Chapter 12 Benefit Determination Process

Question 1

legislation that mandates 12 weeks of leave for all workers at companies that employe 50 or more ppl

Answer 1

Family and Medical Leave Act (FMLA)

Question 2

ER agreement that provides a specific level of retirement pension, either a fixed-$ or %age of earnings; that may vary or increase w/ yrs of seniority

Answer 2

defined benefit plan

Question 3

health care cov’g plan that permits an indiv. to choose which plan to seek treatment from at the time that services are needed

Answer 3

point of service plan

Question 4

why the growth in EE benefits?

Answer 4

• wage and price controls
  
  • gov’t regs. that aim at maintaining low inflation and low levels of UnN
  • frequently focus on “cost-push” inflation, limiting the size of pay raises and the rate of incr. in prices charged for goods and services
  • used for limited time periods only
  • starting during WWII and Korean War - became a catalyst for growth in pensions, HC cov’g, time off, and the broad spectrum of benefits
• unions
  
  • were able to flex their muscles in the 1930s and 1940s that led to the ability for them to negotiate EE benefs. when they weren’t able to raise wages during the wars
• ER impetus
  
  • most benefs. provided today were ER initiative
  • can be traced to pragmatic concerns about EE satisfaction and productivity
  • implementing certain benefits would incr. productivity and provide incr’d security for worker retirement yrs
  • EEs began to think that the ER was genuinely concerned for EE welfare
• cost effectiveness of benefits
  
  • most EE benefits are not taxable
  • many group-based benefs. can be obtained at lower rate than could be obtained by EE acting on their own
• gov’t impetus
  
  • mandating WC (state), UnN Ins. (fed’l), and SS (fed’l)
  • ERISA and other sections of IRC

Question 5

(4) major benefit issues that arise in setting up a benef. pkg

Answer 5

1. who s/b protected or benefited?
2. how much choice should EEs have among an array of benefs?
3. how should benefs. be financed?
4. are your benefs. legally defensible?

Question 6

ADVs of Flexible Benef. Programs

Answer 6

• EEs choose pkgs that best satisfy their unique needs
• flex. benefs. help firms meet the changing needs of a changing workforce
• incr’d involvement of EEs and families improves understanding of benefs.
• flex. plans make intro of new benefs. less costly.
  
  • any new option is added merely as one among a wide variety of elements from which to choose
• cost containment: org. sets $ max - EE chooses w/in that constraint

Question 7

DISADVs of Flexible Benef. Programs

Answer 7

• EEs make bad choices and find themselves not covered for predictable events
• admin. burdens and expenses incr.
• adverse selection: EEs pick only benefs. they will use; the subsequent high-benef. utilization incr’s its cost
• flex. benef plans are subj. to nondiscrim. requirements in Sect. 125 of the IRC

Question 8

flexible benef. plans

Answer 8

• the level at which an org. finally chooses to operate on this really depends on its eval. of the relative adv. and disadv. of flex. plans
• many companies cite cost savings from flex. benefs. as primary motivation
• companies may also offer flex. plans in response to cost pressures related to incr’g diversity of the workforce
• flex. plans incr. EE awareness of the true costs of benefits and therefore incr. EE recogn. of benefit value

Question 9

consumer-driven HC

(mkt-based/cust-driven)

Answer 9

• cust-driven: med. care pkg where the ER finances the cost up to a $ max and the EEs serach for options that best fit their specific needs
• costs link consumer choice of more or less expensive options to higher or lower indiv. costs

Question 10

consumer-driven HC

basic choices

Answer 10

• full-defined contrib.
  
  • EE is responsible for finding and purchasing indiv. med cov’g
  • ER provides funding through either direct comp or voucher
• tiered networks
  
  • ER offers EEs a choice of med. plans, which include med. systems of varying costs
• menu-driven
  
  • ERs provide online info to help EEs customize their own benef. plan by selecting co-pays, deds., and so forth
• managed competition
  
  • ER provides a subsidized basic med. plan w/ buy-up options
  • plans can be from the same or multiple insurers
• health savings accts
  
  • a fund is created by the ER, EE, or jointly that is used to pay the first x $s of health care exps.

Question 11

Components of a Benefit Plan

ER factors

Answer 11

• relationship to total comp costs
• costs relative to benefits
• competitor offerings
• role of benefits in: attraction, retention, motivation
• legal requirements

Question 12

Legislation and its impact on EE Benefs.

FLSA 1938

Answer 12

• created time-and-a-half OT pay
• benefs. linked to pay incr. correspondibhly w/ those OT hrs

Question 13

Legislation and its impact on EE Benefs.

ERISA 1974

Answer 13

• if an ER decides to provide a pension (it is not mandated)
• specific rules must be followed
• plan must vest (EE has right to both personal and company contribs. into pension) after 5 yrs’ employment
• PBGC provides worker some fin. cov’g when a company and its pension plan go bankrupt

Question 14

Legislation and its impact on EE Benefs.

Tax Reforms - 1982, 1986

Answer 14

• permit IRAs for eligible EEs
• estab’d 401Ks, a matched-contrib. saving plan (ER matches part or all of EE contrib.) that frequently serves as part of a retirement pkg

Question 15

Legislation and its impact on EE Benefs.

Health Maintenance Act of 1973

Answer 15

• req’d ERs to offer alt. health cov’g options to EEs
  
  • such as health maintenance orgs: nontrad’l health care delivery system that offers comprehensive benefs. and outpatient sevices, as well as hospital cov’g, for a fixed monthly prepaid fee

Question 16

Legislation and its impact on EE Benefs.

Discrim. Legislation

(**Age Discrim in Employment Act, Pregnancy Disability Act, Civil Rights Act, various state laws)

Answer 16

• benefs. must be admin’d in a manner that does not discrim. against protected groups
  
  • on basis of race, color, religion, sex, nat’l origin, age, pregnancy

Question 17

Legislation and its impact on EE Benefs.

Consolidated Omnibus Budget Recon. Act (COBRA) 1984

Answer 17

• EEs who resign or are laid off through no fault of their own are eligible to continue receiving health cov’g under ER’s plan at a cost bourne by the EE

Question 18

Legislation and its impact on EE Benefs.

FMLA 1993

Answer 18

• mandates 12 weeks of leave for all workers at companies that employ 50 or more ppl

Question 19

Components of a Benefit Plan

EE factors

Answer 19

• Equity - fairness historically and in relationship to what others receive
• personal needs as linked to
  
  • age
  • sex
  • marital status
  • # of dependents

Question 20

(3) functions for administering benefit programs

Answer 20

1. communicating about the benefits program
2. claims processing
3. cost containment

Question 21

EE Benefit Communication

Answer 21

• (4) issues:
  
  • what is communicated
  • to whom
  • how its communicated
  • how frequently
• much focused on ID’g methods on how to communicate
  
  • most used - EE handbook
  • some accompany the handbook w/ a video to be most effective
• personalized benefit stmts that breakdown the pkg components and list selected cost info. about the options
• failure to understand components and their value is still one fo the root causes of EE dissatisfaction w/ a benef. pkg

Question 22

(2) effective communications packages

Answer 22

1. must spell out the benef. objs. and ensure that any communications achieve these objs.
2. pkg should match the message w/the appropriate medium
   
   • tech. advances have led the way to ‘intranets’

Question 23

Claims Processing

Answer 23

• procedures that begins when an EE asserts that a specific event has occurred and demands that the ER fulfill a promise of pmt
  
  • for exp = disablement, hospitalization, UnN
• a claims processor must first determine whether the act has, in fact, occurred
• then must determine if EE is eligible for the benefit
  
  • must ensure cooridination of benefits b/w mutliple insurance companies

Question 24

Cost Containment

Answer 24

• an attempt made by org. to contain benefit costs
  
  • such as imposing deds. and coins. on health benefs. or replacing DB pension plans w/ DC plans
• biggest strat in recent yrs = moving towards outsourcing

Question 25

cost containment practices

Answer 25

• probationary periods - excluding new EEs from benefit cov’g until some term of employment is completed
• benefit limitations - limit disability income pmts to some max. %age of income and to limit med/dental cov’g for specific procedures to a certain fixed amt
• copay - requiring that EEs pay a fixed or %age amt for cov’g
• admin cost containment - controlling costs through policies such as seeking competitive bids for program delivery

Question 26

cost containment terminology

Answer 26

• deductibles - an EE claim for ins. cov’g is preceded by the requirement that the first $x be paid by the claimant
• coins - a proportion of ins. premiums are paid by EE
• benefit cutbacks - corresponding to wage concessions, some ERs are negotiating w/ EEs to eliminate ER contribs. or reduce them to elected options
• DC plans - ERs estab. the limits of their responsibility for EE benefs. in terms of a $ contrib. max
• DB plans - ERs estab. the limits of their responsibility for EE benefs. in terms of a specific benef. and the options included; as the cost of these options incr. in future yrs, the ER is obligated to provide the benef. negotiated, despite its incr’d cost
• dual cov’g - in families where both spouses work, there is frequently cov’g of specific claims from each ER’s benef. pkg; ERs cust costs by specifying pmt limitations under such conditions
• benef. ceiling - ERs estab. a max payout for specific claims