Lesson 11 Flashcards
(40 cards)
1.1 Outline factors that have influenced the development of group flexible benefits plans in Canada (5 +1)
1) Escalating benefit costs due to government cost shifting through reductions in coverage in provincial/territorial health plans
2) An expanding range of innovative and high cost services
3) Health care cost increases in excess of general inflation levels
4) an aging population
5) Increasing diversity in the workforce
In addition employees have become more educated and involved consumers and value choice in their benefits plans
1.2 Identify reasons plan sponsors implement flex benefit plans (7)
1) Meeting diverse plan member needs
2) Containing or reducing benefit costs
3) Improving attraction and retention
4) Increasing plan member understanding of the cost of benefits
5) Meeting competitive pressures
6) Delivering benefits more tax effectively
7) Harmonizing benefit arrangements
1.3 Explain how a traditional plan with no add ons differs from a traditional plan with no add ons
No add ons:
The plan sponsor provides a fixed offering of benefits and plan members have on choices
With add ons:
The plan sponsor provides a fixed offering of benefits to which members can choose to add supplemental coverage. This is not considered a flex plan since it only offers a small degree of choice
1.4 Explain a modular approach to flexible benefits
Members have choice between at least two predefined benefits packages.
Members electing the higher level package usually have to contribute via payroll deduction
1.4 Explain a full flex approach (5 points)
plan member choose from a wide variety of benefits that are typically added to a core plan.
Usually the core plan includes life and LTD at minimum levels.
Plan members also usually get credits that they can use to choose from a menu of options.
If flex credits are for more than what the member has elected the remaining amount may go into a HCSA taxable spending account, group RRSP or be a taxable cash benefit depending on the employer’s plan.
If flex credits are insufficient the member may pay the difference via payroll deduction
1.5 Describe the total rewards approach to flexible benefits
Provides plan members with the most choice
Depending on parameters members can have choices in pay, benefits, pension, retirement contributions, vacation. But tax implications should be considered
For example additional vacation days purchased with flex credits should be used in year of purchase otherwise there are tax implications.
Plan members must keep the minimum number of vacation days and the number that can be sold must be limited
1.6 Explain how a HCSA can be used to enhance member choice
Can be used to pay for what a plan member really needs.
Can be used to cover dental and health expenses not covered ( such as coinsurance and deductibles)
1.7 Describe a taxable spending account
A personal spending account, or flexible spending account or wellness/fitness account.
Allows employers to reimburse employees for things that are wellness related but not eligible medical expenses.
1.7 Describe how a taxable spending account can be used to enhance plan member choice
Can broaden the uses for flex credits and the benefits employers could offer through this are not limited.
Plan members decide how many flex credits are deposited into the taxable spending account.
1.7 Describe the tax treatment of items claimed under a taxable spending account
any benefit received is taxable to the member and the plan sponsor cannot deduct its contributions
2.1 Describe how price tags and flex credits are used in flexible benefit plans
Price tags are associated with each option in the flex plan and flex credits represent the employer’s contribution.
Flex credits are allocated to members and used to purchase benefits coverage
2.2 Outline the key pricing objectives used by plan sponsors to guide decisions on flex credits and price tags (5)
1) Realistic - reflects actual value
2) Equity - each member receives the same level of subsidy
3) No-losers - no cost change to members from previous plan if they select the same benefits they had
4) No additional cost to plan sponsor
5) A combination of objectives. It isn’t feasible to accomplish all four of the above at once so compromises must be made
2.3 Explain how the total plan sponsor cost of a flexible benefits plan is determined
Plan sponsor cost = expected claims + expenses and taxes + flex credits (ER contribution) - price tags (mbr contribution)
2.4 Identify steps generally involved in setting price tags in a flexible benefits plan (8)
1) Data collection and analysis
2) Preliminary option pricing
3) Preliminary subgroup pricing
4) Anticipation of changes
5) Calculation of taxes and administration fees
6) Adjustment to realistic price tags
7) Determination of no coverage or opt out pricing
8) Pricing by business unit or location
Describe the step of data collection and analysis in setting price tags in a flexible benefits plan and how many years of data is typically collected
Collection of claims data, admin fees, participation figures and premium costs.
Generally 1-2 years for health and dental. 5 years for life and LTD
Describe the step of Preliminary option pricing in a flexible benefits plan and how many years of data is typically collected
Preliminary prices are set based on claims experience in the current plan.
Typically the relative values are set at 100% and the values for other plans are set relative to the old one.
Describe the step of Preliminary subgroup pricing in a flexible benefits plan and how many years of data is typically collected
To help minimize adverse selection the pricing structure is usually divided into smaller groups with similar characteristics.
Can be based on single vs multiple lives/dependents
Describe the step of Anticipation of changes in a flexible benefits plan and how many years of data is typically collected
Adjustments are made for inflation or cost trends, adverse selection and any other relevant factors
Describe the step of Calculation of taxes and administration fees in a flexible benefits plan and how many years of data is typically collected
The total cost of the plan including taxes, administration costs are calculated and it is decided whether or not to include those costs in price tags.
Usually taxes and admin costs are included while costs for setting up the flex plan are not
Describe the step of
Adjustment to realistic price tags in a flexible benefits plan and how many years of data is typically collected
Price tags can be adjusted here to drive plan member choice. The plan sponsor may subsidize using a flat percentage of all realistic prices, flat dollar subsidies or carve out pricing (where the price for core options is set to $0)
Describe the step of Determination of no coverage or opt out pricing in a flexible benefits plan and how many years of data is typically collected
Plan members may be allowed to waive or decline coverage for certain benefits
Describe the step of Pricing by business unit or location in a flexible benefits plan and how many years of data is typically collected
Plan sponsors may choose different price tags for different locations or business units die to market or competitive pressures
2.5 Describe the disadvantages of using subsidized pricing in a flexible benefits plan
Can encourage members to select an option but it can make determining the plan sponsor’s cost more difficult and the prices may be difficult to explain or to reprice in the future if they are set artificially low
2.6 Explain what influences a plan sponsor’s decision to include limitations on a plan member’s ability to opt our of coverage in a flexible benefits plan
It is rare to allow opting our of all benefits (without showing enrollment in another plan) since this can create adverse selection.
If a plan sponsor allows for opting out the flex credit is set at a lower value than the expected cost of the benefit.
For insured benefits the insurer has an impact on the decision to allow plan members to waive or decline coverage since it may be unwilling to underwrite benefits if participation is too low