Chapter 12: The Benefit Determination Process

Methods of financing employee benefit plans

1) Noncontributory - Total costs are paid by employers. 2) Contributory - Employers and employees share the total costs. 3) Employee financed - Employees pay total costs for some benefits.

Cost containment practices

1) Probationary period 2) Benefit limitation 3) Copay 4) Administrative cost containment 5) Deny service for preexisting conditions 6)Negotiate lower fees with providers 7) Develop programs that encourage wellness (e.g., smoking cessation) 8) Outsource benefits and administration 9) Self-insure 10) Provide accommodations for employees to return to work after illness or disability

Cost containment

An attempt made by organizations to contain benefit costs, such as imposing deductibles and coinsurance on health benefits or replacing defined benefit pension plans with defined contribution plans

Flexible benefit plan

Benefit package in which employees are given a core of critical benefits (necessary for minimum security) and permitted to expend the remainder of their benefit allotment on options that they find most attractive.

Administrative cost containment

Controlling costs through policies such as seeking competitive bids for program delivery

Copay

Copay requires that employees pay a fixed or percentage amount for coverage

Consumer-driven health care benefits

Cost link consumer choice of more or less expensive options to higher or lower individual costs. Also called consumer-directed health care plans

Employee Retirement Income Security Act (ERISA)

For employers who choose to have a retirement plan, this act sets some formidable rules that must be followed to be in compliance

Wage and price controls

Government regulations that aim at maintaining low inflation and low levels of unemployment. They frequently focus on "cost-push" inflation, limiting the size of pay raises and the rate of increases in prices charged for goods and services. Used for limited time periods only

Workers' compensation

Legally required programs in each state that provide payment of medical expenses and compensation for lost wages resulting from work-related injuries or disabilities State

Benefit limitation

Limit of disability income payments to some maximum percentage of income and limit of medical/dental coverage for specific procedures to a certain fixed amount.

Customer-driven health care

Medical care package where the employer finances the cost up to a dollar maximum and the employees search for options that best fit their specific needs

Probationary period

Period during which new employees are excluded from benefits coverage, usually until some term of employment (e.g., 3 months) is completed

Claims processing

Procedure that begins when an employee asserts that a specific event (e.g., disablement, hospitalization, unemployment) has occurred and demands that the employer fulfill a promise for payment. As such, a claims processor must first determine whether the act has, in fact, occurred.

Social security

Program based on federal law that provides retirement and disability benefits Federal

Unemployment Insurance (UI)

State-administered program that provides financial security for workers during periods of joblessness State

Employee benefits

The parts of the total compensation package (other than pay for time worked) provided to employees in whole or in part by employer payments such as life insurance, pension, worker's compensation, and vacation. Rewards are provided by the organization to employees for their membership and/or participation (attendance) in the organization.

Outsourcing

The practice of hiring outside vendors to perform functions that do not directly contribute to business objectives and in which the organization does not have a complete advantage As with payroll, companies may find that their benefits can be best administered by a company that specializes in benefits administration.

Market-based health care

see Customer-driven health care