockheed unit, arranging mental health parity was not a difficult issue for employees in managed care plans because the company offers them a standardized HMO design, Ms. Jauco Lee said. Although the company does not have many indemnity plans, they presented more of a challenge on the parity issue because many of those plans are tied to union contracts, and each had to be reviewed to assure compliance.

With Washington lawmakers poised to review managed care, Hallmark's Ms. Franklin expects to spend part of 1998 watching that debate.

"I don't necessarily anticipate anything getting passed next year, but I do expect that issue to heat up," she said. "It clearly will be on the front burner and get debated."

She won't be alone.

"Election years can influence lawmaking, and patients' rights is a great flag to wave," said Dennis Nirtaut, managing director of compensation and benefits at Andersen Worldwide in Chicago.

Preparing for potential health plan rate increases will be another paramount issue in 1998, predicts Hewlett-Packard's Mr. Jemison.

He expects HMO rate increases to average between 7% and 8% nationwide.

Mr. Kimmich of Southwest agrees, predicting that for-profit plans will raise rates to recoup the earnings blow they took on Wall Street.

"Oxford's losing its shirt," he said of Oxford Health Plans Inc.

"You know they're going to come around and try to get that corrected," Mr. Nirtaut concurred. "With the way the financial world is today, health care organizations have to look at their bottom lines very carefully. They can only low-ball the market for so long."

However, in some cases, the mergers will create some economies of scale that should help keep HMO overhead down, according to Mr. Nirtaut.

"When organizations come together, there should be some gains," he said.

While "consolidation eventually can be detrimental at some point by eliminating competition, it's a while before we have to worry about that," he said.

With all the talk about health care premium hikes, Mr. Nirtaut said he hopes benefit managers don't lose sight of other important issues in 1998.

"Benefit managers should get more involved in investment education," he suggested.

He expressed concern that last year's stock market fluctuations may have caused some young 401(k) plan participants to erroneously shift their investments into more conservative vehicles, even though they have plenty of time to recoup any losses.

"We've given them the tools, but we need to educate them on how to use them," he urged.