04 - The role of the employer Flashcards

1
Q

Why do employers offer benefits as part of a compensation package, beyond what is legally required?

A

Legislation: Employers may be required to provide certain benefits by law.

Tax: Tax incentives encourage self-insurance for some benefits.

Recruiting and retaining talent: Benefits attract and retain the right kind of employees.

Rewarding good behavior: Incentives like performance-based bonuses and retirement funds can motivate employees.

Competitiveness: Offering competitive benefits is necessary to attract talent.

Paternalism: Employers may offer benefits because they believe employees may not act in their own best interest.

Maximizing productivity: Benefits such as canteens and childcare can increase productivity.

Managing employee retirement: Benefit structures can influence retirement behavior.

Controlling externalities: Benefits can mitigate negative impacts of individual choices.

Reducing administration and other costs: Employers can often secure benefits at a lower cost than individuals.

Ideal provider: Employers are well-placed to provide certain benefits due to their relationship with employees.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the key objectives of a government regarding healthcare, and what factors influence these objectives?

A

[Objectives]
To protect the health of the nation.
To subsidize the poor.
To balance the budget.
To follow social, cultural and/or political promises.

[Influencing Factors]
The wealth of the country.
The priority given to the provision of healthcare.
The style and culture of politics within the country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Explain the concept of “total cost of employment” and how it differs from a “base plus benefits” approach.

A

Base plus benefits: Employees receive a basic salary plus separately costed benefits. The employer controls benefit costs and bears the risk of cost increases.

Total cost of employment: The employer agrees on a total employment cost which includes all benefits. The employee bears the risk of cost increases.

Difference: In a total cost approach, the employee effectively pays for benefits through reduced take-home pay, while in a base plus approach, the employer pays for the benefits in addition to the base salary.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are “flexible benefits,” and what are their advantages and disadvantages?

A

Flexible benefits allow employees to choose from a range of benefit options, tailoring their package to their needs.

[Advantages]
Employees can choose benefits that best suit their needs.
Helps employees manage their take-home pay.
May increase employee satisfaction and help recruit/retain staff.
Allows employees to be involved in the make-up of their benefits.
Benefit costs can be controlled if employees are given the option to select various types and levels of benefits within a fixed-cost constraint.

[Disadvantages]
Employees may favor low-cost benefits and higher take-home pay, which defeats the employer’s objective in providing benefits.
Flexible benefit packages are more administratively complex to run.
Employees may not have appropriate financial sophistication to make good choices.
The employer might be blamed if there is dissatisfaction with the choices.
May increase the risk of adverse selection.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Describe different methods an employer can use to deliver employee benefits.

A

Direct provision: The employer directly provides the benefit, such as employer-run hospitals, cafeterias, or retirement funds.

External provider: The employer contracts with an external provider (e.g., an insurer) for the benefit.

Salary sacrifice: The employer facilitates a deduction from the employee’s salary to fund the benefit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the risks faced by employers related to employee productivity?

A

Ill health and disability: Can lead to lost work time and reduced productivity.

Absenteeism: Intentional or habitual absence decreases productivity.

Staff turnover: Loss of knowledge and increased costs associated with hiring and training.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How can employers use employee benefit programs to mitigate the risks of ill health, disability, absenteeism and staff turnover?

A

Ill health and disability: By offering PMI, disability cover, and wellness programs.

Absenteeism: PMI and wellness programmes to reduce treatment and illness time.

Staff turnover: By encouraging long service through vesting periods, and by offering attractive benefit packages.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Explain the financial risks associated with Defined Benefit (DB) retirement funds for employers.

A

Funding risk: The employer is responsible for funding any deficits.

Balance-of-cost: The employer bears the full volatility risk related to costs.

Post-retirement obligations: Employers may be liable for post-employment benefits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is ‘adverse selection’ and how does it relate to flexible benefits?

A

Definition: Adverse selection occurs when individuals with higher risk are more likely to choose a particular benefit, increasing the cost for the insurance pool.

Flexible benefits: When employees can choose their benefits, those with higher risk may choose more comprehensive (and expensive) options, which can drive up costs.

Mitigation: By setting minimum levels of cover, and having core and flexible benefit options.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a vesting period in the context of retirement funds, including its purpose and disadvantages as well?

A

Definition: A vesting period is the time an employee must work before being entitled to the employer’s contributions to a retirement fund.

Purpose: Vesting periods are used to encourage employees to stay longer and reduce the cost of high staff turnover.

Disadvantages: Long vesting periods may reduce employee flexibility and negatively impact short term workers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Explain the concept of cross-subsidies in group insurance arrangements.

A

Definition: Cross-subsidies in group insurance occur when lower-risk members effectively subsidize the higher costs of higher-risk members.

Example: In group life insurance, younger and healthier members subsidize older or less healthy members, who would likely face higher individual rates.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is meant by ‘evidence of health’ and why is this usually required in individual arrangements but not in compulsory group schemes?

A

Definition: Evidence of health (EOH) is information on the health status of an individual that insurers require to assess risk when setting premiums.

Individual Arrangements: Insurers often require a medical exam or medical history in individual plans because they want to assess the risk of each person, and tailor premiums to match.

Compulsory Group Schemes: In compulsory group schemes, EOH is often not required or may have a reduced limit, because of the reduced risk of adverse selection, since it is assumed that most people will participate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly