Chapter 12 - Compensation
Most other benefits are affected by laws.
-Employee Retirement Income Security Act (ERISA) -Patient Protection and Affordable Care Act
ADMINISTRATING THE BENEFIT PROGRAM: cost containment
-Probationary periods. -Benefit limitations. -Co-pay. -Administrative cost containment. -Deny service. -Outsourcing is a common cost containment strategy. (Hiring vendors to administer the benefit program.)
Tax Reforms 1982 & 1986
-permit IRAs for eligible employees -established 401(k)s
Employee Retirement Income Security Act 1974
-specific rules must be followed if the employer chooses to provide a pension -must vest after 5 years -sets up the Pension Guaranty Corp.
FLSA 1938
-time and a half -benefits liked to pay -increase with overtime
ways to finance benefits
1) Noncontributory (employer pays total costs). 2) Contributory (costs are shared with employee). 3) Employee financed.
reasons for growth in employee benefits
1) Wage and price controls during WW II and the Korean War. 2) Unions had new negotiation rights after the Wagner Act of 1935. 3) Employer impetus. 4) Cost effectiveness of benefits. 5) Government impetus. 6) Laws
administering the benefit program
1) employee benefit communication 2) claims processing 3) cost containment
4 Major issues in setting up a benefit package
1) who should be protected or benefited? 2) how much choice should employees have among an array of benefits? 3) how should benefits be financed? 4) are the benefits legally defensible?
DISADVANTAGES of flexible benefit programs
1. employees make bad choices and are not covered for emergencies 2. admin burdens and expenses increase 3. adverse selection - high utilization increases its cost 4. subject to nondiscriminatory requirements in the Internal Revenue Code
ADVANTAGES of flexible benefit programs
1. satisfy unique needs 2. helps firms meet the changing needs of a changing workforce 3. increased involvement; helps understanding 4. introduction of new benefits is less costly 5. cost containment = org sets max dollar amount
typical employee recalls
15% of benefits
Copayment (Copay):
A set dollar amount the employee pays toward an expense, such as an office visit. The remaining cost is covered by the plan.
MAJOR ISSUES IN SETTING UP A BENEFIT PACKAGE: how much choice should employees have among an array of benefits?
A standard benefit package offers no choice. The other extreme is "cafeteria-style," or flexible benefit plans. Most companies are offering some choices. Flexible plans may increase employee recognition of benefit value. The biggest trend is to offer market-based, or consumer-driven, health care.
Employee benefits
Are that part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments. ex: medical insurance, pension, workers' compensation, vacation. can no longer realistically be called "fringe benefits".
Out-of-Pocket Maximum
Generally, the most an employee will have to spend each plan year for each covered family member is the annual deductible, and the copayments and coinsurance. Once the employee meets the out-of-pocket maximum on himself or a covered dependent, the plan pays 100% of the remaining expenses for the rest of that plan year.
Premium
How much the employer and the employee pays for the health insurance.
Cost effectiveness of benefits.
Most employee benefits are not taxable. Group-based benefits come at a lower cost.
ADMINISTRATING THE BENEFIT PROGRAM: employee benefit communication
Revolves around four issues: 1. what is communicated, 2. to whom, 3. how it is communicated, 4. and how frequently. most common method = employee benefit handbook. Effective communication involves repetition and consistency. -Call Centers (companies with many employees)
Unions flexed their new negotiation rights acquired from the Wagner Act of 1935.
Several benefits common today started here. Pension plans, unemployment, vacation plans.
Wage and price controls during WW II and the Korean War.
Strict limitations on wage increases led unions and employers to provide benefits.
Deductible
The amount of money the employee must pay toward health expenses for each family member each year before health benefits are reimbursable. After the employee has paid his/her deductible, future expenses are covered at the coinsurance or copayment amount. (In many cases, copayments do not count toward the deductible.)
Coinsurance:
The cost of a health expense that is shared between the employee and the plan after the employee pays his/her deductible
MAJOR ISSUES IN SETTING UP A BENEFIT PACKAGE: who should be protected or benefited?
There are a variety of employees and statuses. Are there probationary periods for different benefits? Which dependents are covered? Should retirees be covered? How about survivors of deceased employees? What coverage is extended to employees with disabilities? During layoffs? Strikes? Should coverage be limited to full-time workers?
Government impetus.
Three mandated employee benefits: Worker's compensation (state). Unemployment (federal). Social security (federal).
Employer impetus. Many of today's benefits were employer initiated.
Traced to pragmatic concerns about employee satisfaction and productivity (e.g., unpaid rest breaks). Increased security for retirement years. Benefits slowly became a costly entitlement.
ADMINISTRATING THE BENEFIT PROGRAM: claims processing
when an employee asserts an event has occurred and demands the employer pay. A claims processor determines if the event occurred. If so, determines eligible benefits. If not denied, calculate payment level. Ensure coordination of benefits.
