Class 16 - Chapter 13

• EMPLOYEE BENEFITS

Patient Protection and Affordable Care Act

a.k.a.

ACA

Obamacare

Legally Mandated BenefitsPatient Protection and Affordability Care Act of 2010 a.k.a.

ObamaCare (Obama)

Intention:• Increasing the quality and affordability of health care

• Lowering the uninsured rate

• Expanding public and private insurance coverage

• Reduce costs to the individual and to the government

ACA - Goal

To enhance health insurance coverage and eliminate thepossibility of being declined health insurance coverage forpre-existing conditions, while at the same time, reducingthe cost of health insurance for the needy.

Provide health insurance coverage for the uninsured (approximately 40 million)

SOME ACA FACTS

• ObamaCare prohibits insurance companies from dropping your coverage if you get sick or make an honest mistake on your application.

• It eliminates pre-existing conditions and gender discrimination.

• Let's young adults stay on their parent's plans until 26.

• Creates state-based Health Insurance Exchange Marketplaces where Americans can shop for Federally regulated and subsided insurance.

• Protects against unjustified rate hikes and give you more rights to appeal insurance company decisions and much, much more.

ACA – ISSUES

• Expensive new mandated overages

• ACA requires all plans to cover previously optional services, such as additionalpreventive care, contraception, maternity, drug abuse, alcohol abuse, mental healthparity, pediatric dental, etc.

• Consumers are no longer allowed to choose not to buy coverage for these types of

health issues (the individual mandate), even if they do not need or want it.

• Major funding issues

• Tied up in legislative and judicial arguments – for and against.

Delicate Balancing Act or Vicious Battle

Health care costs to EmployerHealth care costs to EmployeeHealth care cost to Taxpayers

Public view of American Health Care systemPublic view of federal government managing the

American health care system

Why Are Health Costs Increasing

Hospital costs increasing Unhealthily lifestylesAging population Pharmaceutical cost & researchMedical technology WasteFraud or incompetence LawsuitsConsumer ignorance Complexity of industryLegislation InsuranceCutbacks in reimbursement Service for allLack of competitive pressures

Mindset: Everyone is entitled to best medical services regardless of costs.

HRM Cost Containment Strategies

12-9

Develop self-funded arrangement

Coordinate health insurance in families with two working spouses

Cost shifting

Develop a wellness program

Offer high deductible plans

HRM Suggestions for Employers to Control Cost of Health Benefits

1. Shop for bargains.

2. Know what employees care about. Would they be willing to accept a higher deductible if it means the company can also afford prescription drug coverage?

3. If employees are willing to take responsibility for their own health care spending, offer a health- savings account or consumer-driven plan.

4. Review your claims history to identify correctable problems.

5. Encourage healthy behavior with incentives like discounts for health club memberships, free health screenings, and lower premiums for employees who participate in a wellness program.

6. Promote a workplace culture that values healthy habits.

Medical Insurance

• 70% of all full-time employees in U.S. receive medical benefits• Policies typically cover:

– Hospital expenses– Surgical expenses– Visits to physicians

• Additional coverage may include:

– Dental care– Vision care– Prescription drug

programs– Mental health– Addictions

Medical Insurance

Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985• Federal law that requires employers to permit employees

or their dependents to extend their health insurance coverage at group rates for up to 36 months following a qualifying event:• Layoff• Reduction in hours• Employee’s death

COBRAConsolidated Omnibus Budget Reconciliation Act of 1985 – (Reagan)

Employees have the right to continue employer’s group coverage for up to 18 or 36 months after termination, other than for cause.

• Employee pays 100% of premium (+ 2% admin fee)• Benefit coverage vs. non-productive employee, i.e. no longer

employed by company• Former employee health care experience still goes on company

policy after the employee has left the company

EXAMPLE OF COBRA PREMIUMSExample• Per employee premium = $1000/month• Employer pays 80%; employee pays 20%• Employer pays 80% ($800); employee pays 20% ($200)

• Under COBRAEmployee pays $1000 per month + employer optional 2% ($20) admin fee

HIPAAHealth Insurance Portability and Accountability Act – 1996

(Clinton)

Federal law that protects employee’s ability to transfer between health insurance plans without a gap in coverage due to a pre-existing condition.

At issue is health care costs.

PROBLEMS WITH COBRA• Cost to former employee – companies typically pay 50 –

80% of premium

• Under COBRA employee must pay 100% of premium + optional 2% administrative fee

• Former employee health care experience still goes on company policy after the employee has left the company

EXAMPLE OF COBRA PREMIUMSExample• Per employee premium = $1000/month• Employer pays 80%; employee pays 20%• Employer pays 80% ($800); employee pays 20% ($200)

• Under COBRAEmployee pays $1000 per month + $20 admin fee

Seven Ways Employers Can Control Cost of Health Benefits

1. Shop for bargains.

2. Know what employees care about. Would they be willing to accept a higher deductible if it means the company can also afford prescription drug coverage?

3. If employees are willing to take responsibility for their own health care spending, offer a health- savings account or consumer-driven plan.

Seven Ways Employers Can Control Cost of Health Benefits

4. Review your claims history to identify correctable problems.

5. Encourage healthy behavior with incentives like discounts for health club memberships, free health screenings, and lower premiums for employees who participate in a wellness program.

6. Promote a workplace culture that values healthy habits.

7. Measure results of initiatives.

HRM Thought Starters to Health Insurance

• Producing a comparison study for guidance:• Analysis of employer/employee costs• COBRA option vs. A.C.A.• Company growth potential vs. keeping the employee

levels below 50• Follow the ACA law and incur costs, or do not follow

the law and pay the penalty

Life Insurance

Employers may provide life insurance to employees or offer the opportunity to buy coverage at low group rates.

Term life insurance – if the employee dies during the term of the policy, the employee’s beneficiaries receive a death benefit payment.

• Usually twice the employee’s yearly pay.• Additional benefits may include accidental death and dismemberment.

Optional BenefitsLife insurance

• Term life• 1 x annual salary• 2 x annual salary• Option to purchase more life insurance• Must follow state insurance rules• Senior leadership: life insurance spelled out in

contract

Figure 13.4: Sources of Income for Persons 65 and Older

Optional Benefits Programs:Retirement Plans

• About half of employees working in private business sector have employer-sponsored retirement plans.

• Contributory plan - retirement plan funded by contributions from employer and employee.

• Noncontributory plan - retirement plan funded entirely by employer contributions.

Laws Affecting Optional Benefits Programs:Retirement Plans

•Employee Retirement Income Security Act of 1974 (ERISA): (Ford)

• Federal law that increased responsibility of pension plan trustees to protect retirees;

•Established certain rights related to vesting and portability, and created the Pension Benefit Guarantee Corporation.

•Pension Benefit Guarantee Corporation (PBGC):

• Federal agency that insures retirement benefits and guarantees retirees a basic benefit if employer experiences financial difficulties.

Optional Benefits Programs:Retirement Plans

Defined benefit plan – pension plan that guarantees a specified level of retirement income. Employer sets up a pension fund to invest contributions. Such plans must meet funding requirements established by ERISA

• Employer must contribute enough for the plan to cover all benefits to be paid out to retirees. (e.g. funding the liabilities)

• Mathematical formula: Age, length of service, earnings,

Optional Benefits Programs:Retirement Plans

Defined contribution plan – retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account.

• Money purchase plans

• Profit-sharing and employee stock ownership plans

• Section 401(k) plans

401k Plans• Defined in the 401k subsection of the IRS Taxation Code;

• Enacted into law in 1978 (Carter)

• Pre-tax employee contributions for 2015 = $18,000 per year in pre-tax earnings

• Employers can, but are not obligated to, match a portion of employee investment

• Stringent withdrawal rules

• May take money and roll over into another qualified plan

• Employees can make investment decisions – or not.

Pre-tax benefitNormal salary = $50,000Tax based upon $50,000

Pre-tax benefitNormal Salary = $50,000Employee contribution = $10,000Taxable income = $40,000

Figure 13.5: Value of Retirement Savings Invested at Different Ages

Optional Benefits Programs:Retirement Plans

Cash balance plan – retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee’s salary.

• Account earns interest at a pre-defined rate.

• Arrangement helps employers plan their contributions and helps employees predict their retirement benefits.

• If employees change jobs, they can roll over balance into an individual retirement account (IRA).

Optional Benefits Programs:Retirement Plan Rules

Guarantee that when employees become participants in a pension plan and work a specified number of years, they will receive a pension at retirement age, regardless of whether they remained with the employer.

Typically5 year cliff = 100% vesting rights3-7 year scale = 20% after 3 years, then 20% for each additional year

• Report that describes a pension plan’s funding, eligibility requirements, risks, and other details.

• Employers also provide an individual benefit statement which describes employee’s vested and unvested benefits.

Vesting Rights Summary Plan Description

Optional Benefits Programs:“Family-Friendly” Benefits

Family Leave

Child Care Benefits

College Savings Plans

Elder Care

Optional Benefits Programs:Other Quality of Work-Life Benefits

•Subsidized cafeterias•On-site health care services•Moving and relocation expenses•Employee discounts on products•Employee buying service

•Tuition reimbursement•On-site fitness center•On-site dry cleaning services•Dues for professional organizations•Off-site company recreation area•Pet services

Selecting Employee Benefits

Decisions about which benefits to offer should take into account:

• Organization’s goals, objectives and budget• Expectations of the organization’s current employees and

potential future recruits.

An organization that does not offer expected benefits will have difficulty attracting and keeping employees.

Communicating Benefits to Employees

• Organizations must communicate benefits information to employees so that they will appreciate the value of their benefits.

• This is essential so that benefits can achieve their objective of attracting, motivating, and retaining employees.

• Employees are interested in their benefits, and they need a great deal of detailed information to take advantage of benefits.

COMMUNICATION OF BENEFITS

• Benefits described in a “Summary Plan Description”• Internal newsletters, employee handbooks & policy manuals• Must be reasonably available to all employees• Employee feedback is strongly encouraged • Employer & employee factors in benefits design• Impact on attraction and retention of employees• Financial impact of benefit costs – real & actuarial

Summary

• Like pay, benefits help employers attract, retain, and motivate employees.

• Employees expect at least a minimum level of benefits, and providing more than minimum helps an organization compete in the labor market.

• Benefits are also a significant expense, but employers provide benefits because employees value them and many benefits are required by law.

Summary

• Employers must contribute to Social Security through a payroll tax shared by employers and employees.

• Employers must also pay federal and state taxes for unemployment insurance.

• State laws require that employers purchase workers’ compensation insurance.

• Major categories of paid leave are vacations, holidays, and sick leave.

Summary

• Medical insurance is one of the most valued employee benefits.

• To manage costs of health insurance, many organizations offer coverage through a health maintenance organization or preferred provider organization, or they may offer flexible spending accounts.

• Retirement plans may be contributory or noncontributory and defined benefit plans or defined contribution plans.

Summary

• Employers have responded to work-family role conflicts by offering family-friendly benefits.

• In deciding contents of a benefits package, organizations need to establish objectives and select benefits that support those objectives.

• Organizations should also consider employees’ expectations and values.

• Employers must comply with numerous laws and regulations affecting how they design and administer benefits programs.