Chapter 12: The Benefit Determination Process
Methods of financing employee benefit plans
1) Noncontributory - Total costs are paid by employers. 2) Contributory - Employers and employees share the total costs. 3) Employee financed - Employees pay total costs for some benefits.
Cost containment practices
1) Probationary period 2) Benefit limitation 3) Copay 4) Administrative cost containment 5) Deny service for preexisting conditions 6)Negotiate lower fees with providers 7) Develop programs that encourage wellness (e.g., smoking cessation) 8) Outsource benefits and administration 9) Self-insure 10) Provide accommodations for employees to return to work after illness or disability
Cost containment
An attempt made by organizations to contain benefit costs, such as imposing deductibles and coinsurance on health benefits or replacing defined benefit pension plans with defined contribution plans
Flexible benefit plan
Benefit package in which employees are given a core of critical benefits (necessary for minimum security) and permitted to expend the remainder of their benefit allotment on options that they find most attractive.
Administrative cost containment
Controlling costs through policies such as seeking competitive bids for program delivery
Copay
Copay requires that employees pay a fixed or percentage amount for coverage
Consumer-driven health care benefits
Cost link consumer choice of more or less expensive options to higher or lower individual costs. Also called consumer-directed health care plans
Employee Retirement Income Security Act (ERISA)
For employers who choose to have a retirement plan, this act sets some formidable rules that must be followed to be in compliance
Wage and price controls
Government regulations that aim at maintaining low inflation and low levels of unemployment. They frequently focus on "cost-push" inflation, limiting the size of pay raises and the rate of increases in prices charged for goods and services. Used for limited time periods only
Workers' compensation
Legally required programs in each state that provide payment of medical expenses and compensation for lost wages resulting from work-related injuries or disabilities State
Benefit limitation
Limit of disability income payments to some maximum percentage of income and limit of medical/dental coverage for specific procedures to a certain fixed amount.
Customer-driven health care
Medical care package where the employer finances the cost up to a dollar maximum and the employees search for options that best fit their specific needs
Probationary period
Period during which new employees are excluded from benefits coverage, usually until some term of employment (e.g., 3 months) is completed
Claims processing
Procedure that begins when an employee asserts that a specific event (e.g., disablement, hospitalization, unemployment) has occurred and demands that the employer fulfill a promise for payment. As such, a claims processor must first determine whether the act has, in fact, occurred.
Social security
Program based on federal law that provides retirement and disability benefits Federal
Unemployment Insurance (UI)
State-administered program that provides financial security for workers during periods of joblessness State
Employee benefits
The parts of the total compensation package (other than pay for time worked) provided to employees in whole or in part by employer payments such as life insurance, pension, worker's compensation, and vacation. Rewards are provided by the organization to employees for their membership and/or participation (attendance) in the organization.
Outsourcing
The practice of hiring outside vendors to perform functions that do not directly contribute to business objectives and in which the organization does not have a complete advantage As with payroll, companies may find that their benefits can be best administered by a company that specializes in benefits administration.
Market-based health care
see Customer-driven health care