Objective 3 - Employee Benefit Strategy

Question 1

Definition of employee benefits

Answer 1

Broad definition - includes virtually every form of compensation other than direct wages, including:
1. Employer’s share of legally-required payments (such as Social Security)
2. Payments for time not worked (such as paid sick leave, paid vacations, and holidays)
3. Employer’s share of medical and medically-related payments
4. Employer’s share of retirement and savings plan payments
5. Miscellaneous benefits (such as employee discounts, severance pay, and educational expenditures)
More limited definition - excludes legally-mandated benefits

Question 2

Reasons for the growth of employee benefit plans

Answer 2

1. Business reasons - help attract and retain capable employees, improve morale and productivity
2. Collective bargaining - Taft-Hartley Act requires good-faith collective bargaining over conditions of employment (including benefit plans)
3. Favorable tax legislation - many plans designed to maximize available tax benefits
4. Efficiency of employee benefits approach - marketing benefits through employer is cost-effective and admin. efficient channel
5. Wage increase limits - during WWII and Korean War led to expansion of employee benefits as a way to increase total compensation
6. Legislative actions - government has encouraged

Question 3

Characteristics of the group technique of providing employee benefits

Answer 3

(All but last item meant to minimize adverse selection)

1. Only certain groups eligible - not groups formed solely to obtain insurance
2. Steady flow of lives through group - to maintain fairly healthy group
3. Minimum number of persons in group - to prevent less-healthy lives from being major part
4. Minimum participation requirements - such as 75% of employees in plans where employee pays part
5. Eligibility requirements and waiting periods imposed
6. Maximum limits for any one person - to prevent excessive coverage for any one unhealthy individual
7. Automatic determination of benefits - based on formula (i.e., multiple of salary) to prevent unhealthy lives from obtaining large benefit amounts
8. Central and efficient admin agency - minimize expenses and handle mechanics of benefit plan

Question 4

Questions to ask in evaluating employee benefit plans

Answer 4

1. What are objectives of employer / employee?
2. What benefits should be provided?
3. Who should be covered under benefit plan? Retirees, dependents?
4. Should employees have benefit options?
5. How should benefit plan be financed?
6. How should benefit plan be administered? By employer, insurer, TPA?
7. How should benefit plan be communicated?

Question 5

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

Answer 5

1. Must be organized to be as effective as possible in meeting employee needs
2. Avoiding waste in benefits can be important cost-control measure for employers
3. Important to analyze where current benefits may overlap and costs may be saved
4. Systematic approach needed to keep benefits current, cost effective, and compliant w/ regs
5. Systematic approach needed to ensure benefits can be integrated with each other

Question 6

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

Answer 6

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

Question 7

Common loss exposures covered by employee benefit plans

Answer 7

1. Medical expenses for employees (active / retired) and dependents
2. Losses due to Ee disability (STD/LTD)
3. Losses due to death of active Ee, Dependents, Retirees
4. Retirement needs of Ees and dependents
5. Capital accumulation needs/goals
6. Needs arising from unemployment / temporary termination or suspension of employment
7. Needs for counseling - financial, retirement, other
8. Losses resulting from property and liability exposures
9. Needs for dependent care assistance (child-, elder-care)
10. Needs for educational assistance for Ees or dependents
11. Needs for LTC for Ees (active/retired) and dependents
12. Other needs or goals (such as incentive programs)

Question 8

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

Answer 8

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 dependents) on temporary leaves of absence (such as military)
9. Active employees who are not full time (such as part-time employees and directors)

Question 9

Typical elements of CDHPs

Answer 9

1. HDHP
2. Individual health account to pay for expenses not covered by HDHP
3. Info and tools for health ed, finding high-quality low-cost providers
4. Communications program to encourage consumerism and healthy behaviors
5. Health coach or consultant to help individuals use info, provide guidance on use of providers
6. For serious chronic conditions, proactive med professional to coord care for patient

Question 10

Basic plan structure of CDHPs

Answer 10

1. First-dollar coverage provided through health care account
2. Employee responsible for difference between account amount and deductible
3. After deductible, coinsurance and copays apply
4. Deductibles, coinsurance, and copays differ for single versus family, IN vs OON

Question 11

Types of health care accounts

Answer 11

1. HSA
   a) Must accompany HDHP with min deductible ($1200 ind, $2400 fam) and MOOP ($5950 ind, $11900 fam) - 2011 amts, indexed for inflation
   b) Can be used to pay for qualified med expenses, health insurance premiums in limited circumstances, LTC premiums, LTC services
   c) Owned by Ee, gets to keep unused balance on termination of employment
2. HRA - can be used to pay for qual med expenses, health ins premiums, LTC premiums
3. FSA
   a) Can be used to pay for qualified med expenses
   b) Contrib amount must be specified at beg of period, Ee can use full amount at any time in coverage period
   c) Funds not used by end of period are forfeited

Question 12

Comparison of key features of health care accounts

Answer 12

Feature: HSA / HRA / FSA

1. Who can set up account: Ind/Ees covered by HDHP and no other health insurance / Only Ers / Only Ers
2. Who can contribute: Ers and Ees / Only Ers / Ers and Ees
3. Contribution limits: $3050 ind, $6150 fam - 2011, indexed / No fed tax limit, Ers usually set limits / Through 2012, no limit. 2013: $2500, indexed
4. Carryover of unused balances: Yes / Yes, subj to Er limits / No
5. Portability: Yes / No / No

Question 13

Tax treatment of health care accounts

Answer 13

Feature: HSA / HRA / FSA

1. Er contributions: All - excluded from gross income and not subject to FICA; limits for HSA and FSA
2. Ind contributions: Limits; deductible / Ees cannot contribute / Generally pretax, not subject to FICA
3. Earnings on accounts: Generally not taxable / Notional, so no earnings / Notional, so no earnings
4. Distributions: Permissible reimb not taxed, otherwise 20% penalty (w/ exceptions) / Allowed only for qualified med expenses / Allowed only for qualified med expenses

Question 14

Plan design considerations for CDHPs

Answer 14

1. Establishing parameters of HDHP
2. Selecting type of health care account
3. Level of preventive care coverage
   a) Most offer initial screening or physical at no/low cost
   b) Immunizations, routine annual physicals, well-mother and well-baby visits
4. Whether CDHP will be full replacement or one of multi options. Full replacement plan minimizes adverse selection, max cost savings, but maybe Ee resistance
5. Er contribution strategy
   a) Decide how much to contribute to Ee accounts
   b) CDHP contributions often set to compare favorably to other options
6. For HRA, whether to permit carryover of unused balance

Question 15

Advantages of voluntary benefits

Answer 15

Voluntary benefits offered by Er, but Ees purchase on their own
Er advantages:
1. More benefits can be offered w/o sig add cost
2. Can supplement / replace Er-sponsored benefits that have been reduced / eliminated
3. Can act as Ee recruitment / retention tool
4. Can offer to Ees meeting perf targets
Ee advantages:
1. Can get Er’s group discount
2. Sometimes can purchase w/ pretax dollars
3. Convenience of obtaining benefits thru workplace (no need to shop around) and during work time
4. Often portable

Question 16

Types of voluntary benefits

Answer 16

1. Group term life
2. Dependent life
3. Supplemental life
4. LTD / STD
5. Dental
6. LTC
7. Adoption assistance
8. AD&D
9. Automobile insurance
10. Homeowners
11. Benefits under legal services plan
12. Vision
13. Critical care
14. Cancer ins
15. Group homeowners / automobile
16. Hosp indemnity
17. Travel accident
18. Student medical

Question 17

Common functions for administering employee benefits

Answer 17

(All sponsors must perform these core activities)

1. Benefits plan design - design program to address needs, effectively admin/communicated
2. Benefits plan delivery - serving plan participants thru various activities (list). Must meet legal standards for quality service (ERISA, COBRA)
3. Benefits policy formulation - mgmt makes decisions on questions, issues. Must be codified into policies
4. Communications - effectively communicate programs and provisions, challenging due to workforce diversity and plan complexity. Legal standards req certain communications (SPDs, Benefit Statements, Statement of COBRA rights)
5. Applying technology - setting up database with info on Er’s different plans. Info should be secure, easily accessible to Er, Ees.
6. Cost management and resource controls - benefits directors evaluate proposals from ins, develop firm’s RM approach
7. Management reporting - info systems to monitor financial results, util, compliance. Reports needed to:
   a) compare to competition (list)
   b) Measure achievement of HR objectives (industry surveys, Ee surveys, focus groups)
   c) Assess and manage program risks
8. Legal and regulatory compliance - fiduciary, funding, other reqs as prescribed by law. Many standards codified in ERISA.
9. Monitoring external environment - list

Question 18

Activities required for serving plan participants

Answer 18

1. New Ee benefits orientation
2. Policy clarification on benefits eligibility, coverage, applicability of plan provisions
3. Dealing with exceptional circumstances, unusual cases
4. Collection and processing of enrollment data, claims info, requests for plan distributions
5. Benefits counseling and response to Ee inquiries for active Ees
6. Benefits counseling for Ees terminating, retiring, disabled, on leave

Question 19

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

Answer 19

1. Executive info systems - mgmt info in summary format. ID util patterns, cost factors
2. Imaging and optical storage - eliminates paper records, allows sharing of docs over network
3. Access to info over internet - facilitates paper-less communication from plan sponsor to ins carriers, inv custodians, TPAs
4. Client-server technology - integrates networked apps with desktop, mobile tools, allowing decentralized management and supporting self-sufficient plan participants
5. Ee self-service - allows customer-driven benefits modeling, retirement planning, updating of personal data

Question 20

Methods for comparing benefit programs to the competition

Answer 20

1. Compare benefits payable to representative Ees under different circumstances
2. Compare actual costs to Er for different benefit plans
3. Calculate relative values of diff benefits based on uniform actuarial methods, assumptions
4. Compare benefit plans feature by feature to isolate specific provisions that may be appealing to certain Ee groups

Question 21

External factors that impact benefit management activities

Answer 21

1. General business and competitive conditions - important for attracting, retaining Ees. Trend toward benefits outsourcing
2. Governmental policy - requires monitoring laws and subseq regs, as well as proposed legislation
3. Workforce demographic shifts - greater diversity led to flex benefit plan offerings. Aging of workforce increased interest in retirement programs
4. New product development - means to eval new products and services, integrate into existing offerings
5. New org structures - redesign plans to fit new structures and remain compliant
6. Tech enhancement and innovation - keep abreast of tech changes, proactively plan intro of new tech

Question 22

Reasons plans are outsourcing benefits administration

Answer 22

1. Complexity of administering
2. Efficiencies of specialized providers
3. TPAs get volume discounts
4. Better able to implement technology, monitor regulations and market trends

Question 23

Cafeteria plan advantages and disadvantages to the employee

Answer 23

Advantages
1. Employees can pay for benefit expenses on tax-favored basis
2. Employees have more control over their health spending
Disadvantages
1. Benefit elections must be made prior to beginning of year, and election is irrevocable (with limited exceptions)
2. Use-it-or-lose it rule means benefit dollars unused at end of year are forfeited
3. Since there is no FICA tax, may see slight reduction in social security benefits

Question 24

Cafeteria plan advantages and disadvantages to the employer

Answer 24

Advantages
1. Employer does not have to pay FICA or FUTA (fed unemployment) on contributions
2. Deferred amounts do not count when determining workers’ comp premiums
3. Creates increased awareness of overall cost and value of Ee benefits
4. Helps to contain health care costs and prevent wasting dollars on duplicate, unneeded benefits
Disadvantages
1. Large cost of admin and operation
2. If included in plan, med reimbursement account balances must be available at any time in year
3. Adverse selection can mean increased costs
4. Subject to complex coverage, nondiscrim testing

Question 25

Types of cafeteria plans in the US

Answer 25

1. Premium conversion plans - no Er contributions. Plan is offered so Ees can pay for Ee-paid ins costs on tax-favored basis
2. FSAs - accounts permitted for med reimbursement, dependent care, adoption
3. Full flex plans - participants can select from wide range of benefits. Er selects amount to give for benefits, which is put towards caf plan or into account

Question 26

Objectives of employee benefits communications

Answer 26

1. Adhere to statutory reporting, disclosure reqs
2. Support cost-containment strategies (promoting prev care, emph healthy lifestyles)
3. Support HR recruitment, retention objectives
4. Educate participants on plan provisions
5. Demonstrate value of benefits to Ee’s total compensation package

Question 27

Benefits communications that group health plans must provide to plan participants

Answer 27

1. Statement of ERISA rights
2. SPD within 90 days after becoming participant, describing rights, benefits, and responsibilities under plan
3. Summary of material modifications (at least 60 days before eff date of change)
4. Summary annual report
5. Notification of benefit determination
6. Summary of material reduction in covered services, benefits
7. COBRA notices
8. HIPAA notices
9. Wellness program disclosure
10. Women’s Health and Cancer Rights Act notices
11. Medical child support notices

Question 28

Categories of information included in the summary plan description

Answer 28

1. Plan administration
2. Plan eligibility requirements
3. Summary of benefits, rights, and obligations - including:
   a) Statement identifying circumstances that may result in loss/suspension of benefits
   b) Cost-sharing provisions and provisions governing use of network providers
4. For pension plans, info on Pension Benefit Guaranty Corporation
5. Claims and appeals processes - incl procedures for submitting claims, remedies for claim denials
6. ERISA rights

Question 29

Employee groups for benefits communications

Answer 29

1. New hires - problems incl benefit misunderstandings, missing applications, vendor enrollment delays. Good comm process will anticipate, reduce some of problems
2. All employees - during open enrollment, must comm plan design modifications, plan cost increases, changes in family members’ eligibility status. Challenges incl comm cutbacks, securing Ee participation
3. Ees who experience life changes (marriage, adoption, divorce) - “life-events approach” extracts info whenever life event occurs, communicates options available, actions required to make benefit changes
4. Retirees - clearly state what has/has not changed, actions retiree must take. Use short sentences, avoid jargon, give examples, avoid small font sizes.
5. Ees with 401(k) plans - provide info to allow participants to exercise control over inv decisions. Include financial planning seminars throughout year, other sessions for specific groups (sessions on Social Security benefits, retiree medical for those nearing retirement)

Question 30

Most common employee benefits for small companies

Answer 30

1. Medical - usually include HMOs, PPOs, POS, direct-access POS, CDHPs
2. Diability income - LTD, STD, supplemental
3. Life and AD&D - for companies with fewer than 10 Ees, may be cheaper to buy ind policies than group
4. Dental - may not be cost effective, esp for smallst Ers. Can be cost-effective for Ees because Er pays some, tax savings if pre-tax spending account
5. Cafeteria plan (aka Section 125, flex plan) - can include FSA to provide tax benefits. Include:
   a) Premium-only plan - includes only pre-tax premium payments
   b) Full-range cafeteria plan - may offer 3-4 options in each benefit area. Small companies may not be able to offer due to cost, lack of availability

Question 31

Challenges for small companies offering group medical plans

Answer 31

1. Because usually fully insured, subject to state-mandated benefits
2. Because Ees usually in small geo area, must design using options in that area
3. May have to provide add’l documentation for insurers to verify existence of company
4. Most states don’t allow companies to form larger purchasing pools to get group discounts

Question 32

Reasons a small company should require employee contributions for medical insurance

Answer 32

1. Most Ees today are accustomed to paying some level of contribution
2. Requiring contribution motivates Ees with other covg options to use them
3. Easier to require from beginning than to start at a later date
4. Can help avoid legal problems, since it is clear who is covered vs who opted out

Question 33

Eligibility and amounts for the PPACA small employer tax credit

Answer 33

1. To be eligible, employers must:
   a) Have no more than 25 FTEs
   b) Have avg annual wages of $50k or less
   c) Pay at least 50% of premium for Ees
2. Credit is percentage of employer-paid premium. On a sliding scale, with max available to employers with fewer than 10 FTEs, avg annual wages of less than $25k. Max credit is:
   a) 35% from 2010-2013
   b) 50% beginning in 2014, can only be taken up to 2 consecutive years, Ees must be covered under state-based exchange

Question 34

Types of flexible accounts in Canada

Answer 34

1. Health spending account (non taxable if reqs are met) - may cover any health care expenses that would be tax deductible under Income Tax Act, as long as they are not covered by provincial plan or other private insurance
2. Personal account (taxable) - may cover wide range of benefits, at Er’s discretion: child care, financial counseling, sports equipment, gym memberships, etc.
3. Executive perquisite account (depends on taxability of covered expense) - normally admin separately from flex plan

Question 35

Advantages to the employer of offering flexible accounts

Answer 35

1. Expand types of benefits offered with little/no additional Er cost
2. Add new benefit without subsidizing expensive coverage area
3. Offer benefit that might appeal only to small segment of pop
4. Contain costs (defined contrib) while providing Ee flexibility on how to spend funds
5. Test appeal of flex benefits without committing to a full-choice program

Question 36

Additional advantages of health spending accounts

Answer 36

(In addition to flex account advantages)

1. Deliver compensation tax effectively
2. Encourage employees to self-insure predictable, budgetable expenses (vision, dental)
3. Soften impact of higher employee cost sharing
4. Replace existing coverage, allowing Er to gain control of future cost increases
5. Obtain max value from health benefits under Quebec tax system

Question 37

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

Answer 37

1. Ee’s election to allocate funds to account must be made in advance of plan year, irrevocable. Exception allowed for family status changes
2. Plan must require forfeiture of unused account balances, with one of following methods:
   a) One year rollover of unused balances - funds allocated can be used to reimburse current year or rolled over to next year; unused amts forfeited at end of second year
   b) One year rollover of unpaid claims - roll over unpaid claims from prior year to be paid by this year’s account balance. Remaining funds forfeited at EOY.

Question 38

Sources of funds for health spending accounts

Answer 38

1. New contributions by the employer
2. Employer savings from reducing med plan costs
3. Ees directing Er-provided flex credits to account
4. Ees allocating part of annual bonuses or company savings plan matches to account

Question 39

Considerations for designing flexible accounts

Answer 39

1. Type of approach - decide whether to introduce flexible account, which types to offer
2. How will presence of account impact other benefit choices?
3. Funding considerations - i.e., if contributions to accounts will be monthly, annually
4. Limits on how much Ee can allocate to flex account?
5. How will mid-year changes be handled? Vary by account type, reason for change (family status change, termination, retirement, death)
6. Disposition of funds at year end - forfeited, rolled over, or (for personal and perquisite) paid in cash

Question 40

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

Answer 40

Advantages for Er
1. Fixed contribution (control over cost increases)
2. Contributions to account are tax deductible
3. Accounts easy to administer and communicate
Advantages for Ee
1. Provide flex in how money is spent
2. Benefits non-taxable to Ee
3. Can be used to buy insurance
4. Ee can decide what expenses are covered
Disadvantages
1. Benefits inadequate - no insurance
2. Inequities
a) Flat contrib per Ee means families receive relatively less protection
b) Percentage of pay contrib means lower-paid Ees receive less protection
3. Inflation is borne by Ees

Question 41

Pricing objectives for flexible benefit programs

Answer 41

(Generally impossible to achieve all 4 at once)

1. Realistic prices - option price tags should reflect value of coverage
2. Equity - credits allocated based on equal dollar amt or percent of pay for all Ees
3. No losers - each Ee should be able to repurchase prior coverage with no cost increase
4. No additional company cost - new plan should cost same as old plan would have in next year

Question 42

Pricing approaches for flexible benefit programs

Answer 42

1. Flat credits - equal amount of credits allocated to all Ees. Achieves equity. Variations:
   a) Family credits - each Ee receives credits equal to current company cost for family covg. Price tags based on expected claims. Increases company cost (fails obj 4)
   b) Avg credits - each Ee receives credits equal to current avg company cost for all Ees. Price tags based on expected claims. Has losers (fails obj 3)
   c) Single coverage credits - each Ee receives credits equal to current company cost for single covg. To have no losers, price tags for family coverage reduced. Unrealistic prices (fails obj 1)
2. Buy-back pricing - credits allocated based on avg cost to Er of singles and families prior to flex benefit program. Fails equity (obj 2) because families get more credits
3. Election-based pricing - same as buy-back, but families who opt down are given fewer credits, so that singles and families in those options have same net cost. Comes closer to passing obj 2, but still fails.

Question 43

Steps in the flexible benefit option pricing process

Answer 43

1. Data collection and analysis
2. Preliminary option pricing - determine fair price based on rel value for each option, using claims data
3. Preliminary subgroup pricing - divide into smaller groups: single vs family
4. Anticipation of changes - adjust for following:
   a) Medical and dental inflation
   b) Technological improvement
   c) Plan (benefit) changes
   d) Adverse selection
   e) Shifts in govt benefits (private fills in gaps)
   f) Smarter consumers - after seeing cost of care, some unnecessary care may stop
5. Taxes and admin fees - decide whether to include in price tags
6. Adj to realistic price tags
   a) Subsidized pricing (list of pros/cons)
   b) Carve-out pricing - subsidize all options by cost of lowest option, so that one costs $0
7. No coverage option pricing - decide whether to allow Ee to waive covg, and calculate opt-out credits
8. Pricing by business unit/location - to reflect local costs, competition

Question 44

Reasons for and against using subsidized pricing

Answer 44

For:
1. Encourage selection of cost-efficient options
2. Limit potential for adverse selection by encouraging broader participation
Against:
1. Can skew Ee choice by masking true value of each option
2. Can restrict cost mgmt effectiveness, as some costs are hidden and harder to control
3. Re-pricing can be harder if prices are artificially derived
4. Harder to determine employer cost, since price tags no longer equal expected claims

Question 45

Decisions needed for developing the credit structure of the flexible benefit program

Answer 45

1. Source of credits (list)
2. Amount of credits - for upcoming year, strategy for future
3. Allocation of credits - considerations include:
   a) Equity (Obj 2)
   b) Allow repurchase of current program (Obj 3)
   c) Organizational objectives (list)

Question 46

Sources of credits for flexible benefit programs

Answer 46

1. Current benefits - Er cost of curr benefits that will continue as part of program
2. Benefit reductions - plan may be eliminated, savings used as credits
3. Additional Er money - to provide new benefit plan, make program more attractive
4. Wellness credits - Ees may have to earn credits through health or wellness initiatives, i.e. not smoking, completing HRA
5. Renegotiation of compensation - Ees can direct portion of bonus into flex credits
6. Ee after-tax payroll deductions

Question 47

Organizational objectives of credit allocation

Answer 47

1. Cost management
2. Profit sharing - based on profitability of company
3. Service recognition - vary based on length of service
4. Social responsibility - may req min level of coverage
5. Benefit value equity - same credits to everyone
6. Ee performance - link some credits to performance
7. Health awareness - link to health awareness campaign

Question 48

Analyses for testing the pricing structure of the flexible benefit plan

Answer 48

1. Winners and losers analysis - comparison of employee situation before and after implementation
2. Er cost analysis - following categories:
   a) Credits
   b) Price subsidies
   c) Adverse selection
   d) Dependent covg - cause change?
   e) Benefit utilization - change use?
3. Reasonableness - whether options are understandable, if price tags make sense, if credits are adequate for Ee needs

Question 49

Plan Design Approaches for controlling adverse selection (PD CONTROLL)

Answer 49

1. Parallel design should be maintained - include vision, ortho at same covg in all plans
2. Delay full payment - lower benefits in 6-12 mo waiting period
3. Certain coverages grouped together - predictable expenses (dental, vision) could be grouped with less predictable (supp medical)
4. Offer health spending account instead of insurance - useful for vision, dental
5. Not allow large spread between options - require core coverage level
6. Test program with Ees - bring to light potential design weaknesses
7. Require proof of insurability for covg increases
8. Only allow mid-cycle changes with life-changing event
9. Limit frequency of choice - only every 2-3 years, rather than annual
10. Limit degree of change - one step per year

Question 50

Pricing strategies for controlling adverse selection

Answer 50

1. Risk-based pricing - reflect expected cost of benefit (vary by age, gender, smoking)
2. Er subsidization - subsidize to encourage broad participation for better spread of risk

Question 51

Options for spreading the cost of adverse selection

Answer 51

1. Load prices of lesser-valued options - reduce reward for opting down
2. Load prices of highest-valued uption - may cause more Ees to opt down
3. Spread cost over price of all options

Question 52

Suggestions for successfully launching flexible benefits plans

Answer 52

1. Get buy-in from senior management - make sure they understand, endorse
2. Listen to Ees - includes use of focus groups
3. Make communication a priority - before, during, after launch
4. Make sure admin system is robust
5. Get necessary help - consult w/ professionals who have designed flex plans before