Topic 8 and 9 Risk Flashcards
How much do ER typically spend on EE benefits and how is the rate of increase?
- Spend high $ on EE benefits, approx. 40% of payroll
- Rate of increase in cost is high - growing much faster than cash wages (people go on strike for better benefits)
Why do firms offer employee benefits?
-Attract and retain capable employees
-Tax advantages
-Productivity and better employee relations
-Employer can take advantage of group insurance
Non-contributory benefits financing
-ER pays the full cost of the plan
-EE is covered without making a financial contribution
- all eligible EEs must be covered
-Eligibility = participation
Contributory Benefits Financing
-ER and EE share the cost of the plan
-For an eligible EE become a participant, they must make a financial contribution
Voluntary Benefits Financing
EE pays for the entire cost of the insurance plan
Section 125 Plans (Cafeteria Plans)
- ER sponsored benefit plan that gives employees access to certain taxable and nontaxable pretax benefit
- employees contribute a portion of their salary on a pre-tax basis to pay for the qualified benefits
- ER can deduct the cost of EE benefits as an ordinary business expense (same as salary)
Income Taxes
-The EE is sometimes not taxed on the value of their ER-provided benefits
-Method to compensate an EE tax-free (for some benefits)
Flexible Spending Account (FSA)
-An EE agrees to reduce their salary pretax by a certain amount and money is deposited into an account
-Three types
~healthcare
~transportation (parking expenses)
~dependent (child care)
~medical care (co-pay & glasses)
-Any unused funds at the end of the plan year are forfeited to the ER
Mandatory/Compulsory Benefits
-Common traits are mandated participation and requires the ER to act in a risk-bearing capacity to provide insurance or benefits
-includes social security, worker’s comp, unemployment
Group Insurance
-The exposure unit is a group of individuals
-insures the whole group
-no underwriting
-look at the broad characteristics of the group to determine rates
Group Insurance Advantages
rates are generally lower than individual insurance
-for the same level of expected cost, GI is less expensive per EE than II
-no individual underwriting – especially helpful if a bad risk
- commissions tend to be lower
- ER helps collect the money
Method to Control Adverse Selection
- waiting periods
- pre-existing conditions exclusions
-Minimum participation requirement - Minimum group size
- steady flow of persons through the group (newer, younger, better risks should enter to replace older, less healthy risks)
-the reason the group exists (should exist other than insurance reasons)
Disadvantages to Benefits Plan
-coverage may be temporary
-An EE leaves the group -> coverage might terminate
Issues with Healthcare
High costs of healthcare
-high rates of inflation compared to the overall rate of inflation
-high premium for ER
-High costs for the government
High percentage of uninsured or underinsured person
-access problem
-27 million uninsured
High degree of 3rd payment for health care
-Insurance companies CIGNA, Aetna, and Blue Cross
-Government
-Employers
What rule can you think of when thinking about FSA?
The “Use it or loose it rule”
2-party Typical Market Transaction
- 2 party (supply and demand)
- price is the equilibrium price
- consumer know the prices of goods and services
3-party Healthcare Market Transaction
3 parties
-supply
-demand
-a financial entity that pays for healthcare goods/service
3-party Healthcare Market Transaction - Supply
seller/suppliers - usually referred to as a provider of HCGS
-EX: hospital, drug companies
3-party Healthcare Market Transaction - Demand
Buyers/demand - consumer of HCGS
-patient
-insured person
-EE of ER who provide health insurance as compensation
-Dependent of an EE covered by health insurance
3-party Healthcare Market Transaction - Financial Entity
Entity financially responsible for pays HCGS
-health insurers
-government
-ER (self-insured)
Lethal/Costly Decision
-classic moral hazard
-increased quantity demand for HCGS
-Fee-for-service reimbursement of providers
Fee-for-service Provider Reimbursement Moral Hazard
-payment system used for providers is typically fee-for-service reimbursement
-provider is paid a fee for each service rendered
-The provider then makes a claim to the insurer to pay for services
-insurer pays the fee for service
-retrospective payment by an insurer who didn’t know what the cost would be until they were billed
-an incentive for a provider - supplier induced demand (provide more services)
-incentive for insured - buy more based on degree of cost-sharing - moral hazard
Indemnity Plans General Characteristics
-1980 - 95% of EEs, 2023 3% of EE
-Insured person has complete freedom of choice of providers
-insured role: indemnity for covered losses
Indemnity plans cover
-room cost of the hospital
-surgeon’s fee
-follow-up visits from the hospital stay
What gaps exist in Indemnity Plans?
- nonhospital based expenditures are not covered
- even hospital stays has limited coverage
- balance billing - owe hospital amounts not covered by insurance
Major Medical Plans
-Benefits provided for a broad array of inpatients and out-patient services
- pays for routine, non-hospital based expenses not covered by basic indemnity plans
- higher limits for hospital stays
- broad coverage - few exclusions
- features cost-sharing (deductible and coinsurance)
Role of Insurers in Indemnity Plans
-Just indemnify insureds for covered losses
-Manage or coordinate care? -No
-Freedom of choice of providers? Yes
managed care plans
- Medical expense plan that provides covered services to the members in a cost-effective manner
- Choice of physicians and hospitals may be limited
Health Maintenance Organizations (HMO)
- removes incentives present under fee-for-service plans to do more rather than less
- does not always pay providers more for doing more
~ Key: places providers/hospital at financial risk for overutilization - providers can also not balance bill
HMO - Capitation Provider Reimbursement
-providers of HCGS are at financial risk for over-utilization
- risk shifting dynamic has changed from those under fee-for-service
Disadvantage to HMO Enrollment
-less freedom of choice when picking providers
-may have to change providers to join HMO
-Primary Care Physician gatekeeper
-no coverage for out-of-plan utilization
PPO general characteristics
-PPO contracts with preferred providers
-form a network of providers
-preferred providers agree to
~provide service at a discount from their “full charge”
~accept the PPO payment + any deductibles/copay as payment in full for service
-No balance billing
- not placed at financial risk for under utilization
How is a Consumer-Directed Health Plan (CDHP) different?
- Healthcare financing model in which consumers have an economic incentive to manage their care
-designed to engage people to make decisions on health and wellness-based consumption
-buy healthcare like other products
Why consumer directed health plans?
-behavior is responsible for 50% of Health care cost
-force employee awareness of costs
-enable empowered consumers
-80% of claims come from only 20% of the population
3 components of a CDHP
1) a healthcare reimbursement account
2) ER offers a high deductible health plan
- deductible is much higher than seen in other plans
- high out-of-pocket costs
- no charge for preventative costs
3) insurer makes info available to the insured to help them make better decisions
Consumer-Directed Health Plan (CDHP)
- coinsurance
- high deductible
- health care reimbursement account
- EE and ER can add funds (pre-tax)
- If you spend too much, you pay more
- covers catastrophic events- cost per person is capped
Health Reimbursement Account (HRA)
- EE can use money to pay deductibles and out-of-pocket costs
- funds roll over year-to-year
- HDHP - for catastrophic loss
- HRA for day-to-day health care costs
Medicare
A federal health insurance program for
- people 65 or older
- certain young people with disabilities
federally funded and federally administered
Medicaid
- provides coverage for low-income Americans
- joint federal and state program
- federal (60%) and state-funded
- state-administered (benefits and eligibility can vary from state to state since joint funding)
Patient Protection and Affordable Care Act
AKA Obama Care
-dependents covered to age 26
-lifetime limits are banned
-no charging higher rates for those with preexisting conditions and coverage of those conditions may not be excluded or reduced
- all preventative care and checkups free
How is Obama Care actually paid for?
-cost shifting to employers
-2000 penalty for employers who do not offer EE health insurance
-Additional Medicare tax on income over $200,000 annually is subjected to an additional tax of 0.9%
~250,000 for married couples filing jointly or 125,000 for married filing separately
Current Trends in Health Insurance
-pressure from the government on providers to provide transparency on costs
-specialty medications are driving costs exponentially (wegovy, HIV med, and cancer treatments)
-drugs to treat genetic diseases
-tele health and mental health have been pushed to the forefront
Employee benefits
any type of compensation other than direct current salary or wages
