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grhm > 1 - Employee Benefit Strategy > Flashcards

1 - Employee Benefit Strategy Flashcards

1
Q

Comparison of the core attributes of public and private exchanges

A

Attribute: Public / Private
Sponsor: Government / Employer
Enrollees: Individuals and small groups / Employees and retirees of sponsor
Types of coverage available: Med & Rx / Med, Rx, Dental, Vision, other voluntary benefits
Plan designs: AV 90%, 80%, 70%, 60% / Exchange operator or employer defines plan designs
Who pays for coverage: individuals and small employer groups. Subsidies and tax credits exist. / Employers provide a subsidy and members pay the rest

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2
Q

Common elements of private exchanges

A
  1. Employee choice - plan design options
  2. Employer subsidies - often defined contribution
  3. Ancillary product offerings - dental, vision, etc
  4. Online enrollment and decision making tools - members use to understand
  5. Benefits administration - most offer end to end (enrollment, eligibility, customer service, billing)
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3
Q

Advantages of private exchanges

A
  1. Increased employee choice
  2. Cost-savings potential from increased competition across carriers and best-in-class carrier pricing
  3. Increased consumerism from members buying-down benefits as a result of a transparent defined-contribution approach
  4. Robust online decision-support tools and customer service
  5. Benefits administration simplification
  6. Shift of financial and regulatory risks (full insured)
  7. Cost predictability (fully insured)
  8. Improved cost transparency
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4
Q

Disadvantages of private exchanges

A
  1. Additional expenses for exchange operator
  2. Less control over plan design, clinical management, member outreach
  3. Need for the employer to increase the defined contribution amount over time
  4. Other member concerns, such as loss of plan-sponsor support and less generous benefits
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5
Q

Considerations for determining the employer’s optimal defined contribution amount for a private exchange

A
  1. Current funding approach and philosophy and how it compares to defined contribution
  2. Variations by coverage tier - subsidize dependents at a different level than employee?
  3. Member impact - payroll contributions, possible dissatisfactions
  4. Financial goals
  5. Competitive pressures
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6
Q

Definition of employee benefits

A

Broad: any form of compensation other than direct wages
Limited: exclude legally mandated benefits

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7
Q

Reasons for growth of employee benefit plans

A
  1. Business reasons - attract/retain talent, improve morale
  2. Collective bargaining - taft hartley act requires good faith bargaining over conditions of employment
  3. Favorable tax legislation
  4. Efficiency of employee benefits approach
  5. Wage increase limits - WW2 and Korean war saw increase in benefits due to wage limits
  6. Legislative actions - gov encouraging employee benefit plans
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8
Q

Characteristics of the group technique of providing employee benefits
[requirements for it to work]

A

[Meant to minimize adverse selection (other than #8)]
1. Only certain groups are eligible - cannot form a group solely for purpose of gaining insurance
2. Steady flow of lives through the group - maintain fairly healthy overall
3. Minimum number of persons in a group
4. Minimum portion of group must participate - e.g. 75% of employees must be covered in plans where ee pays portion of premium
5. Eligibility requirements and waiting periods
6. Maximum limits for any one person
7. Automatic determination of benefits - e.g. formula based on salary
8. Central and efficient administrative agency

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9
Q

Questions to ask in evaluating employee benefit plans

A
  1. What are the objectives of the employer and employee?
  2. What benefits should be provided?
  3. Who should be covered under the benefit plan? (retirees? dependents?)
  4. Should employees have benefit options?
  5. How should the benefit plan be financed?
  6. How should the benefit plan be administered? (employer, insurer, TPA?)
  7. How should the benefit plan be communicated?
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10
Q

Reasons for using the functional approach for designing and evaluating employee benefits

A
  1. Benefits must be organized to be as effective as possible in meeting employee needs
  2. Avoiding waste in benefits can be an important cost-control measure for employers
  3. It is important to analyze where current benefits may overlap and costs may be saved
  4. A systematic approach is needed to keep benefits current, cost effective, and in compliance with regulations
  5. A systematic approach is needed to ensure that the various benefits can be integrated with each other
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11
Q

Steps in applying the functional approach for employee benefit plan design and evaluation

A
  1. Classify employee and dependent needs or objectives into logical functional categories
  2. Classify the categories of persons the employer may want or need to protect
  3. Analyze current benefits with respect to employee needs and the categories of covered persons
  4. Determine any gaps in benefits or overlapping benefits in the current plan
  5. Consider recommendations for plan changes to meet any gaps in benefits and to correct any overlapping benefits
  6. Estimate the costs or savings from each of the recommendations made
  7. Evaluate alternative methods of financing or securing the benefits
  8. Consider other cost-saving or cost-containment techniques for both current and recommended benefits
  9. Decide upon the appropriate benefits, methods of financing, and sources of benefits, by using the preceding analysis
  10. Implement the changes
  11. Communicate benefit changes to employees
  12. Periodically reevaluate the employee benefit plan
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12
Q

Common loss exposures covered by employee benefit plans

A
  1. Medical expenses for employees (active and retired) and their dependents
  2. Losses due to employees’ disability (short and long term)
  3. Losses due to the death of active employees, their dependents, and retired employees
  4. Retirement needs of employees and their dependents
  5. Capital accumulation needs or goals
  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
  9. Needs for dependent care assistance (e.g. child care)
  10. Needs for educational assistance for employees and their dependents
  11. Needs for LTC for employees (active and retired) and their dependents
  12. Other employee benefit needs or goals (e.g. incentive programs)
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13
Q

Categories of persons the employer may want to or be required to provide benefits for

A
  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 dep.) on temporary leaves of absence (e.g. military duty)
  9. Active employees who are not full time
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14
Q

Considerations for analyzing current benefits in the employee benefit plan

A
  1. Types of benefits
  2. Levels of benefits
  3. Probationary periods (new employees)
  4. Eligibility requirements
  5. Employee contribution requirements. Mandatory or voluntary
  6. Flexibility available to employees
  7. Actual employee participation in benefit plans (e.g. enrollment levels in specific benefits)
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15
Q

Make up of an HDHP

A
  1. Specified meaning under IRS code to be accompanied with an HSA
  2. Plan has cost share limits with minimum deductibles and caps on OOPM
  3. Limited first dollar coverage (e.g. deductible. preventive OK)
  4. For self only coverage, embedded deductible is used while for family deductible is aggregate.
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16
Q

Make up of an HSA

A
  1. Savings account is owned by the individual employee
  2. Either an employer or an employee can contribute to the account
  3. Account can be used to pay the cost share of the HDHP or other qualifying expenses
  4. Account contributions are exempt from personal income tax
  5. Contributions are limited to a specific amount no matter if an employer, individual, or both are contributing to the account
  6. Account also acts like tax advantaged retirement account since amounts can be invested -> tax free interest
  7. As long as funds in HSA are used for eligible medical expenses, remain tax free
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17
Q

Comparison of key features of health care accounts

A

chart

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18
Q

Consumer choice and empowerment that is encouraged through the use of HDHPs

A
  1. Savings for health care services: account fund ownership encourages regular deposits
  2. Selecting appropriate treatment venues: for example, urgent care instead of ER
  3. Avoiding unnecessary care and/or treatments with marginal benefit
  4. B2G drug substitution
  5. Comparing quality ratings of providers: using online tools
  6. Negotiating prices with providers
  7. Improving their own health and taking other illness avoidance measures - financial incentives aligned with health improvement
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19
Q

Situations where consumer engagement is less likely to have an impact even under an HDHP

A
  1. Urgent care needs without time to engage in proactive consumer behavior
  2. Individuals with higher cost chronic care needs are more likely to hit their out-of-pocket limit
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20
Q

Important impacts to HDHPs

A
  1. The probability that a market average risk member will exceed a given deductible
  2. As members have access to account funds to help pay for point of service claims less than the deductible, it will erode the impact of the HDHP
  3. Plan design (deductible level and coinsurance) amount and impact on utilization
  4. Impact of account funding is likely to be on the lower side of the cited ranges if the employee owns the account (HSA), higher if employer owns (HRA, FSA)
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21
Q

On a raw level, factors that primarily drive HDHP cost savings

A
  1. Relative health of individuals selecting the different plans
  2. The utilization impact arising strictly from plan design and funding
  3. Cost savings resulting from increased consumer engagement
  4. Note that HDHPs have not shown a clear ability to bend the cost curve beyond initial impact
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22
Q

Factors that could make HDHPs more effective

A
  1. Cost transparency
  2. Discussions between providers and patients around:
    - value based care arrangements
    - “reference based” plans
  3. pre-funding of HSAs at beginning of CY
  4. Allowing more first dollar coverage to curb fear of members forgoing necessary care
  5. Lengthened consumerism: allow more design flexibility, allow longer coinsurance period (lower ded, higher OOPM)
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23
Q

Categories of regulatory guidance that have been proposed to changes HSAs

A
  1. Expansion of plans that can be paired with HSAs
  2. Expansion of contributions made to HSAs
  3. Expansion of major medical use of HSA funds to broader variety of expenses
  4. Expansion of non-major medical use of HSA funds
24
Q

Advantages of voluntary benefits

A

Employer:
1. (appear to) offer more benefits without added cost
2. supplement or replace employer sponsored benefits that have been reduced or eliminated
3. act as employee recruitment/retention tool
4. offer to employees that meet performance targets
Employee:
1. get group discount
2. sometimes can purchase pre-tax
3. convenience of obtaining benefits through the workplace and during work time
4. often portable (keep on changing jobs)

25
Q

Types of voluntary benefits

A
  1. Group term life
  2. Dependent life insurance
  3. Supplemental life insurance
  4. Long term and/or short term disability income insurance
  5. Dental
  6. LTC
  7. Adoption assistance
  8. Accidental death and dismemberment insurance
  9. Automobile insurance
  10. Homeowners insurance
  11. Benefits under a legal services plan
  12. Vision benefits coverage
  13. Critical care insurance
  14. Cancer insurance
  15. Group homeowners and automobile insurance
  16. Hospital indemnity insurance
  17. travel accident insurance
  18. student medical insurance
26
Q

Common functions for administering employee benefits

A

[all plan sponsors must perform, benefit director proficient]
1. Benefits plan design
2. Benefits plan delivery
3. Benefits policy formulation
4. Communication of benefits/provisions
5. Applying technology - database with benefit plan info
6. Cost management and resource controls
7. Management reporting: vs competition; vs hr objectives; program risks
8. Legal and regulatory compliance. ERISA
9. Monitoring the external environment

27
Q

Activities required for serving plan participants

A
  1. new employee benefits orientation
  2. policy clarification on benefits eligibility
  3. dealing with exceptional circumstances and unusual cases
  4. collection and processing of enrollment data, claims info, requests for plan distributions
  5. benefits counseling and response to employee inquiries for active employees
  6. benefits counseling for employees who are terminating, retiring, disabled or on leave
28
Q

Technological tools used by benefits directors to support customer-driven processes

A
  1. Executive information services - summarized management info. utilization/cost patterns
  2. Imaging and optical storage (digital docs)
  3. Access to information over the internet
  4. Client-server technology
  5. Employee self-service
29
Q

Methods for comparing benefit programs to competition

A
  1. Compare benefits payable to representative employees under different circumstances
  2. Compare actual costs to the employer for different benefit plans
  3. Calculate relative values of the different benefits based on uniform actuarial methods and assumptions
  4. Compare benefit plans feature by feature to isolate specific provisions that may be appealing to certain employee groups
30
Q

External factors that impact benefit management activities

A
  1. General business and competitive conditions
  2. Government policy
  3. Workforce demographic shifts
  4. New product development
  5. New organizational structures
  6. Technological enhancement and innovation
31
Q

Reasons plans are outsourcing benefits administration

A
  1. Complexity of administering benefits
  2. Efficiencies of specialized service providers
  3. Abilities of specialized providers to obtain favorable pricing because of their business volume
  4. Ability of service providers to more readily implement technology and monitor regulations and market trends
32
Q

Cafeteria plan advantages and disadvantages to the employee

A

Advantages:
1. Employees can pay for benefit expenses on tax favored basis
2. Employees can have more control over their health spending
Disadvantages:
1. Benefit elections must be made prior to beginning of the year, election is irrevocable
2. For FSAs, use it or lose it can mean forfeiture
3. Since no FICA tax, participants may see reduction in social security benefits

33
Q

Cafeteria plan advantages and disadvantages to the employer

A

Ad:
1. No FICA or FUTA taxes on contributions
2. Deferred amounts do not count when determining workers’ compensation premiums
3. Creates increased awareness of overall cost and value of employee benefits
4. Helps to contain health care costs and prevent wasting benefit dollars on duplicate or unneeded benefits
Disad:
1. Large administration and operational cost
2. If medical reimbursement is included, total amount must be available for full year
3. Adverse selection can result in increased costs
4. Plans are subject to complex coverage and nondiscrimination testing

34
Q

Types of cafeteria plans in the US

A
  1. Premium conversion plans - generally there are no employer contributions. Plan offered so that employees can pay for their employee-paid insurance costs on a tax favored basis
  2. FSAs - accounts are permitted for medical reimbursements, dependent care, adoption
  3. Full flex plans - participants can select from a wide range of benefits. Employer selects amount to give
35
Q

Benefits that can be offered in a cafeteria plan

A

Qualified benefits (can be pre tax)
1. Employer provided accident or health coverage
2. Individually-owned accident or health policies
3. Employer-provided group term life insurance (first 50K no tax)
4. Employer-provided dependent care assistance
5. Employer-provided adoption assistance
6. Contributions to a 401(k) plan
7. Contributions to an HSA
Permissible benefits (allowed but taxed)
1. Cash
2. Paid vacation days
3. Group term life in excess of 50K

36
Q

Benefits that cannot be offered in a cafeteria plan

A
  1. Contributions to medical savings accounts
  2. Qualified scholarships and education assistance programs
  3. Certain fringe benefits
  4. Qualified LTC insurance [HSA can be used to pay for LTC though]
  5. Athletic facilities
  6. De minimis benefits
  7. Dependent life insurance
  8. Employee discoutns
  9. Lodging on the business premises
  10. Meals
  11. Moving expense reimbursements
  12. No additional cost services
  13. Parking and mass transit reimbursement
  14. Contributions to college savings account
  15. Legal or financial assistance
  16. 403(b) plans
37
Q

Challenges for small companies offering group medical plans

A
  1. Usually fully insured, subject to state mandated benefits
  2. Usually small geographic area, limited options
  3. Additional documentation required for insurers to verify company
  4. Most states do not allow companies to join forces to form larger purchasing pools in order to get group discounts
38
Q

Reasons a small company should require employee contributions for medical insurance

A
  1. Most employees today are accustomed to paying some level of contribution
  2. requiring a contribution motivates employees who have other coverage options to use those options
  3. easier to require contributions beginning at plan’s inception than to start requiring later on
  4. requiring a contribution can help avoid legal problems since the contribution makes it clear who is covered by the plan and who is not
39
Q

Considerations when setting employee contribution levels for an employer health plan

A
  1. Total compensation philosophy - salary vs benefits
  2. Benefits budget - most not keeping pace with health care trend
  3. Benefit competitiveness
  4. Collective bargaining - union groups often have better coverage/subsidization
  5. Legislative and regulatory issues - ACA affordability threshold for example (contributions should be no more than 9.5% of household income)
40
Q

Approaches for setting employee contribution levels for an employer health plan

A
  1. Defined benefit - ee contribution = % of premium
  2. Defined contribution - employer providers defined dollar subsidy regardless of plan choice

Other strategies:
1. income-based (higher contrib from higher income)
2. dependent subsidy or spousal surcharge
3. health incentives - premium reductions based on health behaviors

41
Q

The elements of a data collection request to an employer in order to advise on health and welfare benefits

A
  1. Summary Plan Description - ee eligibility, plan design details
  2. Documents detailing costs for each benefit, employer vs ee portions
  3. Contacts for med, dent, vis, life, disability providers to request detailed claims and enrollment data
  4. Census file with demographic data and plan election information
42
Q

Examples of overarching philosophy, guiding principles, and objectives developed after merging two employer groups

A
  1. Provide tools and resources to encourage employees to become better healthcare consumers
  2. Promote accountability for lifestyle and healthcare choices
  3. Ensure affordable payroll contributions for lower paid workers
  4. Minimize barriers to seeking appropriate healthcare which may be caused by high out of pocket costs
  5. Utilize best in class and industry leading solutions to maximize financial efficiency
  6. Limit year over year volatility for employees - contributions / care disruption
  7. Maximize financial efficiency by offering high performance networks
  8. Optimize employee health and well-being and productivity through effective care coordination and health lifestyles programs
43
Q

Examples of objectives for a new benefits structure after merging two employer groups

A
  1. new medical benefit should be close to cost neutral - employer cost share and benefit spend
  2. Maintain current competitive position overall
  3. offer medical benefits that cover same percentage of charges as local employers along with similar payroll contributions
  4. minimize provider disruption, pcp
  5. retain parent companies salary banded contribution structure to increase affordability for lower paid employees
  6. phase out old plan designs that are less prevalent
  7. retain a highly efficient staff model HMO
  8. complete a vendor selection process to find best medical carrier / lowest cost of care
  9. minimize # employees negatively impacted by benefits changes
  10. manage impact of adverse selection
  11. implement medical plan designs that foster participation in HSAs
44
Q

Key terms needed to discuss the employer shared responsibility (ACA provision)

A
  1. Minimum essential coverage: MEC plans cover hospitalization, OP and phys, rx
  2. FTE - 30+ hours/ week, measured monthly. 130 hrs / month
  3. “Affordable” coverage - contributions <9.5% of household income
  4. Minimum actuarial value - 60%
  5. federal or state insurance exchange - online marketplace for consumers to find coverage and get subsidies
45
Q

Penalties that apply if ESR rules are not met

A
  1. <95% FTEs covered, 1+ FTE in exchange w/ subsidy -> 2K per year for each FTE.
    – doesnt apply to employers with fewer than 50 FTEs in prior year
  2. > 95% FTEs covered, but contributions >9.5% of household income or <60% AV -> 3K per year for each FTE that enrolls in an exchange plan and gets fed subsidy
  3. reporting requirements: IRC 6055, 6056. enrollment, plan info
46
Q

Steps to understand how benefit designs impact the company financials after merging two employer groups

A
  1. Determine “total cost rates” which represent the average expected PEPM paid by plan (claims + admin). “premium equivalent rate”. Vary by tier
  2. Determine enrollment distribution by tier and plans, make migration assumptions
  3. Determine employee contributions
  4. “company subsidy” is total cost - employee contribution
  5. total company cost is sumproduct
47
Q

Types of flexible benefit accounts in Canada

A
  1. health spending account - non taxable, cover health expenses that would be tax deductible as long as not covered by provincial plan or other private insurance
  2. personal account - taxable, cover wide range of benefits at employer discretion
  3. executive perquisite account - tax depends on expense
48
Q

Advantages to the employer of offering flexible accounts

A
  1. Expand types of benefits offered with little or no additional employer cost
  2. Add a new benefit without subsidizing an expensive coverage area
  3. Offer a benefit that might appeal only to a small segment of the employee population
  4. Contain costs (defined contribution) while providing flexibility
  5. Test appeal of flexible benefits without committing to full-choice program
49
Q

Advantages of health spending accounts (in addition to flexible accounts)
Canada

A
  1. Deliver compensation tax effectively
  2. encourage employees to self-insure predictable and budgetable expenses
  3. soften impact of higher employee cost sharing
  4. replace existing coverage, allowing employer to gain control of future cost increases
  5. obtain maximum value from health benefits under Quebec tax system
50
Q

Requirements for Canadian health spending account reimbursement to be tax-free

A
  1. Employees election to allocate funds must be made in advance of plan year and be irrevocable. Exceptions for family status changes
  2. Plan must require forfeiture of unused balances:
    a) one year rollover of unused balances
    b) one year rollover of unpaid claims
51
Q

Sources of funds for health spending accounts

A
  1. new contributions by the employer
  2. employer savings from reducing medical plan costs
  3. employees directing employer-provided flexible credits to the account
  4. employees allocating a part of annual bonuses or company savings plan matches to the account
52
Q

considerations for designing flexible accounts
[canada]

A
  1. type of approach - which type of accounts
  2. impact to other benefit choices
  3. funding - monthly vs annual
  4. limits on how much employee can allocate
  5. mid year changes (family status, termination, retirement, death)
  6. disposition of funds at year end - forfeit, rollover, paid in cash (personal or perquisite)
53
Q

advantages and disadvantages of health spending accounts replacing health and dental plans

A

employer advantages:
1. fixed contribution gives employer control over cost increases
2. contributions tax deductible
3. accounts easy to administer and communicate

employee advantages:
1. flexibility
2. non taxable
3. can be used to buy insurance
4. employee decide what expenses covered

disadvantages:
1. benefits inadequate since no insurance
2. inequitable - flat contribution means families get less protection than singles; percentage of pay means lower paid employees get less protection
3. inflation borne by employees

54
Q

plan design approaches for controlling adverse selection

A

PD CONTROLL
1. Parallel design should be maintained (e.g. vision and ortho same level in all plans)
2. Delay full payment - waiting period 6-12 months
3. Certain coverages can be grouped together - predictable expenses (dent, vis) can group with less predictable (supplemental med)
4. offer a health spending account instead of insurance
5. not allow large spread between options
6. test program with employees and evaluate design weaknesses
7. require proof of insurability for increases in coverage
8. only allow midcycle changes for life changing events
9. limit frequency of choice - 2-3 years rather than annual
10. limit degree of change - staircase rule - e.g. only up one level of covg on annual renew

55
Q

pricing strategies for controlling adverse selection

A
  1. risk based pricing - vary rates by gender, age, smoker status
  2. employer subsidization - encourage broad participation, better spread of risk
56
Q

options of spreading the cost of adverse selection

A
  1. load prices of lesser-valued options (reduce reward for opting down)
  2. load prices of highest valued option (more employees opt down)
  3. spread cost of adverse selection across all options

grhm (4 decks)

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