GBA 1 - Group Health Plan Design

Explain the mechanics of (a) a prior authorization and (b) a quantity limits provision in a drug plan.

(a) A prior authorization (PA) program restricts coverage under the plan for certain drugs based on the patient's conditions and maximizes the outcomes of the medication. Under this program, the physician must call into the entity that is administering the PA program (typically the PBM or heakth plan). The physician answers questions about the patient's condition and, based on the information, the drug will either be covered under the plan or not. Many drugs that are subject to PA programs have monthly costs that range from $250 to $2,000 a month. Some drugs also have quantity limits in addition to a PA requirement. (b) Quantity limits (QLs) are predefined maximal quantities for specific medications. QLs restrict the number of dosage units (e.g., tablets or capsules) that can be dispensed for a 30-, 60-, or 90-day supply of a prescription. Originally established to ensure that certain medications could not be abused or overused, QLs may help in improving compliance with medication therapy. Instead of taking a lower strength of a drug more frequently, QLs prompt patients to obtain and take a higher dose less frequently.

Identify (a) the three factors that affect the cost of a dental plan and (b) the issues to be addressed in designing a dental plan

(a) The cost of a dental plan is affected by the design of the plan, characteristics of the covered group and the employer's approach to plan implementation. (b) There are several issues to be addressed in the design of a dental plan. Included are the type of plan, deductibles, coinsurance, plan maximums, treatment of preexisting conditions, whether covered services should be limited and the questions concerning orthodontic coverage.

Managed indemnity plans applied various standalone utilization management (UM) programs to traditional indemnity benefits. List some of these UM programs.

1.) Precertification of inpatient admissions. 2.) Concurrent review of ongoing confinements for medical necessity. 3.) Discharge planning. 4.) Precertification for selected outpatient services. 5.) Second surgical opinion (some plans no longer require these due to questionable cost-effectiveness). 6.) Case management for high-dollar cases.

What is a prohibited transaction?

A prohibited transaction occurs under ERISA if a fiduciary cause the plan to engage in a transaction with a part in interest that would constitute the: 1.) Sale or exchange, or leasing, of any property between the plan and a party in interest. 2.) Lending of money or other extension of credit between the plan and a party in interest 3.) Furnishing of goods, services or facilities between the plan and a party in interest 4.) Transfer to or use by or for the benefit of a party in interest of any assets of the plan 5.) The acquisition, on behalf of the plan, of any employer security or employer real property not otherwise specifically exempted by law or regulation.

Discuss the features of a rebate under a prescription drug program.

A rebate is an agreement between a PBM and a drug manufacturer to secure significant reductions in the cost of prescription drugs. Some of the savings are passed along to employers. Over the past ten years, rebates have grown from 1-2% of a payer's total drug expenses to 6-9% of the total. The growth in rebates paid to payers has paralleled the rise of pharmacy benefit inflation and the advent of multitiered copay designs.

Briefly discuss the concept of a Patient-Center Medical Home (PCMH)

A set of standards developed by the National Center for Quality Assurance (NCQA) describing specific for improving primary care. The standards provide practice information about organizing care around patients, working in teams and coordinating and tracking care over time. Although similar past standards have directed practices toward using systems, including electronic health records, these standards promulgated in 2011 support tracking care and aligns closely with many specific elements of the federal program that rewards clinicians for using health information technology to improve quality as directed by the Centers for Medicare & Medicaid Services (CMS) Meaningful Use Standards.

What are PPOs expected to do as new care models emerge that focus on preventive and primary care?

As new care models emerge that focus on preventive and primary care, such as patient-centered medical home (PCMH) and accountable care organization (ACO) models, PPOs are expected to do what they have done in the past: adapt their offerings to take advantage of market demands. While PMCH and ACO arrangements are still taking shape, they will likely be the inspiration for PPOs to begin offering more options to compete for attention.

In designing its total compensation package, an employer should seek to balance the various elements of its compensation system, including...

Basic cash wages and salary, current incentive compensation (current cash bonuses and company stock bonuses), longer term incentive plans and so-called employee benefits, to help meet the needs and desires of the employees on the one hand and the employer's basic compensation philosophy and objectives on the other. Thus, it is clear that the functional approach to planning and designing an employee benefit plan must remain consistent with the employer's compensation philosophy.

What do proponents about the CDHP have to say about the plan?

CDHP proponents conclude that until individuals pay for health care more directly, there is little pressure either for individuals to be actively involved in cost decisions or for the health care industry to control costs. CDHC must engage and inform the individual on the issues of health care costs by providing information on health care costs, quality and outcomes, so that individuals can escape the notion that more expensive health care is better care.

What are comprehensive plans, and how do they differ from basic major medical plans?

Comprehensive plans are an adaptation of the major medical approach. Up-front deductibles and coinsurance are applied to all hospital and medical services and procedures, not just to the supplemental charges as in a major medical plan. Thus, the subscriber shares in the cost of all benefits and charges. These plans are easy communicate to plan participants.

How and when should deductible and coinsurance amounts fluctuate?

Deductibles and coinsurance amounts in managed indemnity plans should be increased to keep pace with inflation or their cost-effectiveness deteriorates. Low deductibles do not encourage prudent use of the health care system. Coinsurance percentages typically cover expenses at 80% after the deductible but at lower rates (for example, 50%) for certain services subject to federal and state statutory requirements. Once coinsurance limits are met, all expenses are payable at 100% for the remainder of the plan year (usually the calendar year).

Discuss ERISA exemption as it relates to health plan litigation

ERISA preempts any state law (whether an enacted law, a regulation or case law) that relates to an ERISA benefit plan. The term "relates to" has been construed broadly. This type of preemption is known as "conflict preemption". ERISA does not preempt state laws regulation insurance, securities or banking. But, a self-funded ERISA plan cannot be deemed to be an insurer (or banker) for the purpose of applying a state insurance (or baking) law. In addition to ERISA's express preemption provision, ERISA has been held to preempt any state regulation that directly interferes with ERISA's enforcement scheme. This is known as "complete preemption" or "field preemption".

Explain the types of business or human resource related reasons why firms have established emoloyee benefit plans

Employers want to attract and retain capable employees. Having employee benefit plans in place fosters this objective. In many cases, plans are necessary to retain current employees. Also, employers hope that good benefit plans will foster corporate efficiency, productivity, and improved employee morale. Concerns for employees' welfare and social objectives are also reasons for providing benefits.

Provide examples of modifiable health risk factors

Examples of modifiable health risk factors are nutrition, weight control, physical activity, cholesterol, blood pressure, tobacco use, safety and mental well-being. Heath promotion programs seek to reduce these risk factors by promoting healthy lifestyle choices and by discouraging behaviors that are detrimental to good health

What is the role of incentives in wellness programs?

Incentives are a tool to help focus attention on health risks and to motivate desired behavior changes. People generally do not change their behavior without good reasons that outweigh the pain and annoyance associated with giving up longstanding habits. The purpose of wellness incentives is to provide those good reasons.

Initially, after WWII, hospitalization for mental illness was covered at the same level of benefits as that for non-psychiatric benefits. For what reasons, did insurers start to place limits, particularly on outpatient mental health care, soon after that?

It is believed that insurers started to place limits on outpatient mental health care because treatment often continued for indefinite lengths of time and there was much subjectivity surrounding mental disorders and treatment methods.

Define the concept of steerage and its function in a manged care program

Most managed care plans pay reduced levels of benefits when members use non-contracted (out-of-network) providers instead of contracted (in-network) ones. Steerage is the manged care company's way of directing members to in-network providers. Steerage is commonly accomplished through setting benefit differentials between in- and out-of-network care between 10% and 30%. Use of steerage is critical to maximize financial results of managed care. The managed care company's ability to negotiate favorable provider reimbursement rates is directly related to its ability to steer large numbers of members to contracted providers.

How does a predetermination-of-benefits provision in a dental plan operate?

Predetermination of benefit requires the dentist to prepare a treatment plan that shows the work and cost before any services begin. The treatment plan generally is required only for nonemergency services and only if the cost is expected to exceed some specified level such as $300. The carrier processes the information to determine exactly how much the dental plan will pay. Also, selected claims are referred to the carrier;s dental consultants to assess the appropriateness of the recommended treatment. If there are any questions, the dental consultant discusses the treatment plan with the dentist prior to performing the service.

List several special issues that can trigger health plan litigation

The following have been cited as special issues that can trigger health plan litigation: 1.) Failure to provide COBRA notices and coverage 2.) Exclusions of experimental medical treatments 3.) Erroneous certification claims 4.) Reduction or elimination of retiree health benefits

What is the highest accreditation granted to MBHOs by the National Committee for Quality Assurance?

The highest accreditation granted to MBHOs by the National Committee for Quality Assurance is "full" and is effective for a three-year period.

Today, prescription drugs represent 10-25% of an employer's overall health care costs. What factors have been cited as contributing to the dramatic increases in prescription drug costs?

The overwhelming majority of increases in expenditures on prescription drugs is attributable to the increased volume, mix, and availability of products, as well as cost increases passed on by the pharmaceutical industry. According to one report, recently drug-price inflation for branded products was the single most important factor driving up cost per unit. Direct-to-consumer advertising has also increased the demand for drugs. In addition, demographics are driving up prescription medication costs as the population ages. Another contributing factor is that more and more new drug therapies are targeting the "young old" in an effort to prevent certain diseases from progressing. In some cases, prescription drugs are a substitute for other forms of health care. Of note is that biotechnology drug spending is expected to account for about half of the future growth in drug prices.

What are the three legally recognized types of individually controlled accounts for health costs that could be used with a CDHP to take full advantage of favorable tax treatment?

The three legally recognized types of individually controlled accounts for health costs that could be used in a CDHP to take advantage of favorable tax treatment are: FSAs, HRAs and HSAs.

Is there a universally accepted and used used definition of managed care?

There is no specific and uniformly accepted definition of the term "managed care". Some use the term exclusively in the context of HMOs, while others view it as any plan that deviates in any manner from the traditional fee-for-service arrangements. The provider community often uses the term "managed care" to refer to an integrated treatment method that a patient is receiving rather than to a specific benefit design or provider reimbursement method. The ultimate definition of managed care may need to be one that embraces some financial risk and responsibility, a particular set of benefits, quality-of-care mechanisms and payment initiatives. A specific definition of managed care is not as important as having an understanding of the context in which it is applied. Managed care is best understood as a change in the process of health care delivery, rather than as distinct products. The definition of managed care as a process helps the reader understand how a specific product operates and how it can best address a plan sponsor's objectives.

What was commonly done in the past to ensure that preadmission certification was effective and that past patients used it?

This was accomplished by using a benefit design that reduced benefits for non-participation. Thus, for example, when preadmission certification for a procedure or other covered service was not received, a penalty was imposed. Fewer plan today require the participant to get involved in the preadmission certification process that is done routinely by hospitals.

Explain how plan sponsors and CDHP designers seek to provide the necessary tools for allowing plan participants to fully realize to potential of these plans.

To fully realize the potential of CDHPs, participants must be equipped with the tools to help them care for their own health and find the best and most efficient health care providers. The following features that comprise a CDHP assist as described: 1.) A high-deductible health insurance plan. This type of health insurance plan provides protection for the catastrophic losses but leaves the burden of minor losses on the individual; this burden should provide an incentive to select the best and lowest cost providers when health care is needed. 2.) A health reimbursement arrangement (HRA) or a health savings account (HSA). Either one of these accounts provides funds to cover minor health expenses and/or expenses not covered by the health insurance. Since the account's balance can be carried over from year to year, participants are encouraged to accumulate funds for future use. This is a contrast to the use-it-or-lose-it aspect of flexible spending accounts (FSAs). 3.) Information sources and tools to educate on health issues and to locate the highest quality and most cost-effective health care providers. Without easily accessible information on health care alternatives, it is difficult for plan participants obtain and use existing health information, answer questions about the individual;s health issues, and provide guidance on use, choice and interaction with health care providers. 4.) A conveniently accessible health coach or consultant. Even if information is made available, there are times when individual participants require the counsel of an expert to assist in understanding health issues, and to provide guidance on use, choice and interaction with health care providers. 5.) A proactive medical professional empowered to actively assist in cases of serious chronic conditions or illnesses. In contrast to less extreme health cases, a serious chronic condition or illness requires greater input from a medical professional. Such a person may contact the patient on a regular basis and act as a liaison and coordinator between the patient and his or her medical providers.

(a) Explain whether hearing care typically is covered by standard surgical and major medical policies and (b) describe the types of hearing care benefits typically included in separate hearing care benefit plans.

(a) Surgical procedures affecting the ear are normally covered in standard medical policies and generally are included in HMO coverage. In addition, some HMOs, major medical and comprehensive policies include hearing aids. However, more complete coverage is afforded by plans specifically designed to cover hearing care. (b) A common hearing care benefits package includes an 80% reimbursement for services and materials up to a maximum of $300 to $600. The frequency of benefit availability is usually every 36 months. Items that often are covered include: 1.) otologic examinations (by a physician or surgeon) 2.) audiometric examinations (by an audiologist) and 3.) hearing instruments (including evaluation, ear mold fitting and followup visits). Preferred provider plans in which access to a panel would result in discounts for audiologist fees as well as hearing-aid instruments also are available. Some service plans apply copayments when participating providers are utilized. Material costs can be reimbursed on a cost-plus-dispensing-fee basis. Additionally, a flexible spending account is a convenient vehicle to take care of hearing care expenses in the absence of benefit coverage.

Most employers are not prepared to use severe punitive tactics in their health promotion programs and most experts agree that pleasure or reward is a more effective long-term motivator than fear or punishment. List and escribe the types of positive incentives that are (a) tangible and (b) intangible.

(a) Tangible incentive rewards include: 1.) Cash 2.) Merchandise 3.) Vacation Days 4.) Avoidance of costs (such as health care premiums or deductibles). (b) Intangible rewards include: 1.) Recognition 2.) Personal challenges 3.) A sense of accomplishment 4.) Group competition 5.) A sense of belonging 6.) Acceptance and approval of peers Although intangible rewards have traditionally been more prevalent, today tangible rewards are more common as employers appreciate, and measure, the financial impact of reducing health risks in their workforce. Even when tangible rewards are the primary motivator, many intangible incentives are still present. For example, a cash prize awarded to a departmental team for a walking competition would likely be accompanied by recognition, a sense of accomplishment and the approval of peers. Incentive rewards are most meaningful and effective when closely tied to the behaviors they intend to reinforce. A good example of an incentive reward that meets this requirement is a program that allocates cash rewards to health care savings or reimbursement accounts offered as a part of a benefits program.

Pharmacies usually buy drugs from wholesalers, who buy them from the drug manufacturer. Within the domain of employer-sponsored prescription drug plans, define the variety of prices involved in the supply chain of pharmaceutical drugs.

(a) AWP: Average wholesale price is the price assigned by the drug manufacturer and used as a reference price for all discounts paid to pharmacies and PBMs. The AWP is used as a reference for pricing guarantees in public and private contracts. NOTE: The AWP pricing benchmark has been the subject of much criticism and a 2009 court ruling resulted in, among other things, the two largest publishers of AWP announcing that they were going to discontinue the publication of AWP in 2011. Since then, they have reversed their decision. (b) WAC: Wholesale acquisition cost (or average manufacturer price) is the price at which wholesalers buy pharmaceuticals from manufacturers. The reading notes that WAC pricing contracts are expected to replace AWP-based contracts. Recent industry actions suggest otherwise, at least in the short-term. (c) MAC: maximum allowable cost of a generic medication places a ceiling on the reimbursement for generic. The genesis of the MAC concept is the federal Medicaid program. The Centers for Medicare and Medicaid Services (CMS) publishes a federal upper limit price for all generic medications paid by the Medicare and Medicaid programs. PBMs and TPAs developed their own MAC lists to cover all generic medications. Since the generics are made by many manufacturers, several options are used for pricing the MAC. It may be the average cost of all manufacturer's' AWPs, the lowest AWP, or a formula for arriving at an aggregate AWP discount for the entire MAC list. Most plans offer payers a MAC list the will deliver a 50% or more discount off the AWP.

Explain (a) the typical levels of coinsurance or reimbursement provided under dental plans for the various types of dental procedures and (b) the use of maximum benefit provisions in dental plans and (c) the treatment of preexisting conditions under dental plans.

(a) Most dental plans are being designed, either through construction of the schedule or the use of coinsurance, so that the patient pays a portion of the costs for all but preventive and diagnostic services. The intent is to reduce spending on optional dental care and to provide cost-effective dental practice. Also, many believe that employees who participate financially in the plan make better use of it. The following are typical reimbursement levels provided under dental plans for the various types of dental procedures. Preventive and diagnostic expenses generally are reimbursed at 80% to 100% of the usual and customary charges, and full reimbursement is quite common. Restorations, and in some cases replacements, may be reimbursed at 70% to 85%. In other cases, the reimbursement level for replacements is lower than for restorative treatment. Orthodontics, implantology (where covered) and occasionally major replacements have the lowest reimbursement levels, and most plans reimburse no more than 50% to 60% of the usual and customary charges for these procedures. (b) Most plans have a calendar-year maximum for non orthodontic expenses and sometimes a separate lifetime maximum. Orthodontic and implantology expenses generally are subject to separate lifetime maximums. Unless established at a fairly low level, a lifetime maximum will have little or no impact on claim liability and only complicates plan design. Calendar year maximums, though, encourage participants to seek less costly care and may help spread out the impact of accumulated dental neglect over the early years of the plan. The typical calendar year maximum is somewhere between $1,000 and $1,500. (c)The major concern about how to treat preexisting conditions in a dental plan concerns the replacement of teeth extracted prior to the date of coverage. Preexisting conditions are handled in several different ways. They may be excluded, treated as any other condition, or covered on a limited basis (for example, coverage on one-half the normal reimbursement level) or subject to a lifetime maximum.

5.) (a) How does a scheduled dental plan operate and (b) what are the advantages and disadvantages of a scheduled plan?

(a) Scheduled plans pay a fixed allowance for each dental procedure. For example, the plan might pay $50 for a cleaning and $400 for root canal therapy. A scheduled plan may include deductibles. When deductibles are included in scheduled plans, the deductible amounts usually are small or, in some cases, required on a lifetime basis only. Coinsurance provisions are rare in scheduled plans since the benefits of coinsurance can be achieved through the construction of the schedule by setting the level of reimbursement for each procedure to reflect reimbursement objectives. (b) The advantages of scheduled plans include: 1.) Cost control 2.) Uniform payments 3.) Ease in understanding the plan 4.) Employee relations reasons related to employee appreciation of the plan. Disadvantages include: 1.) Benefit levels must be examined and potentially changed periodically to maintain reimbursement objectives. 2.) Plan reimbursement levels will vary in different locations according to the cost of dental care in that area unless multiple schedules are utilized. 3.) If scheduled benefits are set near the maximum of the reasonable and customary range, dentists who usually charge less than the prevailing rates may be influenced to adjust their charges upward.

(a) Vision care plans typically include what benefits? (b) Describe the various approaches to vision care plan design

(a) Vision care plans usually cover routine eye examinations; certain ocular tests such as coordination of eye movements, tonometry, depths perception for children and refraction testing for distance; and near vision. The plans also cover certain products such as lenses, standard-type frames and contact lenses. (b) Generally plans use frequency limits on the number of times a participant can receive a benefit such as lenses or exams. Twelve - or 24 -month periods are common frequency limits. Vision plans then may use a schedule-of-benefits approach, preferred provider networks and/or flexible benefits approaches in designing a plan. A schedule-of-benefits plan sets maximum dollar limits on the amount that will be paid toward a specific benefit, say $50 for an exam, $60-$140 for lenses depending on their complexity. The plan pays the lesser if the charged amount or maximum. Preferred provider networks for vision benefits are similar to those for medical care. Participants who use a vision care provider in the network pay a minimum co-payment for services and discounted charges for products. There is sometimes coverage for services/products when a non-network provider is used, with reimbursement based on a schedule or usual, customary and reasonable (UCR) charges. Vision benefits can also be included in a flexible benefit plan. Also, if not covered under a plan, under a flexible spending account, the employee can fund planned vision care expenses (and also dental expenses) on a pretax basis. (Vision care, hearing care and dental services expenses qualify for reimbursement under a health savings account (HSA) and a health reimbursement arrangement (HRA).)

Briefly summarize the methods that can be used for handling risk

1). Avoidance. Avoidance means that one does not acquire or take on the risk to begin with or gets rid of the risk and therefore is not subject to the risk. You can avoid the risk of breaking a leg while skiing by not skiing. 2.) Control. Control is a mechanism by which one attempts either to prevent or reduce the probability of a loss taking place or to reduce the severity of the loss if it does take place. You can reduce the risk of having a heart attack by giving up smoking. 3.) Retention. Retention means that the risk is assumed and paid for by the person suffering the loss or taking responsibility for the loss. You can retain the risk of small automobile loss by buying a car insurance policy with a $500 or higher deductible. 4.) Transfer. Transfer is a concept in which one switches or shifts the financial burden of risk to another party. 5.) Insurance. Insurance is a form of transfer in which the financial burden of a risk is transferred to an insurance company.

In determining to whom - beyond full-time workers - an employer wants to extend coverage of its employee benefit plans, an employer must consider adequacy of protection and cost. What are the classifications of employees that are often considered seperately when determining benefit coverage?

1. Active full-time employees. 2. Dependents of active full-time employees. 3. Retired former employees. 4. Dependents of retired former employees. 5. Disabled employees and their dependents. 6. Surviving dependents of deceased employees. 7. Terminated employees and their dependents. 8. Employees (and their dependents) who are temporarily seperated from the employer's service, such as during layoffs, leaves of absence, military duty, strikes and so forth. 9. Individuals other than full-time active employees (for example, part-time employees).

Identify the steps used in applying the functional approach to employee benefit plan design, review, and revision.

1. Classify employee (and dependent) needs or objectives in logical functional categories. 2. Classify the categories of persons the employer may want to protect. 3. Analyze the benefits presently available under the plan in terms of functional categories of needs or objectives, in terms of categories of persons the employer may want to benefit, and in terms of regulatory requirements and possibly mandatory coverages. 4. Determine any gaps in benefits, or overlapping of benefits, or both, provided from all sources under the plan and other benefit plans in terms of functional categories of needs and the persons to be protected. 5. Consider reccomendations for changes in the employer's present employee benefit plan to meet any gaps in benefits and to correct any overlapping of benefits, including possible use of the flexible benefit (cafeteria plan) approach. 6. Estimate the costs or savings from each of the recomendations made in step 5. 7. Evaluate alternate methods of financing or securing the benefits previously recommended as well as the employee benefit plan's existing benefits. 8. Consider other cost-saving techniques in connection with the recommended benefits or existinf benefits (plan possible cost-containment strategies). 9. Decide upon the appropriate benefits, methods of financing and sources of benefits as a result of the preceding analyses. 10. Implement the changes. 11. Communicate benefit changes to employees. 12. Periodically reevaluate the employee benefit plan.

List the categories of benefits that generally are considered to fall under a broad view of employee benefits

1. Legally required benefits, such as Old-Age, Survivors, Disability, and Health Insurance (OASDHI), workers' compensation, unemployment insurance, and state temporary disability income insurance. 2. Payments for time not worked, such as rest periods, lunch breaks, vacations, and holidays. 3. Employer's share of medical and medically related benefits. 4. Employer's share of retirement and savings plan payments. 5. Miscellaneous benefits such as employee discounts, severance pay, education expenditures, child care, etc.

Describe the types of employee needs and exposures to loss that may be covered ynder employee benefit plans.

1. Medical expenses incurred by active employees, by their dependents, by retired (or certain otherwise terminated, suspended or temporarily not in service) employees or former employees and by their dependents. 2. Losses due to employees' disability (short term and long term). 3. Losses resulting from active employees' deaths, from their dependents' deaths and from the deaths of retired (or certain otherwise terminated, suspended or temporarily not in service) employees or former employees. 4. Retirement needs of employees and their dependents. 5. Capital accumulation needs or goals (shirt term and long term). 6. Needs arising from unemployment or from temporary termination or suspension of employment. 7. Needs for financial counseling, retirement counseling, and other counseling services. 8. Losses resulting from property-and-liability exposures and the like. 9. Needs for dependent care assistance (child-care or elder-care services). 10. Needs for educational assistance for employees themselves or for employees' dependents or for both. 11. Needs for custodial-care expenses (long-term care) for employees or their dependents or for retired employees or their dependents. 12. Other employee benefit needs or goals (such as a desire to participate in corporate stock plans or other longer term inventive programs).

Summarize three major federal tax advantages associated with employee benefit plans

1. Most contributions to employee benefit plans by employers are deductible as long as they are reasonable business expenses. 2. Within certain limits these employer contributions are generally not considered income to employees. 3. In certain types of retirement and capital accumulation plans, benefits accumulate tax-free to the employee until distributed

Identify and describe three types of total compensation / benefits policies that employers may adopt.

1. Average compensation / benefits policies follow the generally prevailing compensation / benefits level in their firm's industry or community or both. 2. High-compensation / benefits policies attempt to attract higher levels of management, technical, and general employee talent. 3. Low-compensation / benefits policies are lower than average and more modest in scale.

List the types of overall questions that should be addressed in setting benefit objectives

1. What benefits should be provided? 2. Who should be covered by the benefit plan? 3. Should employees have benefit options? 4. How should the benefit plan be financed? 5. How should the benefit plan be administered? 6. How should the benefit plan be communicated?

What is a combination dental plan?

A combination dental plan is one in which certain procedures are reimbursed on a scheduled basis, while others are reimbursed on a nonscheduled basis. These types of plans seek to provide a balance between the need to emphasize preventive care and cost control. The combination approach shares many of the same disadvantages as scheduled and nonscheduled plans, at least for certain types of expenses.

Explain the concepts of physical hazard, moral hazard, and morale hazard.

A physical hazard us a physical condition, such as defective wiring in a building or the absence of fire-extinguishing equipment, that increases the chance of loss. A moral hazard exists when dishonesty or other character defects in an individual increase the chances of loss. A classic example of a moral hazard is arson. Because of moral hazards, premiums are higher to all insureds including the honest insureds. Insurers attempt to control moral hazard by careful underwriting and by various provisions such as deductibles, waiting periods, exclusions and riders. Morale hazard consists of carelessness or indifference that individuals have because they are covered by insurance and thereby protected against loss. An important problem in the benefits area that can be considered a morale hazard is employees or medical providers scheduling unneeded medical tests or medications. Note that the distinction between moral and morale hazard is not made in some areas of studies.

Are a plan administrator's decisions on benefits claims accorded deference by the courts? Explain.

A plan administrator's decision on benefits claims normally are accorded deference by the courts unless there is a substantive issue raised as to whether 1.) The relevant terms of the plan are overly vague or ambiguous 2.) The plan document fails to expressly include a provision that the courts should defer to the administrative decisions of the plan's fiduciary or 3.) There is an apparent conflict of interest, and the fiduciary would be personally or institutionally affected by the benefit decision.

Explain the concept of adverse selection

Adverse selection exists when individuals who have higher-than-average risks join a group or comprise a larger percentage of a group than anticipated, because of the availability of insurance or other benefits. In that case, they are said to "select against" the insurer.

Define a participant or beneficiary for the purpose of an ERISA benefit claim.

An ERISA benefit claim can be brought by a participant or beneficiary. For this purpose, a participant is any employee or former employee who is or may become eligible to receive a benefit, or whose beneficiaries may become eligible to receive a benefit. A nonemployee in an ERISA plan, such as a partner or an owner, is considered a beneficiary with standing to pursue a benefit claim. Also, under ERISA, a benefit claim can be brought for benefits due, or for declaration of a right to future benefits; generally extra-contractual damages and punitive damages are unavailable.

Identify the fundamental components or factors of the managed care spectrum that can be used to compare managed care plans with traditional fee-for-service comprehensive medical plans and also with each other

Aside from the specific plan features, the fundamental components that distinguish the operation of managed care plans include the following: 1.) Degree of freedom in choice of providers. 2.) Degree of steerage. 3.) Responsibility for claims handling. 4.) Degree of external utilization management control. 5.) Referral management. 6.) Provider reimbursement methods. 7.) Whether the patient is responsible for any balance billing if actual charges exceed the amount of provider reimbursement. 8.) Rating and financial methods.

Which risk-handling alternative is the only one that is mutually exclusive of the others? Why?

Avoidance. When you avoid a risk, you have no losses, so there is no need for other risk-handling techniques.

What is the difference between a traditional prescription drug plan under a group health policy and today's "carved-out" plan?

Before the widespread adoption of carved-out plans in the 1990s, the term prescription drug plan was most often used to describe a prescription drug benefit within a health plan member's major medical coverage or a separate benefit sold as a "rider" to the major medical package. Under such a program, plan members submit receipts to a claims administrator or insurance company and are reimbursed for prescription drugs in the same manner as for medical expenses, often subject to an annual deductible and a 20% coinsurance payment. Under these plans, the participants pay the full cost at the pharmacy and then file a claim for reimbursement. The newer prescription drug plan usually is "carved-out" from the medical benefit and is typically administered by a pharmacy benefit manager (PBM) or third-party administrator (TPA). The plan offers payers discounts off normal pharmacy charges, electronic claims administration according to benefit requirements and utilization reports. It also offers programs to reduce costs through mail service and the internet, and rebates from manufacturers for volume purchasing.

Briefly describe the key findings of the American Academy of Actuaries and Government Accountability Office (GAO) studies regarding impact of CDHPs on health plan cost and trend.

Both the American Academy of Actuaries and Government Accountability Office studies reported favorable cost results for CDHPs. The actuaries' study showed significant savings in first-year costs and subsequent year trend rates as compared to traditional PPO plans. Similarly, GAO reported spending and utilization increased by a smaller amount or decreased for HRA enrollees compared with those in PPO plans. However, note that these favorable results may not be generalized. Individual employer experience may differ because of such factors as plan design, large claim impact, group demographics and employer contribution strategy.

What is the key distinction in level of coverage between HMOs and the PPO and POS plans?

In HMOs, the member receives no coverage for medical care or treatment received outside of the HMO, except for emergency treatment or when traveling out of the network's coverage area. In both the PPO and POS plans, the member can still obtain care out of network and receive benefits, though at a reduced rate..

Explain the three-tier prescription drug plan.

In a three-tier prescription drug plan, the lowest tier is for generics, the next higher tier is for preferred brands, and the highest tier is for nonpreferred or nonformulary brands.

May the fiduciary responsibility of investing the assets of the plan be transferred to an investment manager? Explain.

In duly appointing an investment manager in writing and in accordance with the procedural requirements of ERISA, the fiduciary responsibility for investing or otherwise managing the assets of the plan may be transferred to the manager within the terms of the delegation. Yet, the named fiduciary would still be held liable for imprudently selecting or retaining the manager or for permitting, concealing or failing to remedy a known breach of that fiduciary's responsibility to the plan.

Briefly discuss the concept of clinical resource management

Medical management practice that focuses on developing clinically integrated supply chains seeking to improve health outcomes and patient safety while minimizing health care costs. Through collaborative work with physicians and other clinicians, managers focus on process improvements aimed at delivering quality outcomes while reducing overall medical costs. There are a variety of components that comprise clinical resource management.

What organizations provide dental care coverages?

Organizations providing dental care coverage may be separated into three categories: insurance companies; Blue Cross and Blue Shield associations; and others, including state dental association plans (ex: Delta plans), self-insured, self-administered plans and group practice or HMO-type plans. The Delta plans currently cover the largest share (over 31%) of the population. One insurance company, MetLife, insures approximately 12% which is slightly higher than the Blue Cross and Blue Shield plans. All other carriers cover less than 10% of the market.

What kind of illness makes up a significant portion of the total cost of health care

Over the years, researchers have observed that preventable illness makes up a significant portion of the total cost of health care.

Discuss the methodology for establishing PBM prices.

PBM prices can vary dramatically by region, age of enrollees, type of industry covered by the plan, overall health of beneficiaries, size of the group that is being covered and, most specifically, by the elements the plan sponsor wants to include. A pricing scheme composed of a combination of discounts off the AWP and a dispensing fee are paid to retail pharmacies or the mail-order firm for the actual medication.

Briefly explain why the preferred provider organization (PPO) concept was developed

PPOs were sponsored by national inruance companies, third-part administrators, BC/BS plans, and even hospital organizations for their customers as an alternative to compete against emerging HMOs. PPOs gained quick popularity with employers that wanted cost savings but were unwilling to reduce provider choice as much as that required in HMOs.

Are professional service providers to a plan considered fiduciaries? Explain.

Professional service providers to a plan acting strictly within their professional roles and not exercising discretionary authority or control over the plan or providing investment advice for fees or other compensation are unlikely to be considered fiduciaries of the plan.

Do employee benefit plans cover property and legal liability risks? Explain why or why not.

Property and legal liability risk coverages can be found in a number of employee benefit plans. For example, homeowner insurance, auto insurance, and group legal services plans all involve property and liability risk coverages. Nevertheless, there is a much greater emphasis on personal risk in employee benefit plans.

Explain the nature of property and legal liability risks.

Property risks involve potential losses to the value of one's real or personal property. Fire, flood, earthquake, wind, theft and auto collisions are examples of potential sources of property risks; and a dwelling house, furniture, auto and jewelry are examples of types of potential property subject to loss. Legal liability risks involve losses resulting from the negligent or wrongful actions of individuals that result in injuries or losses to others. They stem from lawsuits by the injured people seeking damages from negligent parties. Some common sources of legal liability are negligent behavior associated with the ownership and use of automobiles, the operations of one's home or business, the manufacture and/or sale of products, the performance of one's job and professional misconduct.

Explain the arguments in favor of, and opposed to, the use of deductibles and coinsurance as cost-containment devices

Proponents argue that deductibles an coinsurance: 1.) May lead to a reduction in the use of health services and, thus, a reduction in costs 2.) May reduce premiums because the health plan pays less. Savings are theoretically passed on to the employer and employee, although practically speaking, some of the costs are shifted from the employer and employee 3.) Create equity because the amount of insured persons pay is related to their use of health services Opponents argue that deductibles and coinsurance: 1.) May not reduce utilization of health services because physicians, not consumers, make such decisions 2.) May discourage preventative care 3.) Present a financial barrier to necessary care

What are the advantages and disadvantages of lifetime deductibles?

Proponents of a lifetime in dental plans claim that it has the advantgae of avoiding the cost to the plan of the accumulated dental neglect of the participants. In addition, they claim that individuals are not denied coverage but merely induced to invest in their own dental health as a condition precedent for adequate dental coverage. Those who oppose the use of a lifetime deductible claim the following four disadvantages: 1.) A lifetime deductible promotes early over utilization by those anxious to take advantage of the benefits of the plan. 2.) Once satisfied, lifetime deductibles are of no further value for the presently covered group. 3.) The lifetime deductible introduces employee turnover as an important cost consideration of the plan. 4.) If established at a level that will have a significant impact on claim costs and premium rates, a lifetime deductible may result in adverse employee reaction to the plan.

How does pure risk differ from speculative risk?

Pure risks involve situations where only two alternatives are possible - either the risk will not happen (no financial loss), or it will happen and a financial loss takes palace. For example, the risks of fire, auto accidents, illness, unemployment, disability, theft of property and earthquakes are all pure risks. Also, many employee benefit coverages fall into this classification. It should be noted that nothing positive can result from a pure risk. Illness can be used as an illustration of pure risk. The best thing that can happen is for one not to become ill because if one does become ill, a negative result takes place. It should also be noted that many pure risks can be insured. Speculative risks involve situations where a possibility that does not exist in a pure risk is present, namely, the possibility of a gain. Thus, speculative risks have three potential outcomes: a loss, no loss, or a gain. Some examples of speculative risks are the purchase of a share of common stock, acquiring a new business venture, or gambling.

Describe the relationship of peril and hazard to risk.

Risk, peril, and hazard are interrelated concepts. Risk is defined as uncertainty concerning the possibility of a loss. A peril basically is the cause of a loss. Such things as fires, floods, theft, illness, and death are perils. A hazard is a condition that increases the probability that a peril will occur or tends to increase the severity of the loss when a peril occurs.

Describe the types of safeguards against adverse selection used by insurance companies in underwriting contributory dental plans.

Safeguards used by insurance companies to discourage adverse selection in the underwriting of contributory dental plans include: 1.) Combining dental plan participation and contributions with medical plan participation. 2.) Limiting enrollment to a single offering, thus preventing subsequent signups or dropouts. 3.) Requiring dental examinations before joining the plan and limiting or excluding treatment for conditions identified in the exam. The Health Insurance Portability and Accountability Act (HIPAA) limitations do not apply as long as the dental benefits are "limited in scope" and are available under a separate policy or rider. 4.) Requiring participants to remain in the plan for a specified minimum time before being eligible to drop coverage.

What distinguishes self-funding from the insurance method of financing employee benefit plans?

Self-funding or self-insurance of employee benefit plans means that an organization retains the risks as opposed to an insurance company taking on the risks in return for a premium. For self-funding, the key characteristic of an ideally insurable risk that must be present is that the organization must be big enough to permit the combination of a sufficiently large number of exposure units to make losses predictable. That is, a program must be based on the operation of the law of large numbers. Obviously, few organizations are large enough to engage in a sound program that meets requirements of an ideally insurable risk without some arrangement with an insurer. Indeed, many so-called self-funded employee benefit plans transfer some of the pure risks undertaken to an insurer in whole or in part.

Discuss the importance of price and quality transparency to participate in a CDHP.

Since an underlying premise of CDHPs is that that plan participants are well informed, it is essential that they are given relevant health information germane to their decision making. This necessitates detailed and understandable information about provider quality, health costs, available treatments and best medical practices. The tools provided must be easy to access and use. Employees can often access this information from tehir company's website.

How are practitioners expecting consumer-driven health plans (CDHPs) to evolve over time?

Some practitioners expect the consumer-driven health plans to evolve and change over time. Whereas the initial design merely linked a high-deductible supplemental major medical plan with a savings account, future evolution will build greater sophistication into the criteria for funding the savings component of the plan. Under this evolutionary schema, second-generation CDHPs would entail rewards, discounts or other incentives when employees make behavioral changes or demonstrate thoughtful health care consumption. By tailoring these incentives carefully, employers could reward those who otherwise would be most likely to incur plan costs. Both variables of price and utilization could be affected with the proper incentives. Looking even further into the future, CDHP theorists see greater personalization and the possibility of optimizing the relationship between health care costs and employee performance.

Briefly discuss the concept of inpatient clinical pathways (ICPs)

Structured care tools utilized by hospitals to eliminate gaps between usual care and best care in a hospital setting. Each ICP is tailored for a common clinical condition and transforms previously illegible, error-prone and inappropriately variable physician orders in legible, evidence and expert-based best practice.

The process of determining the optimal incentive amount is an art and a science. Explain.

Success with incentives requires understanding the culture of a company, the related benefit structure and other aspects of the covered population. To maximize its perceived value, an incentive should be designed so that participants' perceived value is high relative to the employer's actual cost. Such an approach might lead one employer to offer lump-sum cash rewards, another to utilize raffles for high-value prizes and another to offer highly visible discounts on health benefit premiums Some experts recommend setting incentives, especially cash rewards, at as low a level as possible while still retaining their effectiveness. The optimal reward amount should be just enough to tip the scales. Individuals who have been moved to the "contemplation" stage by wellness program communications and education may look at a small incentive amount as a "token" - not really meaningful enough on its own to motivate a behavior change. However, when combined with factors such as aggressive education, that token becomes sufficient reason to make a change now rather than waiting for a better reason. The reward amount should be commensurate with what the individual is being asked to do in return. Finally, when designing an incentive program, the possible tax consequences for tangible rewards should be considered.

Which law is particularly important in protecting patient information?

The Health Insurance Portability and Accountability Act (HIPAA) plays a particularly important part in protecting sensitive patient information gathered during behavioral treatment.

Explain the significance of the Taft-Hartley Act in employee benefit planning.

The Labor-Management Relations Act, also called the Taft-Hartley Act, sets forth the framework for good-faith collective bargaining over wages, hours, conditions and terms of employment and employee benefits. It, along with the Internal Revenue Code (IRC), established the distinction between retirement benefits and welfare benefits. It also providea the regulatory framework for administration of these benefits in a collective bargaining agreement. As such, it is the legislative basis on which jointly trusteed benefit plans are founded.

What is the functional approach to employee benefit planning?

The application of systematic method of analysis to an employer's total employee benefits program. It analyzes the organization's employee benefit program as a coordinated whole in terms of its ability to meet various employees' (ond others') needs and to manage loss exposures within the employer's overall compensation goals and cost parameters

Risk

The concept of risk is important in employee benefit planning. Risk in this context means uncertainty with respect to possible losses. It refers to the inability to determine with definiteness (certainty) the actual number and value of the claims that a benefit plan will have to meet.

What is the starting point in the design of any employee benefit plan?

The design of any employee benefit plan should start with setting overall objectives from the standpoints of both the employer and the employees.

Explain the principle of indemnification

The fact that insurance is used to make the victims of losses whole reflects the principle of indemnification on which insurance is structured. An insured is indemnified if a covered loss occurs. That is, he or she is placed in somewhat the same situation that existed prior to the loss, for example, reimbursement for damaged property, medical bills, disability income and the like.

In evaluating health risk assessments of wellness programs within the context of the Americans with Disabilities Act, what has been the position of the Equal Employment Opportunity Commission (EEOC)?

The general position of the EEOC, which administers ADA, is that a wellness program is "voluntary" if an employer neither requires participation nor penalizes employees who do not participate. Based on current EEOC informal guidance, if an employee refuses to participate in a heath risk assessment and, as a result, does not have access to the incentive offered in connection with the health risk assessment, the EEOC may take the position that the incentive is actually a "penalty" fore those employees who do not participate in the health risk assessment and may violate the ADA. This position, however, is not binding on courts and has been rejected in at least one federal court ruling.

What is the market composition of behavioral health care benefits?

The majority of behavioral health care benefits sold in the United States today are purchased by large groups that buy comprehensive health care and other insurance benefits for their covered members. The smaller the group, the more likely it is that behavioral benefits are sold as an integrated part of the general health plan, which may or may not have a specialty MBHO provide the behavioral benefit. Behavioral benefits are sold through multiple channels including large brokerage and consulting firms, large MBHO sales forces and health carrier sales forces.

How does the group insurance underwriting technique used in employee benefit plans allow the problem of adverse selection to be dealt with differently from the way it is handled under individual insurance?

The management of adverse selection under group insurance contracts necessarily is different from the approach used in individual insurance. Group insurance is based on the group as a unit and, typically, individual insurance eligibility requirements are not used for the group insurance underwriting used in employee benefit plans. As an alternative, the group technique itself is used to control the problem of adverse selection.

What procedures tend to be excluded from dental plans?

The range of procedures tend to be covered under a dental plan is an important design consideration. In addition to orthodontics and implantology, other procedures occasionally excluded are surgical periodontics and temporomandibular joint (TMJ) dysfunction therapy. Although rare, some plans cover only preventive and maintenance expenses.

Explain how the concept of replacement ratio can be used by firms for setting benefit levels of retirement and disability plans.

The retirement income objective might be expressed in terms of some percentage of the estimated final pay of an employee, or a so-called replacement ratio. In designing a retirement plan to meet this objective, income from Social Security, various capital accumulation benefits and the retirement plan itself would be considered. The same kind of analysis can be used in designing a disability income plan in terms of a replacement ratio of average or normal earnings. Income from all sources under the total compensation package, as well as the disability income plan itself should be considered.

How does a network system in a prescription drug program operate?

Typically, to receive coverage, employees participating in a prescription drug program must have their prescriptions filled by a network pharmacy, except in emergencies. Some plan sponsors will pay for prescriptions filled outside the network but may reduce reimbursement up to what would have been paid had the member gone to a participating pharmacy. Pharmacies join networks and provide services at reduced rates in exchange for volume business. It is up to the PBM to design a network that meets the needs of enrollees and is convenient and acceptable. A tight network of pharmacy providers allows PBMs to control costs and quality effectively.

Under GINA provision, what three options are available to plan sponsors that want to use health risk assessments?

Under GINA provision, plan sponsors that want to use health risk assessments have three options: 1.) Implement a health risk assessment that does not solicit genetic information, so that the employer may provide an incentive to participants for completing the health risk assessment, if desired. 2.) Implement a health risk assessment that solicits genetic information, but does not: (a) provide an incentive for taking the health risk assessment, or (b) make the request prior to or in connection with enrollment; or 3.) Implement a variation on the programs described above by administering two health risk assessments - one that does not solicit genetic information, for the completion of which an employee may earn a reward, and one that solicits genetic information. The regulations approve this design, provided that the health risk assessment that solicits genetic information is wholly voluntary, and a participant;s completion of or failure to complete it will not affect the reward for the completion of the other health risk assessment.

What does the term "genetic information" encompass under GINA?

Under GINA, "genetic information" includes information about an individual's genetic tests or the genetic test of family members, family medical history or any request of or receipt by an individual or family member of genetic services, which includes genetic tests genetic counseling and genetic education.

Does the prospect of living a longer, healthier life motivate individuals to adopt healthy behaviors?

Unfortunately, the prospect of living a longer, healthier life does not motivate individuals to adopt health behaviors. Research shows that among heart attack patients, for whom behavior change is an immediate life-and-death issue, 90% do not change their unhealthy habits even when ordered to do so by their doctor.

What is a behavioral health care care-out program and for reasons does it have the potential to produce significant savings?

Viewed by proponents as the solution to the lack of adequate mental health care in most plans, a behavioral health care carve-out program is one that separates, or carves out, mental health and chemical dependency services from medical plan and provides them separately, usually under separate contract and from a separate company known as a managed behavioral health care organization (MBHO). Such a program has the potential to produce significant savings because 1.) it is usually managed by firms that specialize in behavioral health treatment; 2.) it allows large, self-funded employers to offer the same behavioral health benefits all health plans offered; and 3.) it allows a health plan to minimize adverse selection.

How does the strategy behind the concept of consumerism help contain increases in health care?

When applied effectively, health care consumerism does more than simply shift costs; it more appropriately helps engender greater responsibility on the part of the health plan member for decisions involving lifestyle, health care consumption, and cost.

Discuss the impact of CDHPs on consumer behavior and quality of care.

While critics of CDHPs often contend that plan savings result from participants forgoing necessary care, a study conducted by the American Academy of Actuaries reported otherwise. Among the findings of the study were the following: 1.) CDHP participants received the same or higher levels of care as those in traditional plans. 2.) CDHP participants showed significantly higher use of preventive services. 3.) CDHP participants received the same or higher levels of care from chronic conditions such as diabetes and hypertension.

Has the increase in costs only affected the private industry? Explain.

With the burgeoning over-age-65 population and growing entitlements costs, cost control is as much a priority for those state and federal agencies responsible for health care delivery as it is for employer-sponsored plans. Both Medicare and Medicaid programs actively pursue ways to encourage managed care options to those populations covered by these programs.

What employer compliance issues apply to HSAs, HRAs and FSAs in the following areas: 1.) ERISA 2.) Nondiscrimination Rules 3.) COBRA continuation 4.) Trust requirementss

1.) HRAs and FSAs sponsored by employers subject to ERISA generally are ERISA plans. This would subject these plans to the normal responsibilities imposed by ERISA, such as reporting and disclosure requirements. HSAs, on the other hand, generally would not be considered ERISA plans, even if funded by the employer involvement with the HSA is limited. 2.) Different types of nondiscrimination rules apply to HSAs, HRAs and FSAs. HSAs (if receiving employer contributions) must provide comparable employer contributions to all employees participating in an HSA for each coverage period. If the HSA contributions are made through a cafeteria plan, these contributions would be subject to cafeteria plan nondiscrimination rules, rather than the general HSA comparability rules. HRAs are subject to the general nondiscrimination requirements for self-insured medical expense reimbursement plans (and for certain insured plans as a result of health care reform of 2010). Health FSAs are subject to both the general nondiscrimination requirements for self-insured medical expense reimbursement plans, and also are subject to the cafeteria plan nondiscrimination rules. 3.) COBRA continuation coverage rules apply to both HRAs and FSAs, but do not apply to HSAs. 4.) HSA assets must be held in a trust or custodial account, whereas no such trust or custodial account is needed for an HRA or an FSA.

Explain the: 1.) incentive 2.) disincentive 3.) combination strategies that have been considered in the design of PPO plans.

1.) Incentive approach - This approach was used when the plan sponsor's primary objective was to introduce a managed care plan with the least amount of employee disruption. It offered members richer preferred benefits while maintaining existing benefit level for nonpreferred benefits. Compared to a standard comprehensive medical plan, which paid 80% for covered services, an incentive approach would pay, for example, 100% for preferred expenses, while nonpreferred expenses would be kept at the prior 80$ level. Note that premiums likely increased, because of the higher benefit payments, unless negotiated provider arrangements and the impact of utilization controls were sufficient to offset the benefit increase and additional administrative expenses. 2.) Disincentive approach - This approach was used when the primary objective was cost savings with preferred benefits equal to the prior plan and nonpreferred benefits being significantly reduced. Compared to the standard indemnity plan, preferred benefits remained at 80% after a deductible; the disincentive took the form of the nonpreferred benefits being paid at a lower percent, for example 60%, with a higher calendar-year deductible. Savings were maximized, since plan design differentials, negotiated prices and utilization management controls more than offset the administrative expense of operating the managed care plan. 3.) Combination approach - This approach worked best for the plan sponsor that wanted to introduce a managed care plan with some improvement in benefits while at the same time saving money. Using the presumed current 80% standard indemnity plan, the preferred benefits were set at a slightly higher level, for example, 90%, and the nonpreferred benefits at a lower level, for example, 70%. Deductibles also were adjusted accordingly to match the higher and lower coinsurance benefit levels. Adequate steerage was built into the plan design while balancing employee acceptance against the plan sponsor's need for savings.

Describe the forms of health maintenance organizations

1.) Individual practice model - An HMO contracts with individual physicians or associations of individual physicians to provide services. 2.) Group model - An HMO purchases services from an independent multi-specialty group of physicians. 3.) Network model - It is similar to a group model, but includes more than one multi-specialty practice. 4.) Staff model - Physicians are employed and paid a salary by an HMO.

Describe the common elements of a prescription drug plan.

1.) Member eligibility cards. 2.) Online claims adjudication 3.) Tiered copays or deductibles and coinsurance 4.) Pharmacy networks providing discounts for branded medications 5.) Maximum allowable cost (MAC) pricing for generics 6.) Mail service 7.) Formulates and/or preferred drug lists 8.) Prior authorizations for certain high-cost medications 9.) Therapeutic interchange or switching

Describe the cost-containment aspects of each of the following: 1.) Subrogation 2.) Preadmission testing 3.) Medical necessity language 4.) Skilled nursing care 5.) Home health care

1. Subrogation - The term subrogation means the substitution of another party, in this case the employer or insurer, in place of a party (the employee or dependent) who has a legal claim against a third party. Thus, a subrogation clause provides certain rights to an employer or an insurer with respect to claims that covered employees might have against negligent third parties. It allows them to receive reimbursement from employees or dependents who receive a liability recovery from the third party and thus limit costs. 2.) Preadmission testing - The purpose of preadmission testing is to help contain hospital costs by reducing the number of in-hospital patient days by having the necessary x-rays, laboratory tests and examinations conducted on an outpatient basis prior to a scheduled hospital admission and reimbursed as if on an inpatient basis. 3.) Medical necessity language - By having to meet the requirements for being medically necessary, inappropriate, experiment, educational or unproven treatment are eliminated from coverage for benefits, and only considerations requiring confinement for safe and effective treatment will be covered on an inpatient basis. 4.) Skilled nursing care - By providing a lower level of care than acute care during the latter days of hospital confinement, skilled nursing care can produce cost savings with a hospital's charges 5.) Home health care - Home health care provides supportive care at costs considerably less than inpatient hospital care especially for chronically ill or disabled person and for patients who require only monitoring during rehabilitation or maintenance care.

List the categories into which mental disorders can loosely be categorized.

1.) Adjustment disorders (ex: situational stress) 2.) Anxiety disorders (ex: panic disorder) 3.) Childhood disorders (ex: autism) 4.) Eating disorders (ex: anorexia) 5.) Mood disorders (ex: major depressive disorder) 6.) Cognitive disorders (ex: dementia) 7.) Personality disorders (ex: antisocial personality disorder) 8.) Psychotic disorders (ex: schizophrenia) 9.) Substance-related disorders (ex: alcohol/drug dependence)

Discuss 1.) the origin and tax treatment of HRAs and 2.) why HRAs are not considered an ideal account structure

1.) By early 2002, the IRS and its parent agency, the US Department of Treasury, were besieged with insurance companies seeking guidance on the tax treatment of an HDHP that would be carried over from year to year. IRS and Treasury Department viewed these accounts favorably in part because health care inflation had again started to dramatically escalate after a few years of relatively modest growth. IRS ruled that HRAs funded solely by the employer and permitting unused amounts to be carried over from year to year, would qualify as health benefits exempt from federal income tax; but IRS specifically prohibited the use of employee contributions, including arrangements that in effect would be financed with employee money. 2.) HRAs, although utilized in CDHPs, are not considered an ideal account structure because they limit contributions to those expressly provided by the employer. Employees who need more tax-favored money to pay out-of-pocket expenses are unable to supplement the employer account with pretax dollars.

Explain 1.) The underlying premise on which consumer-driven health plans (CDHPs) are designed and... 2.) What core design attributes characterize these plans

1.) CDHPs operate on the underlying premise that when an individual is more directly aware of the full costs of health care, he or she will weigh with greater scrutiny whether the recommended care is needed and shop for that care as a cost-conscious consumer. 2.) Although there is no precise definition of a CDHP, many of the plans that are given the label share common core design attributes. The basic structure of a CDHP entails a high-deductible health insurance plan, an individually controlled health account, and information and decision-making tools regarding health care cost and quality.

Summarize the common services that PBMs provide.

1.) Claims processing. 2.) Account management and support for plan design alternatives, trend analysis and general advice regarding prescription drugs. 3.) A retail network of pharmacies for the purchase of medication at discounts. 4.) Dispensing mail-order prescriptions. 5.) Communication to patients regarding program use. 6.) Formulary development and rebate administration. 7.) Some drug utilization management, including prospective, concurrent and retrospective review programs. 8.) Reporting of drug utilization and industry trends. 9.) Some educational components for patients and physicians.

Identify and describe the ten professional treatment categories into which virtually all dental problems are placed.

1.) Diagnostic - routine oral examination and x-rays to determine the existence of oral disease and evaluate the condition of an individual's mouth. 2.) Preventive - procedures to preserve and maintain dental health including cleaning, space maintainers, topical fluoride applications and the like. 3.) Restorative - procedures for the repair and reconstruction of natural teeth including the removal of decay and installation of fillings. 4.) Endodontics - treatment of dental-pulp disease and therapy such as root canal treatments. 5.) Periodontics - construction, repair and replacement of missing teeth including fixed prostheses such as onlays, crowns and bridges and removable prostheses such as bridges and dentures. 6.) Oral Surgery - tooth extraction and other surgery of the mouth and jaw. 7.) Prosthodontics - construction, repair and replacement of missing teeth including fixed prostheses such as onlays, crowns, and bridges and removable prostheses such as bridges and dentures. 8.) Orthodontics - correction of malocclusion and abnormal tooth position through the re-positioning of natural teeth. 9.) Pedodontics - treatment of children who do not have all their permanent teeth. 10.) Implantology - use of implants and related services such as overdentures, fixed prostheses attached to implants and the life to replace one or all missing teeth on an arch. In addition to treatment or services in most of these areas, the typical dental plan includes provision for palliative treatment (that is, procedures to minimize pain, including anesthesia), emergency care and consultation.

What must an employer do to achieve success when implementing a CDHP?

1.) Educate employees as to the true cost of medical services and their role in managing health care spending. 2.) Increase the employee's responsibility for medical purchase decisions through innovative plan designs with built-in incentives. 3.) Provide clinical and financial information to enable employees to be true health care consumers. 4.) Provide proactive clinical management and coaching to optimize provider inefficiencies and courses of treatment.

1,) Why are traditionals rehabilitation and return-to-work programs not the most effective devices (on their own) in controlling disability costs and... 2.) What techniques are now used by some insurers?

1.) Most control efforts for long-term disability start three to six months after an employee becomes disabled. In the interim, many employers have already hired and trained replacements workers, thus incurring additional costs. Most short-term disabilities are unmanaged other than for cursory independent examinations. 2.) Insurers have applied managed care techniques, particularly utilization management, first used for health plans, to their disability insurance products. Managing short-term disabilities provides improved integration with long-term disability programs and deals more effectively with the total disability period of the employee. The most successfuly approaches employ a team approach, coordinated by a nurse consultant, starting from the onset of the disability. The teams commonly include the plan sponsor, physician consultants, and vocational and rehabilitation specialists if necessary. The plan sponsor or the disabled employee contacts the managed care company upon onset of the disability (typically after the third day, to ignore common short-term illnesses), or the managed disability company may collect the information automatically if it also administers UM certification programs under the managed health care program. The nurse consultant then uses automated protocol-based systems, combined with input from other team members to determine the expected length of disability. Concurrent review enables the nurse consultant to continue to check on an employee's disability and to initiate rehabilitation services if appropriate.

What plan features are often included in POS plans to encourage care within the network through the PCP?

1.) No deductible and 100% coverage after a small copay, for care rendered through the PCP. 2.) Preventive services when obtained through the member's PCP. 3.) No member claim submission when the PCP renders care or coordinates care within the network; members claims submission when member self-refers or when a specialist outside the network is used. 4.) The PCP directs medical care and obtains necessary precertification for hospital confinements and referral care. For self-referred, nonpreferred services, the member is responsible for obtaining any required precertification and handling any other utilization management responsibilities.

Briefly describe the characteristics of the group technique that enable such coverages as life and health insurance to be written as employee benefit plans by minimizing the risk of adverse selection

1.) Only certain groups are eligible. A group should not be formed solely for the purpose of obtaining insurance. The purpose of obtaining insurance should be incidental to the formation of the group. 2.) There should be a steady flow of lives through the group. Younger individuals should come into the group as older individuals leave it to maintain a fairly constant mortality or morbidity ratio in the group. 3.) There should be a minimum number of persons in the group. This is meant to prevent unhealthy individuals from being a major part of the group and to spread the expenses of the benefit plan over a larger number of individuals. 4.) A minimum portion of the group must participate. The rationale for this provision, too, is to reduce the possibility of adverse selection and to spread the expense of administration of the plan. 5.) Frequently, eligibility requirements are imposed under group plans for the purpose, once again, of preventing adverse selection. 6.) Maximum limits on the amount of benefits may be imposed to prevent the possibility of an excessive amount of coverage on any particular unhealthy individual. 7.) To prevent unhealthy lives in a group from obtaining an extremely large amount of a particular benefit, there is automatic determination of benefits whereby coverage is determined for all individuals in the group on an automatic basis.

Describe the basic differences between medicine and dentistry.

1.) Physicians typically practice in groups, while many dentists practice almost exclusively in individual offices. This isolation tends to produce a greater variety of dental practice patterns than exist in medicine, and doesn't allow for the same opportunities for peer review and general quality control. 2.) Many individuals may require only preventive care or no medical care for years, but because of the need for preventive dentistry, the need for regular dental care is almost universal to ensure sounds oral hygiene. So individuals routinely visit their dentists for preventive dental care, but in medicine a patient may visit a physician only with certain symptoms. 3.) Because its emphasis on prevention, dental treatment often is considered elective and is sometimes postponed unless there is pain or trauma. Because there is no life-threatening urgency, the patient may postpone treatment. 4.) Because they need for major dental care is neither life threatening nor time-critical, dentists' charges for major courses of treatment can discussed in advance of the treatment allowing the patient the option of deferring the treatment or not having it at all. 5.) While medical care is rarely cosmetic, dental care often is. 6.) Dentistry often offers a variety of alternative procedures for the treatment of disease and the restoration of teeth that may be equally effective but can vary widely in their degree of complexity and cost. 7.) Dental expenses generally are lower, more predictable and budgetable, with the average medical claim being much higher than the average dental claim. 8.) There is a greater emphasis on prevention in dentistry than in medicine. Notwithstanding the current trend toward prevention in medicine by managed care medical plans, its value is difficult to quantify, while the advantages of preventive dentistry are clearly documented. This is because preventive care may be more productive in dentistry than in medicine, and the value of preventive dentistry relative to its cost is acknowledged.

Identify the general groupings of dental procedures that are used in the design of dental plans.

1.) Preventive and diagnostic procedures. 2.) Minor restorative procedures 3.) Often combined with #2, includes major restorative work (ex: prosthodontics), endodontic and periodontic services and oral surgery. 4.) Orthodontic expenses 5.) Today's typical plans often exclude implantology services because of the expense involved in covering some of these services. Whether and to what extent implantology often is a separate, cost-driven, design decision. If covered, implantology sometimes are covered under a separate fifth classification. Pedodontic care generally falls into the first two groups and, as indicated, the second and third groupings are often combined.

Explain the following: 1.) What the purpose of the Health Maintenance Organization Act of 1973 was 2.) How did the passage of the act affect the growth of HMOs?

1.) The Health Maintenance Organization Act of 1973 provided federal initiatives to encourage the establishment of HMOs. The act, named and promoted as "the health maintenance strategy" by Dr. Paul Ellwood, consisted of federal grants and loans to organizations wishing to investigate the feasibility of "federally qualified HMOs". 2.) Major HMO growth negan after the passage and enhancement of the HMO Act of 1973. The federal government continued to nurture the growth of the HMO industry through the 1970s and early 1980s with the Department of Health and Human Services providing significant funding to start-up HMOs. The government began to withdraw its funding during the Reagan administration. Many smaller plans, especially those in early development, did not survive the 1980s, while others consolidated or were purchased by large national insurance companies that were expanding their managed care capabilities.

Describe the following practices of MBHOs: 1.) Care access 2.) Predictive modeling and risk assessment 3.) Performance measurement 4.) Case management. 5.) Utilization review and management 6.) Outcomes management 7.) Coordination of care 8.) Depression disease management programs 9.) Substance abuse relapse programs.

1.)MBHOs require preauthorization to access treatment. MBHOs generally operate their own customer service centers, and when a member calls for referral, an intake specialist asks the member a series of questions to establish the reason for the call, asses the risk, acuity, specialty need and member preference. The customer service representative triages the calls. More than 80% of incoming calls are generally routine calls; in general, members who receive routine referrals are seen by a provider within ten business days. If a member's needs are urgent, an appointment is arranged within 48 hours; for some policies, within 24 hours. 2.) Predictive modeling entails analyzing claims data and identifying those high-risk, potentially high-cost members and interviewing in time to avoid preventable treatment costs. 3.) Traditionally MBHO performance data are collected after the fact through provider assessment reports and claims data. Today, some MBHOs are collecting member-reported and provider-reported data earlier in the process to guide timely treatment interventions. 4.) MBHO case managers coordinate the member's care in collaboration with treating providers, facilities and community resources, and often work with members an their families to ensure that patients continue to receive the appropriate level of care for their fluctuating needs. This oversight is especially cost-effective for high-service utilizers. The goals of case management are crisis stabilization, prevention of long-term disability and reduced reliance on hospital care by facilitating patient engagement in outpatient treatment and community services. 5.) Utilization review determines the medical necessity and appropriateness of treatment provided and the review is performed at various times. The three types of review are prospective, concurrent, and retrospective. 6.) MBHOs have developed tools to asses treatment effectiveness and quantify outcomes, bringing technology, data and increased objectivity to a field once dominated by subjective assessment. 7.) Behavioral disorders often coexist with each other and with medical disorders. Coordination of medical and behavioral health care services results in improved treatment outcomes for patients. 8.) Depression is a mental illness that often does unnoticed and it co-occurs with many physical illnesses such as diabetes and heart disease. MBHOs' depression disease management programs support the clinician-patient relationship and plan of care, and emphasize prevention of disease-related exacerbations and complications using evidence-based guidelines and patient empowerment tools. 9._ Addiction to alcohol and other drugs is a chronic condition, characterized by relapses. Most MBHOs today offer aftercare programs to their members who complete a course of chemical dependency treatment. The programs are aimed at preventing relapse and often include telephonic support or self-help tools.

1.) Why didn't many employers realize the long-term cost savings with PPOs? 2.) What steps did PPO companies take to correct this problem? 3.) What do opponents of the PPO approach argue is the reason they are more expensive than HMOs?

1.)Many employers didn't realize the long-term cost savings with early PPOs because they were primarily discounted fee-for-service arrangements with little focus on utilization control. 2.) PPO companies responded to the problem of not realizing long-term cost savings by increasing the monitoring of utilization, implementing quality control and surveying memeber satisfaction. 3.) Opponents of PPOs argue that PPOs are a weak form of managed care with rich benefits, making them more expensive than HMOs.

What are some advantages and disadvantages of the following types of incentives: activity rewards, achievement rewards, and adherence rewards?

1.)One advantage of activity rewards is that it motivates incremental action toward healthier lifestyles. Also, an activity reward might be more readily achievable for all individuals. Two key disadvantages or a reward based on an activity are: 1.) performing specific activities is not necessarily enough to decrease health risks; and 2.) activity-based incentives are the easiest to game out of the three types of rewards presented. 2.) The key advantage of achievement rewards is that they provide a clear, objective basis for measurement, thus allowing a focus on individual accountability for personal health management. These rewards' disadvantages include: 1.) additional costs if biometric testing is used, 2.) excessive employee focus on measurement techniques, accuracy, scoring methodology, and 3.) considerations regarding HIPAA requirements and limitations come into play. 3.) Among key advantages of adherence rewards are that they provide motivation to sustain long-term lifestyle improvements, they reinforce the important determinant of wellness return on investment, and they also allocate the greatest reward to those contributing the greatest value to the program. Their disadvantages include longer time requirement before an incentive is awarded, the multiyear time frames possibly complication the administration of the program, and finally HIPAA compliance must be considered.

What is a PBM?

A PBM is an entity that administers managed pharmacy programs. It is defined as an application of programs, services and techniques designed to control costs associated with the delivery of pharmaceutical care by: 1.) Streamlining and improving the prescribing and dispensing process through online and real-time claims adjudication. 2.) Maintaining a retail network of pharmacies and a mail-order option that in turn offer discounts off the cost of prescription drugs and potentially monitor the performance of the network. 3.) Offering limited DUR online at the point of sale or dispensing. 4.) Providing data and reporting regarding drug use. 5.) Controlling the cost of prescriptions dispensed through clinical and financial programs, such as formulary development and rebate contracting with drug manufacturers.

Coordination of benefits (COB)

A common provision of health insurance plans used as a cost-containment technique to prevent duplication of payment under two insurance policies and limiting the aggregate benefits an insured receives to an amount not exceeding the actual amount of the loss. Under COB guidelines of the National Association of Insurance Commissioners, when a patient in a dependent child covered under separate plans of the father and mother who are not divorced, the primary plan is the plan covering the parent whose birthday falls earlier in the year. This guideline is known as the birthday rule.

Health care delivery

A complex business, shaped in the local community and influenced by social environment, clinical culture and economic realities. Most managed care companies recognize the importance of developing an infrastructure in the local markets in which they operate even if they are headquartered outside the market. This local perspective means understanding the local health care delivery systems, developing an appropriate panel of providers and incorporating the necessary managed care mechanisms in the network.

State the advantages and disadvantages of using insurance to fund an employee benefit plan

Advantages can include: 1.) Known premium. The presence of a known premium (cost) that is set in advance by the insurance company can be an advantage to the employer. The employer may have better control over the budget with the known premium because any high levels of losses would be the problem of the insurance company and not the employer. 2.) Outside administration. Having an outside administrator also can be an advantage to the employer. The employer does not have to get involved in disputes involving the employees over coverage of the plan since these matters are handled by the insurance company. 3.) Financial backing. Employees may prefer insurance to some other form of funding to obtain the financial backing of an outside financial institution. This, of course, depends upon the financial strength of the insurance company selected, and care should go into this process. 4.) Cost management. Insurance companies often are leaders in the area of loss control and thus frequently can help in designing and implementing systems established to limit employee benefit cost for an employer. 5.) Economy. It may be more economical for an employer to use insurance than other alternatives. An insurance company may be able to do the job more efficiently and at a lower total cost than other alternatives. Some disadvantages include: 1.) Possible additional costs. A number of costs must be considered. Administrative expenses are charged by insurance companies. Premiums include a charge or "loading" that compensates for their overhead expenses. Home office costs, licesnsing costs, commissions, taxes, loss adjustments expense, and teh like, are all included with the loading. Thus, the premium covers not only direct losses but these overhead costs, too. The amount may vary from a small percentage of the premium (2-5%) to potentially a quite high amount (25% or more) depending upon the type of contract involved. 2.) Employee satisfaction. Employee satisfaction is directly affected by the claims and problem-solving abilities of the insurer. Slow payment or restrictive claim practices can have an adverse effect on employees. (Employer satisfaction with an insurer's services is directly linked to employee satisfaction.)

What are some advantages and disadvantages of incentives?

Among the advantages of incentives is their potential to have powerful behavioral effects. When incentive rewards and rules are well designed, they can induce a significant change in behavior for a significant percentage of the target population. They also can be flexible, relatively simple to comprehend and easy to administer. Additionally, incentive rewards can be combined to increase motivation, for example, combining a tangible reward (cash) with an intangible reward (recognition). Possible disadvantages do exist. For instance, with certain reward approaches some individuals may exploit the program by gaming the system or being dishonest in self-reporting (such as smoking cessation). Also, some incentives may inadvertently rewards unhealthy behaviors, for example, a per pound weight loss incentive could encourage unhealthy or hazardous weight loss practices. Finally, desired behavior may last only as long as the reward does.

Briefly describe an exclusive provider organization (EPO)

An EPO essentially is a self-funded HMO. By self-funding, an HMO allows the plan sponsor more funding flexibility. The HMO may directly sponsor the EPO or may sell its managed care network and utilization management services to a standalone third-party administrator (TPA) or smaller insurance company. These types of "rental" arrangements are increasingly common in today's managed care marketplace, even to the point of plan sponsors directly contracting with health care providers for selective services.

Describe the deductible and out-of-pocket limits for an HDHP which accompanies an HSA.

An HSA can be used only if paired with an HDHP which meets deductible and out-of-pocket limits required by law. There are separate minimum deductible requirements for single coverage and family coverage, and also maximum out-of pocket requirements for single and family coverage. The amounts are adjusted annually for inflation.

What is involved in providing an effective behavioral health program?

An effective behavioral health program should include an integrated health/chemical dependency benefit that includes inpatient and outpatient services as well as an EAP. Ultimately though, the effectiveness of a behavioral health program depends on 1.) employee and employer awareness of the program's services and value; 2.) appropriate use of the benefits; and 3.) how well the behavioral vendor and its network providers prevent and manage costly disorders.

What is an optimal incentive program?

An optimal incentive program utilizes the simplest, most cost-effective incentives that cause the maximum number of individuals to move from a state of contemplation to action. Also, the est incentives will promote long-term lifestyle changes to such a degree that, even when the rewards are removed, desired behaviors will continue due to intrinsic reinforcements. These reinforcements are the consequence of several factors, including successful goal achievement (such as weight loss or smoking cessation), as well as the boost in well-being and self-esteem that often accompanies health improvement activities.

What is one technique of aligning incentive rewards with the cost of health care benefits?

Another technique for more closely aligning incentive rewards with the cost of health care benefits is to reduce health care premiums or deductibles and copayments. For employers that use health care premium discounts as an incentive reward, it is important that employees perceive the premium reduction amount to be significant. One technique for boosting this perception, referred to as pay or pay, involves first increasing health plan premium contributions and then forgiving a substantial part of the contribution for those who participate in the wellness program.

What are the rules governing the use of multiple accounts?

As defined earlier, a CDHP involves a high-deductlbe health plan (HDHP) coupled with either an HRA or HSA. However, and employee may be eligible for, and enrolled in, more than one type of account. The rules provide: 1.) An employee covered by an HDHP and either a health FSA or an HRA generally cannot make contributions, or have employer contribution made on his or her behalf, to an HSA. However, an employee can make contributions to an HSA while covered under an HDHP and a "limited purpose" FSA. Limited purpose FSAs cover expenses not otherwise covered by the plan, such as dental or vision care. 2.) An HRA participant may also have a general purpose FSA. The employer establishes the priority, which is outlined in the plan document.

How have health insurance rating techniques evolved and in what circumstances are they used?

BC/BS plans were offered as community-rated products. Under this approach, all insureds in a given geographical area paid a uniform rate. At their inception, HMOs were required to use community rating and adhere to certain rules regarding it in order to be qualified under the HMO Act of 1973. The 1988 amendments to the act relaxed these requirements, and only some HMOs now use this community rating in certain circumstances. Although community rating is still used for individual subscribers and for smaller group contracts, it is much less popular in the group insurance market as a whole where larger organizations prefer to be experience rated rather than be rated with other organizations with possibly less favorable ratings. In adjusted community rating, the baseline claims data used to establish the rates are the claims and utilization patterns in the community at large, but based on certain favorable characteristics of the plan sponsor's own past claims data, the insurer is willing to offer more favorable rates. In experience rating, rates are based on the past claims and utilization experience of a particular organization, not the larger community. An experience-rated plan uses recent claims and utilization data of a particular organization to establish the appropriate insurance rates for a future time period. If an organization has had a history of favorable claims experience, the experience-rated insurance product may offer substantial cost advantages over a rating approach that uses aggregate community claims experience to establish insurance rates.

Briefly describe the other cost-control features, in addition to deductibles and coinsurance, that were included in comprehensive plans

Because many comprehensive plans were designed with cost savings as a primary objective, they had other cost-controlling features in addition to deductibles and coinsurance. Some of these features included: 1.) Second surgical opinions - This is a prospective technique in which an additional medical opinion on the necessity of elective or non-emergency surgery (or other procedure) is either required or suggested (voluntary). 2.) Full coverage for diagnostic testing - Certain tests that help detect specific medical conditions are fully paid without a deductible or coinsurance requirement. 3.) Preadmission certification - Requires the participant or hospital to check with the insurer before admission for treatment 4.) Utilization review - Examines medical treatment patterns on a concurrent, prospective or retrospective basis 5.) Incentives for using an outpatient facility - Because outpatient centers are less costly, participants are provided a financial incentive such as no deductible or copayment, to use them instead of a hospital

How long does it take for health/wellness programs to develop a positive ROI?

Because of a lag in health cost savings from lower utilization, most programs take several years to develop a positive ROI. Therefore, employers must be willing to design their programs with a multilayer horizon, spreading incentives, program costs and expected savings over several years.

What are five basic requirements that wellness programs must meet under HIPAA when the wellness incentives are based on health status-related factors?

Below are the five basic HIPAA requirements that wellness programs must meet when the wellness incentives are based on health status-related factors: 1.) The total reward must not exceed 20% of the cost of employee-only coverage (or 20% of the total cost of coverage if dependents can participate in the program). 2.) The program must be reasonably designed to promote health and prevent disease. 3.) Individuals eligible for the program must be given the opportunity to qualify for the reward at least once per year. 4.) The reward must be available to all similar situated individuals. The program must allow a reasonable alternative standard (or waiver of the initial standard) for obtaining the reward to any individual for whom it is unreasonably difficult due to a medical condition, or medically inadvisable, to satisfy the initial standard. 5.) The plan must disclose in all materials describing the terms of the program the availability of a reasonable alternative standard (or the possibility of a waiver of the initial standard) (Examples of wellness programs exempt from HIPAA rules include a program that reimburses employees for the cost of a smoking-cessation program regardless of whether the employee quits smoking, or one that reimburses all or part of a fitness center's membership fees.) NOTE: The 20% total reward limit was increased to 30% (50% in some circumstances) by the ACA

Describe the operation of nonscheduled dental plans

By far the most common of plan offerings, nonscheduled dental plans cover some percentage of the reasonable (usually) and customary charge, or the charges most commonly made by dentists in the community. For any single procedure, the usual and customary charge typically is set between the 75th and the 90th percentile with the trend being toward the lower number. This means that the usual and customary charge level will cover the full cost of the procedure for 75% to 90% of the claims submitted in that geographical area. Nonscheduled plans generally include a deductible, typically a calendar-year deductible of $50 or $75 and they reimburse at different levels for different classes of procedures. Preventive and diagnostic expenses typically are covered either in full or at a very high reimbursement levels. Reimbursement levels for other procedures usually are then scaled down from the preventive and diagnostic level, based on the plan design objectives of the employer.

Discuss the common attributes that characterize consumer-driven health plans (CDHPs) and their original designs

CDHPs first started appearing shortly after the turn of the latest century. Although these plans can be configured in various ways, there are certain common attributes that characterize them. CDHPs link a high-deductible supplemental major medical plan with a savings account that can be accessed to pay health expenses. A CDHP may have a deductible gap before the high-deductible supplemental major medical plan covers expenses. The funds in the savings account portion of the plan can pay either discretionary medical costs not covered by the plan or health charges excluded from reimbursement because the initial deductible has not been met. Under a typical CDHP design, as first introduced, a plan participant would receive an employer contribution into the savings account, say $1,000 to $2,000. When the funds in the savings account were exhausted, the participants would pay certain medical costs out of pocket before receiving insured health coverage under the high-deducible supplemental major medical plan. The first CDHPs deposited funds into a health reimbursement arrangement (HRA), a savings account created by regulatory guidance from the IRS. An HRArequired funding solely by employer contribution, but important allowed any unused amount remaining at the end of the coverage period to be rolled over and utilized for reimbursement in subsequent coverage periods. Following the creation of the very first CDHPs, a new savings vehicle, the health savings account (HSA), was introduced. HSAs, first utilized in 2004, allowed unused account balances to be carried forward to future years. However, unlike HRAs, an HSA allowed for employer contribution, employee contribution, or both. An HSA could be created apart from the employer as long as the individual was a participant in a high-deductible health plan. An HSA is owned by an individual, is non-forfeitable and may be rolled over from one employer to another and from one account to another.

Describe the basic plan design of a CDHP

CDHPs typically combine a high-deductible health plan with one of two types of individually controlled accounts (HRAs and HSAs) which can be used to pay deductibles and other costs not covered by the high-deductible plan. The basic plan structure provides first-dollar coverage through either an HRA or HSA fund. The employee then bears full responsibility for the difference between the fund amount and the deductible. Once the deductible is met, the plan coinsurance and copayment features apply. Fund contributions, deductibles, coinsurance and copayments usually differ for single vs. family coverage and for in-network vs. out-of-network services.

What are some examples of medications excluded under a prescription drug plan?

Common plan exclusions are medications used for smoking cessation, hair loss, obesity and cosmetic conditions. (Drugs for investigational use, drugs covered under workers' compensation programs and immunizing agents are also excluded)/ Contraceptive prescription drugs are a special class of drugs that have often been given a separate consideration. Insured plans may have a rider that allows a plan to cover contraceptives, even in plans for religious organizations, but this trend is starting to be reversed. Another special class of drugs is so-called lifestyle drugs - the term applied to prescription products that do not necessarily cure illness but can be used to improve daily life by boosting psychological attitudes, energy levels, sexual performance and body image. These drugs are typically excluded from employer-sponsored prescription drug plans. Over-the-counter (OTC) medications also are a common exclusion. Very few plans cover OTC medications. A few plans cover some OTC medications, such as insulin, needles and syringes, prenatal vitamins, and diabetic devices and test strips. Finally, when biotechnology medications (drugs made from living cells that treat diseases from cancer to anemia to psoriasis) must be administered by a health care professional, they are usually covered under the medical benefit. However, some plans are placing these drugs under the pharmacy benefit for the purpose of applying managed care tools since this placement allows for more discounted pricing, formulary management, edits and physician profiling for managing the use of these medications.

List the common techniques plan sponsors use to control pharmacy costs.

Common techniques plan sponsors use to control pharmacy costs include: 1.) Review the design of the pharmacy benefit and how it fits into the overall medical program. With flat dollar copayments that may not have increased in several years, many plans are subsidizing the cost of the pharmacy benefit by a substantial amount. 2.) Analyze experience to identify areas needing better management. Typically, ulcer and depression therapy are the two most frequently dispensed medications. Ensuring that a program is developed to help employees use those drugs properly controls costs. 3.) Use the following pharmacy managment tools and techniques: (a) Reduce the pharmacy network to the smallest size without compromising access; in addition, offer pharmacy incentive programs aimed at additional reimbursement for increases in generic substitution and formulary compliance to decrease cost trends. (b) Offer mail service or 90-day retail point-of-service prescriptions as a convenient option to members. Rather than making mail service prescriptions a requirement, make the copayments per day's supply equal in both retail and mail-order pharmacies. (c) Adopt a plan design that encourages generic drug substitution where patients have to pay the difference between the cost of bran medication and the generic drug if the patient or the physician requires a brand. (d) Use a formulary that is designed to promote cost-effective and clinical therapeutic drugs coupled with a rebate program that passes on 100% of the rebates to the plan sponsor. (e) Practice utilization management that targets high-cost users and intervenes with physicians and patients to ensure quality outcomes. (f) Offer physician profiling that highlights high-cost physicians with low-acuity patients coupled with an incentive program to dispense appropriate medications. (g) Utilize health management programs designed to educate patients about alternatives to high-cost therapies. (h) Communicate cost trends to plan members to help them become better consumers. 4.) Anticipate the financial impact of new drugs and therapies and set policies and procedures for the new drugs before they are released.

Explain the different opinions on the use of deductibles in dental plans.

Deductibles may or may not be included in the design of a dental plan. When they are, they usually are written on a calendar-year basis, but they sometimes are written on a lifetime basis. Because numerous dental procedures involve very little expense, the deductible eliminates frequent payments for small claims that can be budgeted for, thereby controlling the cost of claims administration. On the other hand, evidence exists that early detection and treatment of dental problems[ produces fewer claims in the long term. Many insurers believe the best way to promote early detection is to pay virtually all the cost of preventive and diagnostic services, and therefore they do not subject these services to a deductible.

How can plan design features affect plan costs?

Dental plan costs can be sensitive to changes in certain plan design features. The change in dental plan deductibles has the most significant impact on cost. As much as a 12% reduction in cost can be gained by increasing the deductible from $50 to $100. The change in benefit maximums has some impact, but it is minor. Changes in the amount of coinsurance have a definite effect, especially changes in the restoration, replacement and orthodontic portions of the plan, all of which represent about 80% to 85% of the typical claim costs. Finally, the inclusion of orthodontics in the base plan is another item of fairly high cost.

How does dental technology affect dental plans?

Dental technology is constantly and rapidly changing. In dental plan design, it is important to differentiate between new techniques and new procedures. A new technique is a different way to provide an already covered service. New techniques, once officially recognized by the American Dental Association, generally are covered as any other service under the plan since they are considered another way to deliver already covered services. New procedures are not covered so readily. Generally, before these services become covered, the must first be recognized by the American Dental Association as an accepted procedure and, secondly must have a proven track record of success. Procedures are then approved for coverage or tabled for further study. If approved, a separate decision establishes ether the procedure and similar ones will be covered routinely or instead as a design option at the plan sponsor's discretion.

How have employee assistance programs (EAPs) evolved?

EAPs originally focused on substance abuse problems, but today take a comprehensive approach to support members with a range of employee and family issues. Some include proactive prevention and health and wellness programs. Some EAPs also provide human resource support through management consultation, on-site employee and employer seminars, and critical stress management after catastrophic workplace events.

Who is a fiduciary under ERISA

ERISA defines a plan fiduciary as any person who 1.) Exercises any discretionary authority or control over the management of a plan 2.) Exercises any authority or control concerning the management or disposition of its assets, or 3.) Has any discretionary authority or responsibility in the administration of the plan

What level of protection does ERISA section 510 offer?

ERISA section 510 is the nonretaliation, nondiscriminiation provision. An employer cannot terminate an employee to avoid benefit coverage or benefit claims. But the employer can change plan design even if it has an adverse impact on one employee or a group of employees. When there is a general desire to reduce costs, the fact that fringe costs are reduced along with wage costs is not evidence of a 510 violation. But difficult class action issues arise when a corporate decision (such as a plant closing or layoff) is driven in part by benefit cost consideration.

Explain how the Employee Retirement Income Security Act (ERISA) of 1974 went beyond the common law of trusts in establishing or extending new legal standards of conduct for plan fiduciaries.

ERISA went beyond the common law of trusts in the following respects in establishing the following standards: 1.) Sole benefit standard. Plan fiduciaries are required to act solely in the interest of the plan's participants and beneficiaries for the exclusive purpose of providing plan benefits and defraying the reasonable administrative expenses of the plan. 2.) Prudent expert rule. A fiduciary must act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 3.) Diversification rule. It should b noted that under ERISA a fiduciary is still required to diversify plan investments unless it is clearly prudent not to do so, closely resembling the fiduciary principle under the common law of trusts known as the diversification rule. 4.) Plan document rule. A fiduciary must follow strictly the terms of the written plan document (unless it is in violation of ERISA) and administer the plan in a fair, uniform and nondiscriminatory manner. 5.) Prohibited transactions rule. Unless otherwise exempted, a fiduciary must not allow the plan to engage directly or indirectly in transactions prohibited under ERISA.

Explain how the possibility of catastrophic losses generally is handled by employee benefit plans

Employee benefit plans often insure life risks, hospital and dental risks, and disability income losses. Usually, these are not subject to catastrophic occurrences because of geographic location, but catastrophic losses can take place, such as a plant explosion, a poisonous gas leak causing a large number of deaths or injuries, or a concentration of certain diseases because of the exposure to certain elements that are indigenous to a specific employee group. However, this usually is not an important consideration in underwriting typical benefit plans. Policy limitations, reinsurance and striations on groups insured all can be used to minimize the problem to the extent it exists.

Compare the compensation / service-oriented benefit philosophy and the needs-oriented benefit philosophy.

Employers with a compensation / service-oriented benefit philosophy tend to relate employee benefits primarily to compensation or service, or both, in designing benefit plans within the constraints of any nondiscrimination rules. Thus, the level of benefits would tend to be tied to the salary or pay levels of employees and their years of service. The needs-oriented philosophy tends to focus on the needs of employees and their dependents, and employers with this philosophy typically would design benefit plans primarily on this basis.

Why is the employee benefit mechanism an effective and efficient way of providing insurance coverage?

Employment-based insurance is convenient for employees. They don't need to search for individual coverage, and it is often less expensive. Providers and suppliers find it more convenient and simpler to communicate and market employeer benefits through an employer.

Describe how the fiduciary provisions of ERISA may be enforced.

Enforcement of the fiduciary provisions of ERISA may be by civil action brought in federal or state court by a plan participant or beneficiary (individually or on behalf of a class of plan participants and beneficiaries), by the secretary of labor or by another plan fiduciary.

What is a formulary?

A formulary is a list of drugs preferred by a health plan or PBM. A formulary is designed by a process of evaluation and analysis that is usually under the auspices of a pharmacy and therapeutics (P&T) committee. A P&T committee is composed of physicians, pharmacists and nurses who may be complemented by pharmacoeconomists, ethicists, the lay public and plan administration. The P&T committee has the responsibility for evaluating all available evidence to choose medications to treat the conditions indigenous in the insured population. If the P&T committee determines that drugs within a therapeutic class are equally effective, a formulary selects drugs within the category that are most cost-effective based on a combination of AWP and rebates that manufacturers are willing to give to the PBM or plan. Although generic drugs may be listed on the formulary as preferred, formulary development typically centers on brand products. Some PBMs contract with generic manufacturers for rebates, although generally this practice is uncommon. It is critical for plan sponsors to ensure that they receive all earned rebates whether for brand or generic drugs. When plan sponsors purchase formularies developed by health plans, PBMs, or TPAs, it is important for them to know who the representatives are on a PBM's formulary. The use of formularies is growing because formularies, particularly preferred formularies, are very effective at moving patients to lower cost drugs and maximizing rebate potentials. One of the primary drawbacks to formularies, however, is the constant communication to physicians and patients that is necessary regarding the current list of preferred product. When a PBM changes its formulary and does not communicate those changes to members, members may become dissatisfied because their copayment may differ from what they had expected.

Cost sharing

A key issue in medical plan design. It usually takes four different forms. These include the use of deductibles and coinsurance. A third approach is the use of copayment provisions that consist of a specific dollar amount per day of inpatient care or per unit of service. The fourth approach is the use of premium contributions by employees or contributory provisions. However, many experts believe that cost sharing should take place only at the point of service by using deductibles, coinsurance and copayment provisions. They oppose the use of the contributory approach because while this lowers the employer's costs, it does not affect the overall cost of medical care.

Explain how the type of industry in which a firm is operating affects its total compensation philosophy and employee benefits approach.

A larger, well-established employer in a mature industry, a financial institution or a nonprofit organization may take a relatively liberal approach toward meeting the benefits needs and desires of its employees. Developing firms, or growth industries with considerable current needs for capital, may seek to rely more heavily on short-term-oriented incentive types of compensation. Further, firms in industries that are highly competitive, subject to cyclical fluctuations or perhaps in a currently depressed state, may not be willing to add to their relatively fixed labor costs by adopting or liberalizing employee benefits, even if there may be a functional need for doing so. In fact, such firms may seek to cut back on their employee benefit commitments when possible.

What are the advantages of a mail service program (MSP) which typically allows a more generous quantity amount to be filled, say a 90-day supply, compared with a 30-to-34-day supply in a retail sale?

A mail service component in a prescription drug plan allows patients to obtain prescription drugs by mail. Mail service prescriptions typical are used for chronic conditions that require maintenance medications for long periods of time, such as high blood pressure, asthma, or diabetes. One advantage of MSPs is that they save patients time and money and are popular additions to the benefit design. Mail service typically can save as much as 10% of the cost of traditionally delivered prescription drugs. Also, MSPs offer a lower cost of dispensing and allow quality control through automation that is uncommon in retail pharmacy. Although MSPs are typically underused because enrollees are not familiar with a plan's mail service benefit or are not sure how to access the service, studies indicate that once enrollees are introduced to the convenience, simplicity and safety of an MSP program, perceptions change. Most enrollees then express a high level of satisfaction with the plan. In addition, one industry association cites numerous studies that conclude that managed care MSPs reduce overall prescription costs while maintaining and even improving quality.

Explain how major medical insurance works and the benefits to which it applies

A major medical plan was often combined with the first-dollar prepaid service plan in early medical plan designs. When the benefit allowances for hospital or medical services were exceeded by a participant (for example, if the services received were from a "nonparticipating" BS provider who charged more than BS would pay) or a service was not covered, the plan would start paying a second level of reimbursement through the major medical component (sometimes called supplemental major medical). This second level used coinsurance and deductibles as described earlier. The major medical insurance policy was "all-except" coverage rather than as "named peril" coverage, which specifically identified the services that were covered. Major medical coverage included a widely defined array of medical expenses, and named those services or medical items that were either limited or precluded from coverage. A major medical policy could also be issued as a standalone policy, which was prevalent when this type of coverage was first introduced.

Explain the penalties involved if a plan fiduciary breaches the fiduciary requirements of ERISA

A plan fiduciary breaching the fiduciary requirements of ERISA is to be held personally liable for any losses sustained by the plan resulting from the breach. The fiduciary is further liable to restore to the plan any profits realized by the fiduciary through the improper use of the plan assets.

May a fiduciary be held liable for breaches committed by a co-fiduciary? Explain

A plan fiduciary is liable for the fiduciary breaches of other fiduciaries for the same plan if such fiduciary participates knowingly in or knowingly undertakes to conceal an act or omission of a co-fiduciary knowing such action constitutes a breach; imprudently fails to discharge his or her own fiduciary duties under the plan; or has knowledge of the co-fiduciary's breach and makes no reasonable effort under the circumstances to remedy the breach.

What happens when an employee presents his or her prescription drug card to a pharmacy that is in the network?

A prescription drug card program provides its participants with prescription medications from a participating pharmacy at a prenegotiated discount rate. The covered employee presents his or her prescription to the participating pharmacy. The pharmacist uses an online computer network to get answers to a number of questions, such as whether the drug is covered by the plan, whether the individual is eligible for the medication before filing the prescription. The employee typically pays a fixed copayment, and the payer is billed at a prenegotiated discount rate.

List the health professionals that comprise a typical behavioral health specialty network.

A typical behavioral health specialty network includes individual (solo) practitioners and multi-specialty group practices consisting of clinical psychologists, social workers, masters-level therapists, psychiatric nurses and psychiatrists. A network may also include medical doctors who specialize in addictionology and developmental behavioral pediatricians to improve access for children with special needs.

As managed care marketplace structures have matured, what value has been provided to purchasers by PPOs, according to the authors of "The Puzzling Popularity of the PPO"?

According to the authors, the PPO's value to purchasers lies in what it delivers relative to its cost: 1.) A contracted network with some level of discounts off of full charges and some provider credentialing. 2.) Possibly some medical management features within the network, typically for an additional fee. Many employers have no illusions that they are buying managed care in the PPO. They see the PPO arrangement as malleable enough to introduce most cost sharing and benefit reductions into their benefit designs, at the time when buying down benefits - not more care management is an effective antidote to sharply rising health insurance costs. It is not quite so clear whether purchases really think that they are controlling cost growth through preferred provider networks, although they know that they would face higher payment rates if they did not buy a contracted network. Much of the appeal of the PPO option lies in its asserted superiority relative to HMOs in terms of choice, limited medical management, accommodation of providers; preferences and lower administrative expenses.

Discuss additional plan design decisions an employer must make once the basic features of a CDHP (such as levels of cost sharing and type of individual account) are established.

Additional important CDHP plan design include the following: 1.) Preventive care - a critical component of consumer-driven health care given the premise that staying healthy is cheaper than treating illness. In cases of chronic illness or potential health issues, individuals may be assigned a health coach to assist in making health care decisions. 2.) Full replacement vs. option - the CDHP may be offered as an option alongside other plans, or on a standalone basis. Large employers are more likely to introduce a CDHP as an option. Full-replacement CDHPs are more common among small employers, although they are becoming more popular with larger employers as well. Standalone plans have the advantages of minimizing adverse selection and maximizing potential cost savings. 3.) Employer contribution strategy - Properly set employer funding and premium contribution levels affect employee acceptance, participation and behavior. Generally, employer account contribtuions fund only a portion of the deductible to encourage greater consumerism. 4.) HRA carryovers - Whereas HSA funds are fully owned by the employee and not subject to any use-it-or-lose it provisions, HRA accounts are employer dollars and the employer has the discretion whether to permit carryover of unused dollars.

Describe the reasons why the functional approach is considered to be an appropriate approach for the effective planning, designing, and administration of employee benefits.

First, because employee benefits are a very significant element of a total employee compensation, and generally are a very tax-effective way of compensating employees, they should be planned and organized to be effective in meeting employee needs. Second, employee benefits generally represent a large item of labor cost for employers. Therefore, effective planning and avoidance of waste can be an important employer cost-control measure. Third, employee benefits in the past often were adopted by employers on a piecemeal basis, witbout being coordinated with existing employee benefit programs. Consequently, reviewing these plans, or proposed changes to them using the functional approach can eliminate overlap and fill gaps. Fourth, a systematic approach to planning benefits helps keep an employee benefit plan current, competitive, and in conpliance with regulatory requirements. The last point can be illustrated by the enactment of the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Reconciliation Act. This extensive law shows the demands that may be placed on the benefit plans of private employers to help solve perceived social problems. Finally, the functional approach allows benefits to be integrated properly with each other.

Define first-dollar coverage and explain why it was a viable health insurance design earlier but not commonly used in traditional benefit designs

First-dollar plans pay benefits from the "first dollar" of expense incurred. The subscriber pays no expense. This model was used in early hospital and medical plans when costs and utilization patterns were lower. First-dollar coverage is not used much today, having been replaced first with plans that utilized deductibles, coinsurance provisions and other cost-containment techniques designed to encourage the subscriber to share in the cost of insurance and thus have a financial stake in the plan. Following the initial wave of cost-sharing features, other approaches such as managed care programs and consumer-driven health plans have subsequently replaced these early plan designs.

What is insurance from the standpoint of an employee benefit plan?

From the standpoint of an employee benefit plan, insurance is a mechanism in which the insured (employer / employee) pays money (premiums) into a fund (insurance company). Upon the occurrence of a loss, reimbursement is provided to the person suffering the loss. Thus, the risk has been reduced or eliminated for the insured; and all the individuals who paid into the fund share the resulting loss.

What factors influence the cost of prescription drug benefits?

The cost of a prescription benefit depends on a variety of factors. First, the demographics (age and gender) of the population determine the disease mix that is being treated. Second, benefits, copays and formulary design influence what is covered in the plan. Third, drug cost and the mix of branded products covered by the benefit drive the cost of drugs. Drug mix is a factor of the preferred drug list, or the restrictiveness of the formulary . Rebates may mitigate some branded drug cost, particularly if 100% of the rebates are being returned to the plan. Preferred drugs may actually cost more on a monthly basis in terms of the cost of the discounted ingredient costs. But, after rebates, the "net" costs of the preferred drugs should always be less than those of the nonpreferred drugs within a therapeutic category unless the agent (a particular drug) is clinically superior. Fourth, the utilization (number) of prescriptions used by the members is the multiplier of drug costs. Fifth, the costs charged by the PBM and the PBM's ability to gain a profit from retail and mail-order discounts, rebates and other programs should provide offsetting discounts to the cost of the program. PBMs can increase costs, however, if all earned fees and discounts are not returned to the plan sponsor. Sixth, other factors influencing the cost of a prescription drug plan are fraud (by pharmacies, patients, or physicians) and prescription misuse. Seventh, the ability of the plan to manage costs has a definite impact on the cost of the benefit. Tightly managed plans always yield lower costs on a patient-by-patient basis than nonmanaged plans do.

What are the underwriting methods used by insurers to address the problem of adverse selection by individual applicants for insurance coverage?

The desirable situation for an insurance company is to have a spread of risks throughout a range of acceptable insureds. The so-called spread ideally will include some risks that are higher and some that are lower than the average risk within the range. Insurers attempt to control adverse selection by the use of sophisticated underwriting methods and supportive policy provisions. Underwriting is the uniform process by which insurers select and classify applicants for insurance. Examples of the types of policy provisions used to control adverse selection include preexisting conditions clauses in medical expense policies, suicide clauses, maximum coverage amounts and open enrollment period restrictions.

What are the types of hospitalization benefits covered in health plans?

The hospitalization portion of health plans generally cover all services, supplies and procedures provided and billed through a hospital. These include the following: 1.) Inpatient room and board 2.) Emergency care 3.) Intensive and specialty care 4.) Maternity and newborn care 5.) X-ray, diagnostic testing and laboratory expenses in a hospital 6.) Skilled nursing facility care 7.) Radiation and chemotherapy 8.) Inpatient mental and nervous care 9.) Inpatient drug and alcohol substance abuse care 10.) Physical, inhalation and cardiac therapy 11.) Home health care 12.) Hospice care 13.) Respite care

From an employee benefit perspective, what is the most important type of pure risk to cover? Explain.

The most important classification of pure risk from an employee benefit standpoint is personal risk. Personal risks are losses that directly impact an individual's life or health. Many risks involving employee benefit plans fall into this classification. Death, illness, disability, unemployment and old age are all personal risks.

Describe the nature of most severe mental illnesses.

The most severe mental illnesses such as schizophrenia, bipolar disorder, and major depressive disorder are generally considered biologically based disorders that affect the brain, profoundly disrupting a person's thinking, feeling, mood, ability to relate to others and capacity for coping with the demands of life. Non-biologically based mental disorders can also severely impact an individual's functioning.

What are the objectives of employer-sponsored wellness programs?

The objectives of employer-sponsored wellness programs are to promote healthy lifestyles among employees by targeting the risks that result from poor nutrition, lack of physical activity, excessive stress, tobacco use and other unhealthy habits. These risk factors can lead to expensive chronic diseases and health issues that also affect workforce productivity, absence from work, safety and employee morale.

What is the key component of the point-of-service plan concept? Explain.

The primary care physician (PCP) is the key component of the POS concept, and preferred benefits are available only for care rendered by or coordinated through the member's PCP. Care rendered by nonnetwork providers as well as any other self-rendered care, even if rendered by a network provider, is payable at the nonpreferred benefit level. Thus, the PCP acts as a "gatekeeper" to specialist care. The primary care physician generally is a family practitioner, general practitioner, internist or pediatrician, with some networks including obstetricians and gynecologists as primary care physicians in response to demand from female members.

Does the GINA prohibition against collecting genetic information for underwriting purposes impact wellness programs?

The prohibition collecting genetic information at any time for underwriting purposes does impact wellness programs. The regulations provide that "underwriting purposes" include rules for and determinations of eligibility (including enrollment and continued eligibility), computation of premium or contribution amounts, and application of preexisting condition exclusions. Notably, the rules clarify that "underwriting purposes" includes changing deductibles or other cost-sharing mechanisms in return for activities such as completing a health risk assessment or participating in a wellness program.

What are the provisions of the MHPAEA?

The provisions are: 1.) Plans may not impose financial requirements (such as deductibles and coinsurance) or treatment limitations on MH/SUD benefits that are more restrictive than the "predominant" financial requirements or treatment limits applied to "substantially all" medical/surgical benefits. The law requires parity for both quantitative and non-quantitative treatment limitations. Quantitative treatment limitations include frequency of treatment, number of visits, days of coverage and other similar limits. Examples of non-quantitative treatment limitations include medical management standards and formulary design. 2.) The parity requirements apply separately to each six classifications of benefits: (a) Inpatient in-network (b) Inpatient out-of-network (c) Outpatient in-network (d) Outpatient out-of-network (e) Emergency care (f) Prescription drugs 3.) Separate cost-sharing requirements for MH/SUD benefits are not allowed even if they are equivalent to thos for medical/surgical benefits. For example, plans must have a combined deductible that applies to medical/surgical and MH/SUD benefits. 4.) The law includes two new disclosure requirements. Fuirst, plans must make aailable their criteria for determining medical necessity for MH/SUD treatment. Second, the reason for claim denials for MH/SUD benefits must be made available. A plan subject to ERISA can satisfy this requirement by following ERISA claim denial procedures for group health plans. NOTE: Under ACA, MH/SUD benefits are considered essential benefits. As such, annual limits may not be imposed after plan years beginning 2014 and lifetime limits are banned under general conditions.

Describe how the prudent expert rule under ERISA differs from the traditional prudent man rule under the common law of trusts.

The prudent expert rule under ERISA differs from the traditional prudent man rule under the common law of trusts in three important respects: 1.) The plan fiduciary under ERISA must invest plan assets not in the same way as he or she would handle his or her personal estate but must look to how similar pension plans under similar circumstances are being invested. 2.) An ERISA fiduciary must exercise the skill of an expert in the management of pension plans. 3.) The focus is not on the performance of the individual plan investment but on how the investment contributes to the net performance of the pension portfolio as a whole.

What is the "appropriate equitable relief" provision of ERISA?

The subject of numerous US Supreme Court decisions, the "appropriate equitable relief" provision of ERISA section 502(a)(3) continues to generate much debate over its scope and meaning. Interpretation disputes often occur over cases other than those brought by participants or beneficiaries seeking a claim of benefits or those brought by a medical plan trying to enforce subrogation rights or recover an overpayment of benefits.

Who is a party in interest?

The term "party in interest" is broadly defined as including nearly everyone who has a direct or indirect association with a plan and specifically includes, but is not limited to, the following: 1.) plan fiduciary (such as an administrator, officer, trustee, or custodian of the plan). 2.) The legal counsel or employee of the plan. 3.) Any other person providing services to the plan. 4.) An employer whose employees are covered by the plan 5.) An employee organization, any of whose members are covered by the plan 6.) A direct or indirect 50% or more owner of an employer sponsor of the plan 7.) Certain relatives of the foregoing persons 8.) The employees, officers, directors, and 10% shareholders of certain other parties in interest 9.) Certain persons having a statutorily defined direct or indirect relationship with other parties in interest

List the characteristics of a dental plan's covered group that should be considered in the cost of the plan

There are several important characteristics of the covered group that should be considered in the cost of a dental plan. 1.) Ages of the participants because average charges usually increase from about age 30 to 40. 2.) The distribution by gender of the group because females tend to have higher utilization rates than males. 3.) The location of the group because dental charges, practice patterns and the availability of dentists vary by locale. Differences exist in the frequency of use for certain procedures as well. Also, the presence of fluoride in the water supply substantially reduces dental costs. 4.) The incomes of the participants because there is a discernible increase in costs at higher income levels. 5.) The occupations of the group members because blue-collar workers have decidedly lower dental costs than white-collar employees.

How do dental plans mirror today's medical plans?

There are three basic approaches to dental plans: the fee-for-service indemnity approach, the preferred provider organizations approach and the dental DHMO approach. As with medical plans, the PPO is the prevailing dental benefit approach, and the fee-for-service approach is gradually disappearing.

What are the three types of drug utilization review (DUR) programs?

There are three types of DUR programs available: concurrent, retrospective, and prospective. 1.) Concurrent DUR occurs at the point of service (the pharmacy) and flags potential overuse based on clinical monitoring criteria or "edits" that have been programmed into the PBM's systems. These edits (referred to as "hard edits" because the claim will not be adjudicated until they are cleared) are for too-soon refills, duplicate claims, drugs requiring PA, or quantity limits. 2.) Retrospective DUR programs (pharmacy case management), pharmacists or nurses review patient profiles to determine if patients are complying with their drug therapy or to suggest alternative therapies to their physicians that may be better or more cost-effective. PBMs have been reluctant to offer these types of programs because PBMs are paid to fill rather than not fill prescriptions by plan sponsors (and drug manufacturers). Many PBMs refer to their therapeutic switching programs as retrospective DUR. However, therapeutic switching programs are aimed more at substituting one drug for another rather than determining if the therapy is appropriate. 3.) Prospective DUR refers to educating physicians and patients about drugs or drug therapies.

Briefly discuss the concept of clinical care supply chains

These are the total sequence of business, diagnostic, medical and wellness promotion processes, within a single or multiple enterprise environment, that enable the patient and his or her family to receive the health-related services and/or products necessary to achieve outcomes associated with the promotion or maintenance of good health.

Identify different types of managed care arrangements and state the benefits they cover that traditional plans generally do not

Three types of managed care arrangements are health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans. Benefits included in managed care arrangements typically not included in traditional plans are routine physical exams, preventative screenings and diagnostic tests, prenatal and well-baby care, immunizations, vision and dental checkups, and allowances for health club memberships.

Disease state management (DSM) programs are developed to measure and manage all health care outcomes and costs associated with a particular disease across the entire continuum of health care delivery. Describe the two main types of DSM programs and the kind of criticism leveled at them.

Two types of DSM programs are offered: the medical model and the therapy-directed model. The medical model consists of call centers staffed by nurses and their assistants to triage patients to appropriate levels of care. These centers follow up on patients with select diseases to ensure that the patients are scheduling physician appointments, receiving appropriate tests and procedures, and understand the importance of taking their medicarions. The therapy-directed model is administered by PBMs, pharmaceutical manufacturers, health plans, and disease management companies. These entities foster improved compliance with medication therapy, patient education and testing for outcomes of care. Critics argue that neither model has any standardized methods to judge success and return on investment (ROI). They have argued that these programs are thinly veiled "advertisements" from the drug manufactures (as in information distributed to patients of mail-order firms) rather than actively managed DSM programs. Critics of DSM programs also argue that the DSM targeted diseases are "low-hanging fruit", in that their treatment can be easily improved with compliance and education programs to properly use medications. They argue that the benefits of these programs are front loaded, in that the benefits are achieved with initial interventions, and further clinical improvements and cost reductions are marginal, or at best, incremental.

Describe the characteristics of an "ideal insurable risk" from the standpoint of an insurance company

From the viewpoint of the insurer, there are six requirements of an ideal insurable risk: 1.) There must be a large number of homogeneous risks (exposure units). This is to enable the insurer to predict loss based on the law of large numbers. 2.) The loss should be both verifiable and measurable. This means the loss must be definite as to cause, time, place, and amount. The insurer must be able to determine if the loss is covered under the policy and, if it is, how much the company will pay. 3.) The loss should not be catastrophic in nature. This means that a large number of exposure units should not suffer losses at the same time, or else the pooling becomes unworkable. 4.) The chance of loss should be subject to calculation. The insurer must be able to ascertain both the average frequency and the average severity of future losses with some accuracy. This will facilitate the development of an adequate premium, one that is sufficient to pay all claims and expenses and that yields a profit during the policy period. 5.) The premium should be reasonable or economically feasible. Specifically, the insured must be able to afford the premium, and the premium should be substantially less than the face value or amount of the policy. 6.) The loss should be accidental and unintentional from the standpoint of the insured. Ideally, it should be outside of the insured's control. If an individual deliberately causes a loss, it should not be paid. This requirement decreases the moral hazard and facilitates the working of the law of large numbers. The push toward "consumer-directed" health plans is partially an attempt to encourage employees to be more selective and aware of the importance of cost control in the selection and use of medical services.

How is an ERISA plan, fund or program established?

Generally, a plan, fund or program under ERISA is established if, from the surrounding circumstances, a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits. So, for example, an informal severance practice can be an ERISA plan if a pattern of benefits has developed over the years. The "bare purchase of insurance" generally constitutes an establishment or maintenance of a plan, but only if the employer contributes to the plan or otherwise endorses it.

What restrictions apply to permissible reimbursements from HSAs, HRAs and FSAs?

Generally, the reimbursements applicable to HSAs, HRAs, and FSAs are the same. All three types of accounts can pay for Section 213 (s) "qualified medical expenses" incurred by the account holder, his or her spouse and dependents. However, there are some differences in connection with certain types of medical expenses. Specifically, differences apply when health insurance premiums, long-term care insurances or payments for long-term care services are involved. Whereas an HRA can pay for health insurance premiums, an FSA cannot. An HSA may only pay for health insurance premiums under the following circumstances: while receiving federal or state unemployment benefits, for COBRA continuation coverage, and for Medicare (excludes Medicare Supplemental plans) premiums and for employer-sponsored retiree health insurance premiums. Both HSAs and HRAs can pay long-term care insurance premiums; an FSA cannot. An HSA can pay for long-term care services, but neither HRAs nor FSAs can make such payments.

Identify and briefly explain the various models into which HMOs have evolved.

HMOs have evolved into three basic types, the distinguishing feature being the relationship between the HMO and the participating physicians: 1.) Group model HMPs contract with groups of physicians and usually link the group with various forms of financial risk sharing. While the physicians are not employed by the HMO company, they typically have large numbers of patients who are HMO members which forms a strong financial tire with the company. Members receive primary care at the medical group's clinic or health center, with specialty referral care and hospital confinements handled through other contracted arrangements. 2.) Staff model HMOs operate in much the same way as the group model. The critical difference is that physicians are employed by the HMO company which pays them a salary rather than payments per service to covered members. Typically, staff model HMOs deliver all levels of care, although the HMO may contract with certain specialists or facilities to provide services it cannot handle. 3.) IPA model HMOs, or "open-panel" plans, contract with individual practice associations (IPAs) or directly with private practice physicians. This is the most common form of HMO structure today because it requires less capital to establish and operate than the other forms require. It is also often the most popular form of HMO among members, whose current physician may already be on the panel.

Briefly describe the basic features of an HMO

HMOs provide members with comprehensive benefits through an established provider network. Members receive rich benefits (virtually 100% coverage) in exchange for exclusive use of the HMO network and for compliance with its requirements. As mentioned previously, no coverage is provided for any health care received outside of the HMO, except for emergency treatment or when traveling out of the network's coverage area. Plan highlights include: 1.) No annual deductibles and relatively small office visit copayments. 2.) Comprehensive coverage with minimal copayments. 3.) No claims forms or other paperwork to file. 4.) Preventive care, including well-baby care, immunizations and routine exams.

Describe the characteristics of cafeteria plan health FSAs.

Health FSAs are funded on a pretax basis by the employer or the employee. The amount being contributed to the FSA must be determined prior to the start of the plan year. Amounts contributed to an FSA are not subject to either federal income tax or to Federal Insurance Contributions Act (FICA - Social Security and Medicare) taxes. Avoidance of FICA taxes add another level of savings for both the employer and the employee. The major drawback of an FSA is the use-it-or-lose-it provision of the law. Essentially, unused balances at the end of a plan year may not be carried over to a future year. However, plans may permit a grace period of up to 2.5 months after the end of the plan year for remaining balances to be used. The forfeiture requirements for FSAs has been criticized as encouraging employees to unnecessarily spend remaining health care balances at the end of a plan year.

What penalties may be imposed on a fiduciary for engaging in a prohibited transaction?

If found to have engaged in a prohibited transaction with a plan, a fiduciary as a disqualified person would be subject to an excise tax payable to the US Treasury equal to 15% of the amount involved in the transaction occurring after August 5, 1977, for each year the prohibited transaction was outstanding, plus interest and penalties on this excise tax. This excise tax increases to 100% of the amount involved upon failure to remedy the transaction upon notification. The secretary of labor may separately assess a civil penalty under ERISA of up to 5% of the amount involved in a prohibited transaction for each year in which it continues, or 100% of the amount involved if not corrected within 90 days of notice from the secretary.

In addition to a fiduciary's personal liability for restoring losses sustained by the plan, what other sanctions may be applied for a breach of the fiduciary's responsibilities?

In addition to a fiduciary's personal liability for restoring losses sustained by the plan as a result of a breach of the fiduciary's responsibilities, the fiduciary also may be liable for 1.) Court-ordered attorney fees and costs incurred to remedy the breach. 2.) Punitive damages awarded by a court against the fiduciary 3.) Special damages in an amount equal to the profits received by a fiduciary resulting from the wrongful use of plan assets 4.) Mandatory assessment of a civil penalty equal to 20% of the amount recovered by the secretary of labor on account of a fiduciary breach

What are the types of medical benefits covered in health plans?

In addition to benefits for primary physician expenses, the following are medical benefits typically covered under health plans: 1.) Surgeons 2.) Anesthesiologists 3.) Nurse and other surgical assistants 4.) Service fees associated with inpatient medical care 5.) Second surgical opinions 6.) X-ray, diagnostic and lab expenses in a doctor's office or by an independent laboratory 7.) Skilled nursing care 8.) Obstetricians and pediatricians associated with prenatal, delivery and newborn care 9.) Inpatient intensive care and concurrent care in a hospital 10.) Allergy testing 11.) Transplant services 12.) Administration of radiation and chemotherapy 13. ) Inpatient physical therapy 14.) Immunizations for children

What nonformulary cost-management tools are available to contain prescription drug costs?

In addition to formularies, there are other tools available to contain prescription drug costs. Other cost-management tools include: 1.) Network management, better discounts with retail an mail-order programs, and monitoring performance to avoid fraud and abuse. 2.) Designing plans that meet the objectives of the overall benefit program. 3.) Quantity limits and maximum dollar limits on all prescriptions. 4.) Step-therapy programs to ensure that prescribing complies with national guidelines for treatment of particular diseases. 5.) Prospective review of new drugs and early policy determination. 6.) Clinical management through a thorough pharmacy case management program. 7.) Other DUR programs, such as concurrent and prospective programs. 8.) Quality data management that provides early intervention reporting.

Describe the differences in funding provisions, other than contribution limits, among HSAs, HRAs, and health care FSAs.

In addition to the differences in contributions limits discussed in the previous question, there are substantial differences in other funding provisions among the various types of individual savings accounts. Whereas both employers and employees may contribute to HSAs and FSAs, only employers may contribute to an HRA. The provisions regarding carryover of unused balances from year to year and transfer of accounts also differ. There are no annual or lifetime limits on the amount that can be carried over or accumulated in an HSA. Although HRAs allow for the carryover of unused balances from year to year, an employer may impose annual or lifetime carryover limits. An FSA does not allow carryover of unused balances* (*Not true after 2013). Only the HSA is portable, meaning employees keep the HSAs when they leave or change jobs. HRAs and FSAs do not have this portability feature.

Describe the cost-plus/self-insured and stop-loss benefit funding approaches

In the cost-plus/self-insured approach, and organization itself actually pays the claims of the group (as opposed to insuring through an insurance company and pay premiums). In this case, an insurance company or a third-party administrator (TPA) often handles claims processing. Stop-loss is often used in conjunction with the cost-plus/self-insured method to limit an organization's potential medical claims exposure. The organization purchases insurance that makes a payment if claims exceed a certain predetermined amount either on an aggregate group basis or individual case basis.

What are some innovative approaches that might succeed in meeting the critical needs of mental health patients?

Innovative approaches that are either in the development stage or already in use to meet the needs of mental health patients include: 1.) Proactive disease management programs that operate on several fronts. These programs work with employers to reach out to employees at the workplace and with health plans to identify patients taking psychotropic medications who need additional support; and reach out to patients with other diseases like diabetes or cardiac conditions who may also suffer from mental illness. 2.) Outreach to people who want treatment but do not know how to access it or to find a therapist who is best for them. 3.) Innovative ways of delivering therapy that are most accessible and cost-effective. For example, patients with mild to moderate levels of distress can benefit from a coach who offers counseling over the telephone or via the internet.

Compare the insurance mechanism with gambling

Insurance is a mechanism for handling existing risk, whereas gambling creates a risk where one did not previously exist. For example, insurance is purchased to deal with the existing risk of illness; however, the outcome of a sports event is financially meaningless to the typical fan until he or she gambles on the final score. Second, the risk created by gambling is a speculative risk, whereas insurance deals with pure risks. Third, gambling involves a gain for one party, the winner, at the expense of the other, the loser, whereas insurance is based on a mutual sharing of any losses that occur. Fourth, the loser in a gambling transaction remains in that negative situation, whereas an insured who suffers a loss is financially restored in whole or in part to his or her original situation.

Hospital bill audits are conducted by insurance companies to review health insurance claims to look for incorrect accounting and charges. Auditors check doctors' orders, nurses' notes, room and board charges, length of stays and other records. What do audits generally include and in which areas are errors the most prevalent?

Insurers use both independent and internal auditors to conduct a continuing series of audits of the hospital claims that are most likely to contain errors that is, bills exceeding a certain amount; room and board charges less than 44% of the total bill; certain lab tests such as blood counts, urinalysis, SMA 12/60s and sodium potassium levels listed more than once every 24 hours; therapy sessions prescribed more than normal; bills that show evidence of treatment for non-related conditions; drug charges that are large and frequent; patients who are hospitalized longer than necessary; and a high number of charges for whole blood derivatives without any credits for donated replacements. Some of the prevalent errors uncovered in hospital audits are in the areas of pharmacy costs, laboratory charges, radiology costs, inhalation therapy fees and occupational therapy costs. Auditors, for example, check the physicians' orders, the nurses' notes, pharmacy records, the total charges for therapy divided by the number of hours spent with a therapist, radiology and laboratory records, as well as the room and board charges and length of stay for a given diagnosis.

What effect have labor unions had on the growth of employee benefit plans.

Labor unions, through the collective bargaining process, have had an impact on the growth of employee benefit plans. A notable event occurred in 1948 when the National Labor Relations Board (NLRB) ruled in the Inland Steel case that the duty to bargain in good faith over wages also included insurance and fringes such as pension benefits. Shortly thereafter, in the W. W. Cross & Co. case, NLRB ruled that wages included a health and accudent plan.

How are the approaches in POS plans similar and dissimilar to approaches used in PPO plans?

Like PPOs, POS plans can use incentive, disincentive, or combination approaches to plan design, but there must be a greater benefit differential in a POS plan than in a PPO plan to create incentives for members to use the PCP and receive preferred benefits even though benefits (at the nonpreferred rate) are provided for out-of-network care

How does the Mental Heath Parity Act and Addiction Equity Act of 2008 (MHPAEA) expand on the Mental Health Parity Act of 1996 (MHPA)?

MHPA required parity only in annual or lifetime dollar limits and did not extend to substance use disorder benefits. MHPAEA continues the MHPA rules as to limits for mental health benefits and amend them to extend to substance use disorder benefits as well. MHPAEA further requires that financial requirements and treatment limitations applicable to mental health or substance use disorder (MH/SUD) benefits are no more restrictive than those applied to medical/surgical benefits. MHPAEA retains the smal lemployer exemption contained in MHPA; and, like MHPA, does not rwquire group plans to include MH/SUD benefits in their plans. Rather, a plan which offers both medical/surgical and MH/SUD benefits must comply with the parity provisions. (MHPAEA modified the increased cost exception contained in MHPA. Under MHPAEA, a plan is exempt from the parity rules if they increase the plan's premium costs by more than 2% in the first year in which the act applies and more than 1% in subsequent years).

Why are most contributory plans not mandatory?

Making a plan contributory will have an impact on employee participation and how well a plan meets the needs of the employee group as a whole. Moreover, if participation in a contributory plan is mandatory, this may create an employee relations problem. Thus, most contributory plans are not mandatory, and many contributory plans vary the levels or types of benefits in accordance with the degree of employee contributions.

What is the definition of managed care provided in the text to include the broad range of managed indemnity plans, HMOs, PPOs, and POS plans?

Managed care includes those programs intended to influence and direct the delivery of health care through one or more of the following techniques: 1.) Plan design features, including incentives and disincentives in the level of coverage, intended to redirect the delivery of medical care. 2.) Access restricted to a specified group of pre-selected providers. 3.) Utilization management (UM) programs also called utilization review (UR) intended to preauthorize certain forms of medical care use and/or concurrently monitor the use of more expensive forms of care such as inpatient treatment.

What were typical mental health care benefits of health maintenance organizations (HMOs) as they proliferated in the 1980s?

Mental health care coverage under the HMOs was extremely limited and differed significantly from non-mental health care coverage. Hospital coverage was restricted to 30-45 days per mental illness, or 30 or 60 days per year. For medical illnesses, the number of days was usually unlimited. And for outpatient services, coverage limitations were dramatically lower for mental health treatment than for medical treatment. The most common limitations for mental health outpatient treatment were a maximum dollar limit of $1,000 per year and a maximum reimbursement per visit ranging from $25 to $40. Coinsurance rates also varied dramatically between medical and mental coverage.

What are the advantages are disadvantages of nonscheduled dental plans?

One advantage of nonscheduled plans is that although the dollar payment may vary by area and dentist, the percentgae of total cost reimbursed by the plan is uniform. Another is that there is a built-in automatic adjustment for inflation and also for variations in the relative value of specific procedures. There are three distinct disadvantages associated with nonscheduled plans. First, cost control can be a problem because the benefit levels adjust automatically for increases in the cost of care in periods of rapidly increasing prices. Second, once a plan is installed on a nonscheduled basis, the opportunities for modest benefit improvements, made primarily for employee relations purposes, are limited. Third, except for claims which predetermination of benefits is appropriate, it rarely is clear in advance what the specific payment of a particular service will be either to the patient or the dentist.

Explain the arguments related to flexibility in the design of an employee benefit plan as related to the functional approach to benefit planning.

One argument is that the more flexibility an employee has, the more likely he or she will select a benefit program that best meets his or her individual needs and goals. Thus, flexibility in plan design such as optional participation, coverage amount, and coverage options facilitates the functional approach. The opposing argument states that allowing flexibility in types and amounts of benefits works against the functional approach, because employees might not recognize all their or their families' needs and leave some important needs uncovered.

What are three key motivators that employers should use to help their employees adopt and maintain healthier behaviors?

One of the key motivators is education. It plays a role in raising awareness and building a desire for change. a second motivator is peer pressure both in the workplace, where individuals seek a sense of belonging and accomplishment, and at home, where they feel a sense of accountability to those they love. And a third motivator, the tipping point that moves individuals from inaction to action, is the use of external incentives.

Define open, preferred, and closed formularies.

Open formularies allow plan enrollees any covered prescription drug prescribed for them. Since most physicians are primarily familiar with only the handful of prescription medications they use most often, open formularies - which typically include hundreds of possible medications and several options per category - give physicians and patients the chance to make better-informed choices. In an open formulary environment, the list of preferred drugs is distributed to patients and physicians for informational purposes only. Preferred formularies have become quite popular in the last several years. They encourage patients to use the preferred or formulary drugs in return for a reduced copayment. Closed formularies often meet wit resistance from plan enrollees. They simply mean that the plan will not cover the nonformulary drug. Closed formularies are typically found in hospital settings and tightly managed HMO programs - employers normally do not use this type of formulary.

Identify and describe the several design peculiarities of orthodontic benefits within dental plans

Orthodontic benefits are almost never written without other dental coverage. Because properly treated orthodontic problems are never unlikely to recur once they have been corrected, they generally are only rendered once in an individual's lifetime. Therefore, maximums typically are expressed on a lifetime basis. There are no deductibles since major purpose of the deductible - to eliminate small, nuisance-type claims - is of little consequence for these types of claims. Many plans limit orthodontic coverage to persons under age 19. However, a number of plans do include adult orthodontics as well. a common coinsurance level for orthodontia expenses is 50%, but this varies widely among plans. It is common for the orthodontic reimbursement level to be the same as that for major restorative procedures. Unlike most other benefits, orthodontia is often paid for in installments, because the course of treatment typically extends over several years.

Why have requirements of the group technique been liberalized over the years?

Over the years, many of the requirements of the group technique have been liberalized as providers of employee benefits have gained experience in handling group employee benefits and because of the competitive environment. Nevertheless, the basic group selection technique is important in understanding why employee benefits can work on a group basis and how any problems that exist might be corrected.

How to PBMs generate profits?

PBMs generate profits in many ways. The typical revenue steams are through claim administration fees, mail service and rebates. The following is a more extensive list of potential PBM revenue streams: 1.) Charging payers an administration fee per transaction based on the number of prescriptions or employees. 2.) Retaining rebate administrative fees negotiated with manufacturers. 3.) Filling mail service prescriptions from their wholly owned mail-order pharmacies. 4.) Disease management, education and value-added programs negotiated with pharmaceutical manufacturers. 5.) Securing discounts through a contracted network of pharmacies or through direct purchasing when the PBM owns its mail service pharmacy. 6.) Retaining the pharmacy spread. 7.) Retaining the spread in MAC list payments for generics that is greater than what is paid to the network pharmacies. 8.) Reducing payments to pharmacies based on certain package sizes, regardless of the package size dispensed.

Who can also be considered as plan fiduciaries, and who cannot be named fiduciaries?

Plan trustees and administrators, by the very nature of their functions and authority, would be considered fiduciaries. A written plan document is required to provide for named fiduciaries having the authority to control and manage the plan so that employees know who is responsible for its operation. ERISA forbids persons convicted of any variety of specified felonies from serving as a fiduciary advisory, consultant or employee of a plan for a period of the later of five years after conviction or five years after the end of imprisonment for such a crime. A fine of up to $10,000 or imprisonment for not more than one year may be imposed against a named fiduciary and others for an intentional violation of this prohibition.

Explain the differences between prepaid service and indemnity plans and how they evolved

Prepaid service plans provided a set allowance (or level of benefits) for hospital/medical services and paid them directly to the provider. Blue Cross/Blue Shield (BC/BS) plans were set up as prepaid plans from their inception in the late 1930s. The hospital insurance entity (BC) was set up separately from the medical insurance (BS) organization. The BC/BS plans were nonprofit organizations, provided insurance to all seeker under their own charter and were underwritten by community rating, and insurance approach whereby a uniform rate is used for all subscribers or insureds within a given geographical area. Insurance companies entered the market shortly after the BC/BS plans, providing indemnity plans that reimbursed (indemnified) a set dollar amount to the subscriber. Unlike the BC/BS plans, the insurance companies were for-profit, not open to all and not community rated.

Explain how the use of length of service, or probationary periods, may vary with respect to protection-oriented benefits and accumulation-oriented benefits

Protection-oriented benefits consist of medical expense benefits, life insurance benefits, and STD and LTD income benefits that protect employees and their dependents against serious loss exposures that could spell immediate financial disaster. Such benefits may have a relatively short probationary period because of the need for immediate coverage of the employees and their dependents. Accumulation-oriented benefits, such as pension plans, profit-sharing plans, savings or thrift plans, and so forth, reward an employee for relatively long service with an employer. These types of benefits usually involve a longer probationary period period than protection-oriented benefits because they are viewed as a reward for long service and the longer probationary period is not a disadvantage to long-term employees.

What are psychotropic medications and what challenge do they pose for MBHOs?

Psychotropic medications are drugs that affect psychic function, behavior or experience, and they are part of the medical benefit and are generally administered by companies contracting with health plans called pharmacy benefit managers (PBMs). These medications account for a significant part of the overall cost of health care because of the chronic nature of many mental illnesses, but a fractionalized system currently exists that prevents optimum management of these medications. Because MBHOs do not manage the prescription drug benefit but bear the responsibility for managing the behavioral care for their members, they are often unaware if psychotropic medications prescribed to their members are of the appropriate types and dosages, or if there are appropriate interventions during treatment to ensure their members are medication compliant.

Discuss creation of accountable care organizations (ACOs) as envisioned by the PPACA

The Patient Protection and Affordable Care Act of 2010 (PPACA) envisioned and legislatively created a new type of entity to deliver patient care. An ACO is a network of doctors and hospitals sharing responsibility for providing care to patients. Under the PPACA legislation, medical provides would agree to manage all the health care needs of a minimum of 5,000 Medicare beneficiaries for a period of at least three years. Essentially, an ACO is a local health care organization that is accountable for the provision of care, patient satisfaction, quality of care and total medical cost for a defined population of patients. The ACO initiative was scheduled to begin in January of 2012. ACOs make providers jointly responsible for the health of their patients. ACOs that save money by avoiding unnecessary tests and procedures while meeting preset quality targets would retain some of the savings. However, some providers could also be at risk of losing money. The ACO model is intended to foster teamwork across multiple medical specialties and care settings and encourage the adoption of evidence-based medical care. Emphasis is on early identification of disease, ongoing intervention and care management using a more coordinated care approach. Hospitals, doctors, health plans, and insurers could possibly create and manage ACOs. Although physicians will have incentives to refer patients of hospitals and specialists within the ACO network, patients are free to consult doctor of their choice outside the network without paying a penalty.

What are the provisions of the Mental Health Parity Act of 1996 (MHPA) and the reasons it largely failed to accomplish its objective?

The act was passed to establish partity between mental health benefits and other health insurance. The act prevents group health plans (it does not apply to the individual insurance market), insurance companies and HMOs from placing lower annual of lifetime dollar limits on mental health benefits than for medical and surgical benefits offered under the plan. The law, however, does allow for limits on impatient days, prescription drugs, outpatient visits and raising deductibles which, in fact, has the effect of subjecting mental health benefits to dollar limits. The act applies only to groups that offer mental health benefits and have more than 50 workers. It does not require plan sponsors to include mental health benefits in their benefit packages. The law also does not apply to substance abuse and chemical dependency treatment.

Distinguish between the broad view and the narrow view of employee benefits

The broad view considers employee benefits to be virtually any form of compensation other than direct wages paid to employees. It includes both government-mandated benefits and private plans. Thus, such things as the employer's share of Social Security tax on behalf of an employee, paid vacations, and pension plans are considered to be employee benefits under the broad view. The narrow view can be summarized as any type of plan sponsored or initiated unilaterally or jointly by employers and employees engaged in providing benefits that result from the employment relationship that are not underwritten or paid directly by government.

What changes are likely to come PPOs as a result of quality measurements that are part of the Patient Protection and Affordable Care Act of 2010 (PPACA)?

The changes that are likely to come to PPOs as a result of quality measurements that are part of PPACA involve accountability and value. PPOs, as all health plans, need to adjust to marketplace needs. As embodied by quality measurements included in the health reform act, PPOs will need to focus on how to improve quality and safety, decrease costs, keep healthy people in a state of good health and overall wellness, improve chronic illness care, keep people from needing to use the emergency room (ER) unnecessarily, and provide access to community resources.

Discuss the differences among the following behavioral health care treatments: inpatient, partial (day), and outpatient.

Acute inpatient facilities are designed for the most acute treatment needs, meaning individuals who are unable to care for themselves and may be suicidal or homicidal. Partial hospital programs (sometimes called day treatment) offer intensive treatment during the day, but patients return home overnight. Finally, intensive outpatient programs are designed for patients who need more intensive treatment than weekly outpatient therapy provides, but they require fewer hours each day than partial or day facilities provide.

Explain the early cost-sharing techniques used in major medical coverage

Deductibles and coinsurance were two of the earliest cost-sharing methods used in major medical coverage and in comprehensive plans. A deductible is the amount of covered medical expense that the subscriber must pay before the plan pays benefits. The coinsurance amount usually is some percentage of total charges for which the plans participant is responsible once the deductible is exceeded. Deductibles and coinsurance work together as cost-sharing mechanisms. For example, a plan may require that the participant pay $500 of expense as the deductible before it begins paying. After that amount has been reached, the plan may pay 80% of allowable charges. The participant would be responsible for the other 20% of charges.

Describe the bonding requirements for fiduciaries.

Every fiduciary of an employee benefit plan and every other person who handles plan funds or property is required to be bonded, naming the plan as the insured, in an amount fixed at the beginning of each plan year as not less than 10% of the amount of funds handled but in no event less than $1,000.

Explain the law of large numbers

Insurance is based on the law of large numbers, which means that the greater the number of exposures, the more closely the actual results will approach the probably results that are expected from an infinite number of exposures.

What do integrated health systems often include? Explain.

Integrated health systems are an outgrowth of HMOs and PPOs that expand to include a managed care company, physician practices, multi-specialty practices, hospitals, and ancillary service providers.

Briefly summarize the steps in the clinical review process

Typically, there are various steps in the clinical review process that begin with some type of automated prescreening approach and proceed with ongoing clinical reviews that precede treatment, occur simultaneously as treatment and care is administered, and retrospectively review treatment and care following its conclusion with patient discharge. Not strictly followed by all managed care plans, these steps are briefly summarized below: 1.) Prereview screening - This usually automated first look at the appropriateness of care seeks to determine whether or not the prescribed care is appropriate given the symptoms, diagnosis or suspected diagnosis. 2.) Initial Clinical Review - The initial clinical review will not render a decision involving non-certification or denial of care. Rather, the assumed appropriateness of the care is assessed. 3.) Prospective Review - Prospective review involves utilization management conducted prior to a patient's admission to a hospital, stay in some other type of medical facility, or the provision of services or a course of treatment. The process also seeks to improve patient safety and to reduce or eliminate the possibility of medical errors. 4.) Concurrent Review - This on-site review involves utilization management conducted prior to a patient's admission to a hospital, stay in some other type of medical facility, or the provision of services or a course of treatment. The process also seeks to improve patient safety and to reduce or eliminate the possibility of medical errors. 5.) Concurrent Review - This on-site review takes place when a patient is confined to a hospital. Concurrent review examines patients' charts within 24 hours of admission, and then at designated intervals until discharge occurs to - Asses the need for admission to the hospital. - Assign an initial length of stay and asses the medical need for any extensions. - Assess the appropriateness of the level of care provided. - Assess the progress and efficiency of the care being given. - Extract data for quality assessment in comparison with medical care criteria. 6.) Continued-Stay Review - This off-site medical review is conducted while the patient is hospitalized, by telephone with the treating physician at designated intervals until discharge occurs. Using established medical criteria and length-of-stay norms, the review program professionals determine medical necessity and appropriateness of both treatment plan and inpatient stay. 7.) Retrospective Review - This review applies the same medical criteria as concurrent or continued-stay review, but only after the patient is discharged. A retrospective review can still limit costs by identifying medically unnecessary bed days and treatment charges and, where appropriate, isolate unrelated charges. This type of claims review allows an employer to establish a utilization profile to use in monitoring trends. 8.) Discharge Planning - This process occurs when it is apparent that the patient will be leaving the facility. For patients who have not recovered, arrangements are made for continuing care (e.g., in a skilled nursing facility; for home health care). The attending physician documents and explains the care and treatment needed after discharge.

Using HIPAA enforcement framework, describe the enforcement authority of federal agencies with regards to the ACA

Under the HIPAA enforcement framework, the following federal agencies have enforcement authority: 1.) The US Department of Labor (DOL) may enforce the ACA's insurance market reforms against group health plans through investigations, audits and lawsuits. Moreover, participants and beneficiaries may sue to enforce the ACA's provisions against noncomplying plans and health insurance issuers. A failure to amend a plan to comply with ACA, and a failure to administer the plan in compliance with ACA, could be treated as a breach of fiduciary duty for which the plan trustee may be personally liable. 2.) The IRS may assess excise taxes upon group health plans (and church plans) that do not comply with ACA's insurance market reforms. For group health plans, the penalty upon noncomplying plan sponsor is $100 per day of noncompliance per affected individual, and such violation must be self-reported to the IRS on IRS Form 8928 (a) The tax is assessed upon the employer or, in the case of a multiemployer plan, the plan. (b) Penalties and other assessments may not be paid from plan assets. Penalties must be paid by either the breaching fiduciary or the fiduciary liability carrier. 3.) The Department of Health and Human Services (HHS) enforces ACA's insurance market reforms against health insurers and nonfederal governmental plans (such as state ad municipal employee health plans). HHS may assess penalties of up to $200 per day, per affected individual, for each day of noncompliance.

The Genetic Information Nondiscrimination Act (GINA) prohibits employers and health plans from discriminating based on an individual's or his or her family members' genetic makeup. Under the act's Title I, what practices are group plans and insurers specifically prohibited from engaging in?

Under the act's Title I, group health plans and insurers are specifically prohibited from engaging in the practices of: 1.) Restricting enrollment, or adjusting premium or contribution amounts for the group on the basis of genetic information 2.) Requesting or requiring that individuals undergo a genetic test (subject to limited exceptions) and 3.) Requesting, requiring, or purchasing genetic information prior to or in connection with enrollment, or at any time for underwriting purposes.

Explain how a plan fiduciary can obtain an exemption from a prohibited transaction restriction

Upon application to the secretary of labor, a plan fiduciary may request an exemption to prospectively enter into what would otherwise be deemed a prohibited transaction upon the secretary's finding that granting such an exemption would be administratively feasible, demonstrably in the interests of the plan and of its participants and beneficiaries, and otherwise protective of the rights of the plan's participants and beneficiaries.

Based on the type of behaviors rewarded, there are three types of wellness incentives. Identify them and provide examples of each type.

Wellness initiatives can be classified into three categories based on the type of behavior rewarded: Activities, achievement, and adherence. 1.) Activity incentives reward employees for participating in, or completing, specific activities, including: (a) attending an educational session (b) Participating in a contest or challenge (c) Completing a health risk assessment (d) Completing online activities (e) Attending a health fair (f)Completing a certain number of activities over a defined period (ex: 30 minutes of physical activity for days/week for six weeks). 2.) Achievement incentives require more than just participation, In order to receive a reward, the individual must demonstrate achievement of specific goals or metrics, such as: (a) Maintaining low cholesterol, or reducing it by ten points if appropriate (b) Stopping smoking, or remaining tobacco free (c) Maintaining BMI below 25, or reducing it by one point if above optimal (d) Maintaining health blood pressure, or reducing it if appropriate (e) Maintaining health blood glucose level, or reducing it if appropriate. 3.) Adherence incentives reward longer term maintenance of lifestyle goals. For example: (a) Remaining tobacco free for 12 months (b) Maintaining a target BMI for 12 months (c) Maintaining other biometric measures within healthy range over a defined period of time (d) Maintaining a target accident rate of work (e) Working three out of four calendar quarters without an unscheduled leave day

Highlight the key features of HSAs.

When compared to HRAs or traditional health care FSAs offered under cafeteria plans, HSAs offer much more flexibility in funding and encourage participant savings for future medical expenses. Some key features of HSAs include: 1.) HSAs are fully owned by the employee 2.) The employee has unfettered access to HSA funds, even for nonmedical purposes. However, distributions for reasons other than qualified medical expenses are subject to income tax as well as an additional 20% tax penalty 3.) HSAs have the advantage of portability. Employees may take the funds with them upon changing employers or leaving the workforce 4.) Unlike HRAs and Health FSAs, which by law can either be coupled with any type of health plan or stand alone as the only employer health benefit, and HSA can only be utilized when it is coupled with an HDHP that meets specific criteria.

What design and managing options are available to employers for pharmacy benefit plan?

When designing and managing a pharmacy benefit plan, employers have several options. Employers and other payers can 1.) manage the benefit and adjudicate claims internally; 2.) outsource the benefit management to a health plan, PBM, or TPA; or 3.) contract directly with pharmacies and adjudicate claims internally. In general, payers covering fewer than 15,000 members usually do not retain the management of the pharmacy benefit in house, although some large employers do so in the belief that they can negotiate better terms with pharmacies and pharmaceutical manufacturers than can PBMs.

What trade-offs should be weighed in investing a pension plan portfolio under the prudent expert rule?

When investing a pension plan portfolio under the prudent expert rule, the fiduciary should weigh the risk of loss against the opportunity for gain, taking into consideration the following elements: 1.) The liquidity and current return of the portfolio relative to the liquidity requirements of the plan. 2.) The projected return of the portfolio relative to the funding objectives of the plan. 3.) The composition of the portfolio with regard to diversification.

Describe the circumstances under which it would be seemed appropriate by GINA to request minimum genetic information for a disease management program.

While GINA prohibits genetic information contained in a health risk assessment to be used to determine whether an individual qualifies for a disease management program, such a program may be structured to limit benefits based on medical appropriateness, however. If an individual seeks to participate in a disease management program, and the plan limits the benefit only to those individuals for whom it is medically appropriate and the determination of medical appropriateness depends on genetic information, the program may condition the benefit on receipt of the minimum necessary genetic information. In application, this rule will only apply in the case of a disease management program that covers not just employees with diseases, but also those employees who are at risk for a disease that has not yet manifested.

Important in any employee benefit context, why are employee communication and education programs especially critical for consumer-driven plans?

With the number of working pieces involved in consumer-driven health care and the potential for consuion, a key component of a successful CDHP is an effective employee communication and education program. A successful CDHP requires that the employee not only understands the mechanics of the plan, but also is empowered to make informed and cost-effective personal health care decisions. Consequently, most plans offer some form of a health coach to help employees navigate the medical care system. The most effective communication and education campaigns reach out to employees early and often. While the initial media campaign is critical to employee acceptance and understanding, ongoing communications are important to achieving and sustaining the behavioral changes needed to make CDHP cost-saving objectives possible.

What factors should an employer consider in the selection process of a PBM?

Every employer must develop its own list of objectives before soliciting proposals from PBMs. Cost is major factor, however, claim administration that is consistent with the plan benefit designs, service delivery, administrative oversight and transparency of pricing also are critical factors. The following specific questions also should be asked: 1.) What are the options and pricing of the network of providers that the PBM offers? What support does the PBM provide for customizing the network (adding and deleting pharmacies that are important to the plan)? Does the PBM reimburse pharmacies at a rate different from what it charges to the plan? 2.) Does the PBM own the mail-order program? If not, how does the subcontractural relationship work between the two organizations? How are mail-order claims monitored for accuracy and timeliness? 3.) Are price guarantees backed by unrestricted audits by the plan sponsor? 4.) Are service and performance offerings backed by guarantees and significant financial penalties? 5.) What kind of reports does the PBM offer? 6.) What types of DUR edits are performed routinely? Can these edits be customized? Are the DUR edits limited to too-soon refills? prior authorization, quantity limits and duplicate claims, or are pharmacists notified of DUR alerts (drug-drug interactions)? 7.) Are DUR edits based on criteria that are measurable in the claims detail supporting the invoices? Is the edit performance backed by a return on investment (ROI that can be independently verified in the claims? 8.) How does the PBM work with physicians to educate and modify prescribing patterns? 9.) What types of educational programs are offered to patients? 10.) If the PBM offers disease management programs, how are the programs designed? Do the emphasize more than prescription drugs? How are the prograsm funded? 11.) What types of ancillary services are provided? Are claims processed in house? 12.) What drugs are preferred by the PBM? Can a client make changes to the preferred list? Are there therapeutic switching programs in mail order or retail edits to flag preferred drugs? Who are the representatives on the PBM's pharmaceutical and therapeutics committee? What are their affiliations? Do these members accept grant money from drug manufacturers? 13.) What are the results of these programs? Does the PBM track savings and the return on investment of programs offered? Finally, the ownership of PBMs should be scrutinized to ensure that the best discounts and oversight of owned pharmacies are available to the payer since many PBMs are either owned by or have historical relationships with large drug chains or pharmaceutical manufacturers. In addition, smaller PBMs may be owned by chains or independent pharmacy consortiums.

What is an evidence-based medicine approach?

Evidence-based medicine is an approach to medical decision making that emphasizes scientific evidence and statistical methods for evaluating outcomes and risk of treatments. It is also a response to arrive at objective decisions in the face of mass media advertising, direct-to-consumer advertising of drugs, and the promotions of pharmaceutical and device manufacturers.

May the plan contain a provision relieving a fiduciary of personal liability? Explain.

Exculpatory provisions written into a plan document or other instrument to relieve a fiduciary of liability for fiduciary breaches against the plan are void and to be given no effect under ERISA. A plan may purchase liability insurance for itself and for its fiduciaries to cover losses resulting from their acts or omissions if the insurance policy permits resource by the insurer against the fiduciaries in case of a breach of fiduciary responsibility.

Is fiduciary status limited to those individuals with a formal title? Explain.

Fiduciary status extends not only to those persons named in the plan documents as having express authority and responsibility in the plan's investment or management but also covers those persons who exercise any discretion over the plan regardless of their formal title. Fiduciary status under ERISA depends on a person's function, authority and responsibility; and is not determined merely on a title or label.

Briefly discuess the tax treatment of HSAs.

First available in 2004, HSAs may be funded by an employer , and employee, or both on a tax-free basis. HSAs provide triple tax savings: 1.) pre-tax contributions 2.) tax-free interest on investment earnings 3.) tax-free distributions for qualified medical expenses

What are the basic types of funding arrangements of an MBHO?

The three basic types of funding arrangments are fully insured, shared risk, and administrative services only (ASO) 1.) In fully insured arrangements, MBHOs assume financial risk for providing behavioral services paying the claims submitted by providers for behavioral services rendered. Financial risk falls on the MBHO. When overall plan costs exceed expected levels, the MBHO absorbs those increased costs. Purchasers pay MBHOs a predetermined, fixed premium for assuming financial risk for behavioral treatment costs. On average, a monthly premium for a fully insured, full-risk behavioral plan, including EAP fees, ranges between 3% and 6% of a medical plan's premium. 2.) A variation on a fully insured funding arrangement is a shared-risk one, in which purchasers agree to assume the financial risk for claims payment up to a certain amount. Premiums are based on projected claim costs. If claims exceed a pre-specified amount, the MBHO assumes those claim costs or a percentage of those costs. If the claims come in below a pre-specified amount, the balance can be shared by the MBHO and client or refunded to the client. 3.) Under an ASO arrangement, an MBHO, for a fee, will handle medical management, utilization review, benefit and other administrative functions, such as claims payments. Often called a self-funded or self-insured arrangement, the purchaser assumes the financial risk of the health care costs for its members. The larger the group, the more likely it is to self-fund because the financial risk is spread across a greater number of employees and its budget is large enough to absorb the risk. A key advantage of an ASP is that employers can offer the same benefit to employees working in different states because ERISA exempts self-funded health plans from compliance with state laws and regulations.

Under the Americans with Disabilities Ac (ADA), in general medical examinations and screenings of employees are prohibited. What two ADA requirements permit under a wellness program these prohibited practices?

The two key ADA requirements that permit under a wellness program the prohibited practices are: 1.) That any medical records acquired as apart of the wellness program must be kept confidential and separate from personnel records; and 2.) more importantly, that the program must be voluntary, defined as a program in which an employer "neither requires participation nor penalizes employees who do not participate".

Describe the typical plan features of behavioral health care benefit plans.

The vast majority of employer-sponsored plans cover inpatient and outpatient mental health treatment services. They cover intermediate mental health treatment services such as residential treatment and partial (or day) hospitalization and cover intensive outpatient services, which can include psychological rehabilitation, case management and wraparound services for children. Many plans also include a parity benefit - often called "a severe mental illness" benefit - that specifies which disorders are covered under their state parity law.

Provide a number of reasons for offering carved-out prescription drug plans.

There are a number of reasons for offering carved-out prescription drug plans, all of which are motivated by cost management. They are: 1.) Under an indemnity plan, there are typically no discounts for prescription drug coverage. Plan sponsors may pay as much as 10% above the AWP rather than 15% below it. 2.) Medical claims processors often do not require detailed receipts for prescription drugs and therefore cannot review the prescriptions for coverage as effectively as is done with the PBMs' online claims processing systems. 3.) Because detailed information is not entered into the medical claims processing systems, limited data are available in report format for reviewing drug trends. 4.) Rebates and other cost-savings programs, which are available in prescription benefit plans, are not available through medical claims processors. Some employers that believe it is more cost-effective to manage the entire medical benefit, may wish to avoid a freestanding drug plan in favor of covering medication under a major medical or comprehensive health plan. The employers' thinking is that carving the pharmacy benefit out of the major medical benefit may lead to micromanagement of the pharmacy portion of the plan, leading to losses for the medical portion. For example, excluding certain medications could lead to increased emergency medical visits or physician encounters.

What differences exist among HSAs, HRAs, and FSAs regarding their tax treatment?

There are differences that relate to HSAs, HRAs, and FSAs, regarding their tax treatment. Subject to funding limits, HSA and FSA contributions are excludable from gross income and not subject to FICA. HRA contributions receive the same tax treatment, but are not subject to any statutory contributions limits. Earnings on balances within an HSA generally are not taxable. This generally is not an issue for HRAs and FSAs since employers usually maintain balances as notional accounts so there are no earnings. If distributions are made from an HSA, HRA or FSA to reimburse medical expenditures there are generally no income tax issues. HRAs and FSAs may only make distributions to reimburse qualified medical expenses. An HSA, however, can make other distributions. There would be no income tax on timely distributions of excess contributions. For all other distributions from an HSA (not used to reimburse qualified medical expenses), federal income tax plus a 20% penalty would apply. The penalty tax is waived after the account beneficiary becomes Medicare eligible, is disabled or dies.

To what extent does federal law mandate specific features within CDHPs?

There are no specific or legally required features mandated, per se, for a CDHP at the federal level. Neither the Employee Requirement Income Security Act (ERISA) nor federal tax laws, impose additional requirements on CDHPs beyond those normally applicable to health plans generally. However, federal law does precisely define how the tax-favored individual health accounts (both HRAs and HSAs) common to CDHPs must be structured. Federal law also establishes some basic requirements for the high-deductible plans that must accompany HSAs if the accounts are to receive certain tax benefits.

Are there any restrictions with respect to funding mechanisms or underlying plan types that may be used with CDHPs?

There are no specific restrictions on funding mechanisms for a CDHP, it may be fully insured or self-insured. Likewise, there is a flexibility in the underlying plan type that may be used with a CDHP. For example, it could be a preferred provider organization (PPO), point-of-service (POS) or even a health maintenance organization (HMO) plan.

What positive behavioral outcomes are associated with patients who possess and use tools that allow them to manage their own health care?

There are several favorable behavioral outcomes associated with patients who possess and use tools that allow them to manage their own health care. Among these outcomes are following: 1.) They are healthier. 2.) They are less likely to choose expensive procedures over wellness initiatives. 3.) They are more apt to increase competition among providers by "shopping around" for appropriate and cost-effective health care.