1 - Employee Benefit Strategy Flashcards
Comparison of the core attributes of public and private exchanges
Attribute: Public / Private
Sponsor: Government / Employer
Enrollees: Individuals and small groups / Employees and retirees of sponsor
Types of coverage available: Med & Rx / Med, Rx, Dental, Vision, other voluntary benefits
Plan designs: AV 90%, 80%, 70%, 60% / Exchange operator or employer defines plan designs
Who pays for coverage: individuals and small employer groups. Subsidies and tax credits exist. / Employers provide a subsidy and members pay the rest
Common elements of private exchanges
- Employee choice - plan design options
- Employer subsidies - often defined contribution
- Ancillary product offerings - dental, vision, etc
- Online enrollment and decision making tools - members use to understand
- Benefits administration - most offer end to end (enrollment, eligibility, customer service, billing)
Advantages of private exchanges
- Increased employee choice
- Cost-savings potential from increased competition across carriers and best-in-class carrier pricing
- Increased consumerism from members buying-down benefits as a result of a transparent defined-contribution approach
- Robust online decision-support tools and customer service
- Benefits administration simplification
- Shift of financial and regulatory risks (full insured)
- Cost predictability (fully insured)
- Improved cost transparency
Disadvantages of private exchanges
- Additional expenses for exchange operator
- Less control over plan design, clinical management, member outreach
- Need for the employer to increase the defined contribution amount over time
- Other member concerns, such as loss of plan-sponsor support and less generous benefits
Considerations for determining the employer’s optimal defined contribution amount for a private exchange
- Current funding approach and philosophy and how it compares to defined contribution
- Variations by coverage tier - subsidize dependents at a different level than employee?
- Member impact - payroll contributions, possible dissatisfactions
- Financial goals
- Competitive pressures
Definition of employee benefits
Broad: any form of compensation other than direct wages
Limited: exclude legally mandated benefits
Reasons for growth of employee benefit plans
- Business reasons - attract/retain talent, improve morale
- Collective bargaining - taft hartley act requires good faith bargaining over conditions of employment
- Favorable tax legislation
- Efficiency of employee benefits approach
- Wage increase limits - WW2 and Korean war saw increase in benefits due to wage limits
- Legislative actions - gov encouraging employee benefit plans
Characteristics of the group technique of providing employee benefits
[requirements for it to work]
[Meant to minimize adverse selection (other than #8)]
1. Only certain groups are eligible - cannot form a group solely for purpose of gaining insurance
2. Steady flow of lives through the group - maintain fairly healthy overall
3. Minimum number of persons in a group
4. Minimum portion of group must participate - e.g. 75% of employees must be covered in plans where ee pays portion of premium
5. Eligibility requirements and waiting periods
6. Maximum limits for any one person
7. Automatic determination of benefits - e.g. formula based on salary
8. Central and efficient administrative agency
Questions to ask in evaluating employee benefit plans
- What are the objectives of the employer and employee?
- What benefits should be provided?
- Who should be covered under the benefit plan? (retirees? dependents?)
- Should employees have benefit options?
- How should the benefit plan be financed?
- How should the benefit plan be administered? (employer, insurer, TPA?)
- How should the benefit plan be communicated?
Reasons for using the functional approach for designing and evaluating employee benefits
- Benefits must be organized to be as effective as possible in meeting employee needs
- Avoiding waste in benefits can be an important cost-control measure for employers
- It is important to analyze where current benefits may overlap and costs may be saved
- A systematic approach is needed to keep benefits current, cost effective, and in compliance with regulations
- A systematic approach is needed to ensure that the various benefits can be integrated with each other
Steps in applying the functional approach for employee benefit plan design and evaluation
- Classify employee and dependent needs or objectives into logical functional categories
- Classify the categories of persons the employer may want or need to protect
- Analyze current benefits with respect to employee needs and the categories of covered persons
- Determine any gaps in benefits or overlapping benefits in the current plan
- Consider recommendations for plan changes to meet any gaps in benefits and to correct any overlapping benefits
- Estimate the costs or savings from each of the recommendations made
- Evaluate alternative methods of financing or securing the benefits
- Consider other cost-saving or cost-containment techniques for both current and recommended benefits
- Decide upon the appropriate benefits, methods of financing, and sources of benefits, by using the preceding analysis
- Implement the changes
- Communicate benefit changes to employees
- Periodically reevaluate the employee benefit plan
Common loss exposures covered by employee benefit plans
- Medical expenses for employees (active and retired) and their dependents
- Losses due to employees’ disability (short and long term)
- Losses due to the death of active employees, their dependents, and retired employees
- Retirement needs of employees and their dependents
- Capital accumulation needs or goals
- Needs arising from unemployment or from temporary termination or suspension of employment
- Needs for financial counseling, retirement counseling, and other counseling services
- Losses resulting from property and liability exposures
- Needs for dependent care assistance (e.g. child care)
- Needs for educational assistance for employees and their dependents
- Needs for LTC for employees (active and retired) and their dependents
- Other employee benefit needs or goals (e.g. incentive programs)
Categories of persons the employer may want to or be required to provide benefits for
- Active full time employees
- Dependents of active full time employees
- Retired former employees
- Dependents of retired former employees
- Disabled employees and their dependents
- Surviving dependents of deceased employees
- Terminated employees and their dependents
- Employees (and dep.) on temporary leaves of absence (e.g. military duty)
- Active employees who are not full time
Considerations for analyzing current benefits in the employee benefit plan
- Types of benefits
- Levels of benefits
- Probationary periods (new employees)
- Eligibility requirements
- Employee contribution requirements. Mandatory or voluntary
- Flexibility available to employees
- Actual employee participation in benefit plans (e.g. enrollment levels in specific benefits)
Make up of an HDHP
- Specified meaning under IRS code to be accompanied with an HSA
- Plan has cost share limits with minimum deductibles and caps on OOPM
- Limited first dollar coverage (e.g. deductible. preventive OK)
- For self only coverage, embedded deductible is used while for family deductible is aggregate.
Make up of an HSA
- Savings account is owned by the individual employee
- Either an employer or an employee can contribute to the account
- Account can be used to pay the cost share of the HDHP or other qualifying expenses
- Account contributions are exempt from personal income tax
- Contributions are limited to a specific amount no matter if an employer, individual, or both are contributing to the account
- Account also acts like tax advantaged retirement account since amounts can be invested -> tax free interest
- As long as funds in HSA are used for eligible medical expenses, remain tax free
Comparison of key features of health care accounts
chart
Consumer choice and empowerment that is encouraged through the use of HDHPs
- Savings for health care services: account fund ownership encourages regular deposits
- Selecting appropriate treatment venues: for example, urgent care instead of ER
- Avoiding unnecessary care and/or treatments with marginal benefit
- B2G drug substitution
- Comparing quality ratings of providers: using online tools
- Negotiating prices with providers
- Improving their own health and taking other illness avoidance measures - financial incentives aligned with health improvement
Situations where consumer engagement is less likely to have an impact even under an HDHP
- Urgent care needs without time to engage in proactive consumer behavior
- Individuals with higher cost chronic care needs are more likely to hit their out-of-pocket limit
Important impacts to HDHPs
- The probability that a market average risk member will exceed a given deductible
- As members have access to account funds to help pay for point of service claims less than the deductible, it will erode the impact of the HDHP
- Plan design (deductible level and coinsurance) amount and impact on utilization
- Impact of account funding is likely to be on the lower side of the cited ranges if the employee owns the account (HSA), higher if employer owns (HRA, FSA)
On a raw level, factors that primarily drive HDHP cost savings
- Relative health of individuals selecting the different plans
- The utilization impact arising strictly from plan design and funding
- Cost savings resulting from increased consumer engagement
- Note that HDHPs have not shown a clear ability to bend the cost curve beyond initial impact
Factors that could make HDHPs more effective
- Cost transparency
- Discussions between providers and patients around:
- value based care arrangements
- “reference based” plans - pre-funding of HSAs at beginning of CY
- Allowing more first dollar coverage to curb fear of members forgoing necessary care
- Lengthened consumerism: allow more design flexibility, allow longer coinsurance period (lower ded, higher OOPM)