Final exam HRM Benefits

Full time, part time or temporary employees Do some get more than others Executives, union, exempt, non-exempt

1. Eligibility - Who gets it?

On a "calendar year" basis....each January 1 On a "service anniversary" basis....anniversary of your start date On a "weekly, monthly or pay period" basis....6 PTO hours earned for every 40 hours worked

2. Accrual - How is it earned?

"hmo,pos,ppos"

3 Popular manage models

Holidays are generally given to all employees Vacations are generally service based More service the more vacation

3. Amounts - How much do you get?

Holiday during a vacation period If become ill during vacation, substitute sick pay If a death occurs, vacation or bereavement

4. Notice and Permission - Who needs to know?

Do they lose it, carry it over, bank it or do you pay it How much to carry over or bank Pay in full or pro-rated

7. Employee does not use - What do you do?

Pay at current salary rate, or Pay at salary rate at time PTO was earned

8. At termination - How do you pay?

Tax breaks: Employers get an annual $165 billion tax deduction for providing health insurance Employees receive $86 billion in tax exempt and tax free compensation from health care benefits

another benefit of providing healthcare

A tax effective way for the employer to encourage employee education and career development A qualified benefit program (Section 127) where educational expenses such as tuition, books and fees paid by the employer on behalf of employee are "tax deductible" Reimbursement of expenses to employees are "tax free" up to $5,250 per year You can do more but taxable to employee Today, 80% of employers offer some form of tuition reimbursement to their employees

A Tuition Reimbursement program is:

More women in the work force More dual career and single parent families A population that is aging Ability for providing dependent care by the family has lessened because of job mobility My parents live in New Jersey, my grandparents are in Florida and we have been relocated to California....who is going to watch the kids?

A recognition of key labor force changes:

The big one.......Eliminates Cost and Liability Company no longer has a PTO program, so the "cash cost" of paying out unused PTO is eliminated Company no longer has a "liability" on their balance sheet for earned but not yet paid out PTO Collectively, that current obligation is $224 billion for companies with stated PTO programs

Advantages

Flexible Benefits represent a switch from a "defined benefit" promise to a "defined contribution" amount Allows for increased costs of programs to be easily "shifted" to employees Example - Company communicates 50/50 cost sharing on future medical plan cost increases.... Medical costs rise 10% Company's contribution is capped at 5% of that increase Employee's contribution increases by 5% or, if they want, they can select a less expensive medical plan

And cost control

Level of insurance coverage Uninsured and uncompensated care Cost of administration Advances in medical care and technology Providers rewarded for volume not quality Protective medicine and malpractice insurance Lack of competition in markets State and Federal mandates

And the System:

Still the most popular employer approach Increasing premiums/contributions for coverage Employee and dependents Increasing cost sharing within the plan Deductibles, co-insurance and co-pays Limiting employee choice In and out of network reimbursement differentials Switching from the benefit promise (DB) to a predictable cost (DC) Here is our contribution, you spend as you see fit

Cost shifting

All paid time off is "pooled" Employee is allocated days to use for their vacation, their holidays, their sick leave, their personal days, etc.

Bank of Days

Exam More Specifically: Support Business and HR strategies Create value and appreciation of programs Promote employee partnership and accountability Tell employees what they "need to know" and "what they need to do" Satisfy ERISA requirements

Benefit Communication

Exam Recognize, communications will differ in style and tone for the different audiences Unlike HR, Benefits has many different audiences Prospective employees New employees Active employees Retired, terminated and former employees Spouses, dependents and families

Benefit Communication Audiences

Co-insurance is your share of the cost of a health care service. It's usually a percentage of the amount charged. You start paying co-insurance after you have met your deductible. Here's how it works - once your $1,000 deductible is satisfied, the plan will cover 80% of the cost of future services and you pay the remaining 20% If the treatment costs $1000, the plan will pay $800 and you would pay $200 Also co-insurance may be different if a service is done "in- network" or "out of network"

Co-insurance -

"Shifts the financial risk" for employee claims to an insurer to avoid unpredictable cost swings Company pays a premium per employee and/or dependents to the insurance company who takes on administration, claims paying, financing and customer service

Companies can insure

"Accept the financial risk" for employee claims Some purchase stop loss insurance to limit liability and "shift some of the risk" Generally companies utilize Administrative Services Only (ASO) arrangements Uses company's bank account, and Employ a TPA (third party administrator) to pay claims, administer plan and provide customer service

Companies can self-insure

Customer service Data interfaces Recordkeeping for employees' plan selections, investments, benefit accruals and transactions processing Adjudication and payment of health and disability claims COBRA, HIPPA and other legally required notifications Tuition assistance, dependent day care, leaves, and anything else that is administrative or transactional

Typically, benefit strategy and financial control remain "inside" while administration and transactions go "outside", including:

A deductible is the amount you pay for health care services before your health insurance begins to pay your provider Here's how it works - Let's say your plan's deductible is $1,000. That means you will pay 100% of your medical and drug bills until the amount you pay out of your pocket is $1,000. After that, you share the cost with your plan by paying coinsurance.

Deductible

Research is exceedingly expensive and takes about 10 years and $1 billion to get drug approved Even more costly are biologics, produced by living cells, which costs far more to manufacture than traditional chemical based drugs.

Development and manufacturing costs

Transition to Unlimited PTO and what to do with previously earned days State laws regarding treatment of accrued PTO

Disadvantages:

ERISA requirements include: Summary Plan Descriptions (SPD's) Summary Annual Reports (SAR's) Plan Amendment Summaries (PAS's) Benefits statement for vested employees Statement of earned benefits upon request Plan Documents

ERISA requirements include:

Most popular benefit program is the cafeteria plan

EXAM

57% of all women are in the workforce up from 37% in 1950

EXAM Baby boomers and "sandwich" impact More women in the workplace

Annual Open Enrollment Kits Total Rewards (Compensation & Benefits) Statements Highlight brochures, handbooks and newsletters Access to Benefits Service Center and Vendors sites Employee meetings and benefit fairs Letters, emails, voice messaging and videos

EXAM What Employers generally provide:

Average work week is now 47 hours 42% of workers work 40 hours or more 39% of workers work 50 hours or more 18% of workers work 60 hours or more

EXAM. Greater family income because of dual careers but also more hours spent working

Referred to as "the network"

Employees use selected providers who discount their fees in exchange for increased patient volume

NJ has a Family Leave Law.....by July of 2020 You can receive up to 12 weeks of paid leave Uses same qualifying events as FMLA but expanded to include siblings and grandparents Benefit is up to $860/week You can take 52 days of intermitted leave in any 12 month period Funded entirely by an employee payroll tax About $34 per year now but scheduled to increase

FMLA and New Jersey

Medicare Medicaid

Federal/State programs use taxes:

Counseling for issues of daily living and stress Counseling for family and marital problems Treatment for substance abuse, Including supervisory training to refer Financial, legal and tax counseling Typical EAP ROI is $3 for every $1 spent

Goal is "personal wellness" and "performance improvement" through resolution of daily living stressors on employees Programs typically include:

Controlling the access or "choice of care" by patients Managing the utilization or "delivery of care" by the providers

Goal of Managed Care is to "reduce costs"

Tax favored accounts to help pay for high deductibles and/or other health care expenses Always linked to HDHP's Your employer or you (or both) can put dollars in an account on a before tax basis that you can use to reimburse your health care costs Two types: Health Reimbursement Accounts (HRA'S) Health Savings Accounts (HSA'S)

HDHP Health Savings Accounts

A premium or contribution is the amount of money charged by your employer for the plan you have chosen It is almost always payroll deducted and deducted from your pay on a before tax basis You pay your premium regardless of whether you use the plan or not (i.e., concept of insurance) Most large employers will subsidize your premium costs between 70% and 80%

Health care terminology

Sometimes referred to as Consumer Driven Health Plans (CDHP's) A high individual annual deductible ($1,300 or higher) and/or a high family annual deductible ($2,600 or higher) Once met, then the plan pays at a co-insurance level dependent on individual's use of "in-network" or "out-of-network" providers (e.g., 80% in vs. 60% out) HDHP's are generally coupled with Maximum Out-of-Pocket limits to reduce employee risk ($5,000 annually) Health Savings Accounts

High Deductible Health Plans (HDHP)

To choose between pay and benefits by allowing the employee to convert taxable salary to non-taxable salary ("before tax dollars") to pay for their benefits But in exchange, Employees must choose their benefits prior to the start of plan year, and Employees can only make changes if they experience a "qualified family status change" Marriage, divorce, birth, job loss, loss of coverage, etc.

Under a Flexible Benefit program, an employer can allow an employee

Employer Health Insurance Represent 34% of national health spending Cost reached $1.2 trillion in 2017, up 4.2% GM spends more on health care benefits than steel Starbucks spends more on health care benefits than coffee beans Ford will spend more than $1 billion on health care for its employees this year CEO's and CFO's are taking notice! Employment Based - 49% Medicaid - 19% Medicare - 14% Individual Purchase - 7% Military and Government - 2%

In 2018 Healthcare costs WHO PAY?

Deductibles Average single coverage deductible is $1,350 (up from $1,221 last year and $303 in 2006) Co-insurance of 20% or more And, Co-Pays averaging $25 for primary care visits $40 for specialists visits $284 for hospital admittance

In addition to premiums deducted from pay, employees also pay.....

In Network - A group of doctors, hospitals and other providers who are contracted by the health plan to provide services to covered individuals for less than their usual fees. If your care is provided through the health plan's preferred providers, you typically pay less when using that network provider. Out-of-Network - Doctors, hospitals and other providers which are not part of a health plan's preferred provider network. If you use a out-of-network provider, you will always pay more.

In network, out of network

Age related premiums....again, purchase when young

Individual insurance coverage is also available

Generally "age related" premiums Younger you are, the cheaper the premiums Paid fully by employee But at advantageous discounted group rates (economy of scale purchasing)

Many employers provide Group Long Term Care insurance coverage

The most you will have to pay for covered services in any plan year (usually the calendar year) Here is how it works - after you reach the OOP amount, (say $3,000) your health plan will pay 100% for covered health services for the remainder of the year. It generally includes the deductible, coinsurance and copays you have paid but not your premiums

Maximum out-of-pocket cost -

Medicare Federally funded and operated Age 65 and over or disabled under Social Security What it covers: Part A - Hospital, home health and hospice Part B - Doctors, outpatient care and medical equipment (premium of about $136 a month) Part D - Drug (premium of about $33 a month) Part C - Medicare Advantage combines Parts A, B and D into one program (premium of about $164 a month)

Medicare and Medicaid

Act as front line customer service to support benefit philosophy and programs Interact with employees and their dependents on all benefit questions and transactions Process all paper and electronic administration required to ensure employee participation in benefit programs Make determinations regarding eligibility and payroll deductions for both employees and vendors All transactional work of the internal Benefits Staff that allows staff to be "more strategic"

Outsourced Administration What you want them to do -

Make HR more of a business partner by getting "administration and transactions" off the desk No need for in house HR administrative expertise as it is not a core business competency Outsourced vendors provide "economies of scale" in purchasing services thereby reducing cost And, vendors operate 24/7 meaning improved customer service for employees Eliminates need for internal benefits administrative staff and the resultant personnel costs

Outsourcing Rationale

No real out of pocket costs Unless you pay them out At year end or termination Or you need to "staff up" to get the work done Costs for PTO are "lost work time"

PTO different from other benefits

Self-insurance Insurance

Paying for Health Care: Employers generally use cash flow from revenues:

TV, radio and print marketing have all increased patient awareness and demand for the newest drugs

Prescription Drug Coverage ---- Direct to consumer advertising

The network is "watching how providers provide care" and are identifying and modifying outlier practices and fees

Strong management controls

Access to, quality of and cost of care, varies significantly from place to place And, a dependent's age and/or specialized need all require different levels of care Care is different for infants vs. toddlers vs. pre-school vs. after school vs. special needs All requiring a unique set of caregiver skills and facilities

To Meet Employee's Needs:

To gain access to greater labor supply To attract and retain experienced workers To enhance public image and reputation as a responsible and caring employer

To Meet Employer's Needs:

Hospital, Physician/clinical services, Prescription drugs. Majority of people are covered for employer health.

Top 3 most expensive healthcare

Employer Approaches: Information and referrals - Research indicates major concern for parents is "not cost" but, "finding reliable, safe childcare" So, employers will provide literature, education and professional resources on daycare options Many employers will provide a list of prescreened, reliable daycare providers And, many will establish "Back-up Care" options, if primary care is temporarily unavailable

Understand why employers are doing it and things they're doing to accomplish independent care goals

Started by employers in 1974 to offer employees Choice, But more importantly, to control increasing health care costs In 1978, Section 125 (Flexible Benefits) was added to the IRS Tax Code Section 125 exempted benefits from constructive receipt and allowed employee choice between pay and benefits......without a tax consequence

Unit 9 Flexible benefit plans

Advantages: Attracts and retains talent by offering a very generous benefit Increases employee morale as employer/employee trust is enhanced Increases productivity as time away from work not only "renews" employee upon return...... But also makes employees more accountable for ensuring their work is completed before they take time off Interestingly, employees actually take "less vacation" when they are given more control of their time off

Unlimited PTO Program

Your Age Your Gender Your Income Your Hereditary Risk Factors Your Lifestyle Behaviors Your Personal Health Accountability

What determines increases in Health Care Usage? The Personal:

Tax free compensation because the value of the benefit when offered is tax exempt and when utilized, tax free Better access to higher quality health services Provided through competitively driven commercial insurers rather than government programs Choice among many plans as well as the freedom to use providers of their choice

Why offer healthcare: for the employee

-Lower absenteeism meaning higher productivity -Healthier employees results in lower labor costs -Recruiting advantage in the employment market -Improved retention from employees

Why offer healthcare: for the employer

To be competitive in the employment market To be work life balance friendly To provide a break from work Increased productivity upon return To audit employee work while away To shut down, maintain or retool operations Plant closings are common

Why provide PTO?

Just like defined benefit pensions but retiree medical benefits were rarely funded, so no assets available to offset the liability

Why the Decline?