Where Does This Fit in Your Comprehensive Financial Plan Chapter 10 Protection Plan for death and incapacity Chapters 16 17 Analyzing Jobs and Employee Benefits Health Disability and Retirement Plans Build wealth Save and invest to meet short term and long term goals Chapters 11 15 Secure basic needs Liquidity consumer purchases and credit decisions insurance employee benefits Chapters 5 10 Establish a firm foundation Evaluate your finances acquire tools and skills set goals develop a budget Chapters 1 4 Where Does This Fit in Your Comprehensive Financial Plan Components of Employee Compensation Tangible Salary wages commissions Bonuses Cash equivalent benefits Protection Plan for death and incapacity Chapters 16 17 Retirement plan insurance paid leave education reimbursement Build wealth Save and invest to meet short term and long term goals Chapters 11 15 Non cash benefits Secure basic needs Liquidity consumer purchases and Company car wellness programs access to child care credit decisions insurance employee benefits Chapters 5 10 Establish a firm foundation Evaluate your finances acquire tools and skills set goals develop a budget Chapters 1 4 Components of Employee Compensation Intangible Flexible work schedule Pleasant work environment and co workers Advancement opportunity Location Difficult to place a monetary value on intangible benefits but they are often critical for long term career satisfaction Major Employee Benefits Medical Insurance Retirement Plans Life Insurance Short term disability Long term disability Dental insurance Vision and hearing discount plans 1 Why do employers provide benefits Tax advantages of qualified plans Cost savings with group insurance Employee productivity morale and retention Competition for qualified workers Contributory Versus Noncontributory Contributory plan Employees pay a portion or all of the benefits costs Non contributory plan Employer pays all of the benefits costs Does a contributory plan have any value to you as an employee Yes if it is less costly to buy the benefit through your employer s plan than it is to buy it on your own Cafeteria Plan Definition Employer contributes towards each employee s benefit package and allows employee to select the benefits he or she needs from a menu of benefits with defined prices Unused benefit money may be added to salary not always Health Needs Analysis Estimate expected health costs Age and health considerations Family needs National trends in health costs Types of coverage you may want to have Coverage for hospital surgical physician Office visits laboratory tests ambulance prescription drugs physical therapy etc Issues in Health Insurance High medical cost inflation More than double the increase in the CPI Growing health expenditures as a percent of GDP Increasing quality Average premiums cost 7 of disposable personal income and increasing Aging of the population means more demand Increasing employee and retiree health insurance costs Types of Health Insurance Coverage Traditional fee for service FFS Reimburses for actual medical costs incurred Patient decides what medical care they want Managed care Costs minimized by Controlling patient access to medical care Contracting with providers Providing incentives for low cost alternatives 2 Problems with Fee for Service High costs Providers doctors hospitals have no incentive to control costs Consumers do not pay directly for the services Doctors create the demand for the services they are being paid for no controls of prices leading to higher costs Patients have little incentive to reduce utilization once the deductible is paid Managed Care Alternatives Health Maintenance Organization HMO Limited choice of physician Relatively comprehensive health insurance Well care checkups diagnostic tests and immunizations Health care providers have financial incentives to control costs Group practice plans doctors are HMO employees Individual practice associations doctors are independent Choosing Between Types of Plans Your employer may offer both FFS and managed care alternatives Consider differences in out of pocket costs Premiums deductibles coinsurance exclusions e g wellcare Consider restrictions on choice Does your physician hospital participate Are there restrictions on name brand drugs What happens if you are out of town Managed Care Alternatives Preferred Provider Organizations PPOs Group of medical care providers who contract with the insurer to provide services at a reduced rate If you do not use a participating or preferred provider the plan covers less of the cost Point of Service POS Similar to PPO but physicians affiliated with an HMO so more comprehensive medical care Consumer Choice Plans Other Sources of Health Insurance Social Security Medicare program Federal program for people age 65 Part A hospital paid for by payroll tax 1 45 Part B supplemental medical monthly premium 66 60 in 2004 paid for by retiree Managed care alternative to A B New Rx benefit requires additional premium Medicare Supplement insurance medigap Private plans that fill in gaps in Medicare 3 Dealing With Special Circumstances Job Loss Other Types of Employee Benefits Dental Expense Insurance Continuation coverage under COBRA employers with 20 employees You can remain in your employer s plan but pay the full premium an administrative charge Divorce or Loss of Dependent Status Individual insurance or COBRA continuation Pre existing condition Often fairly expensive relative to coverage Low annual limits Exclusions and limitations on coverage e g orthodonture Vision and hearing Usually discount plans HIPAA allows you to have continuous coverage without a waiting period Disability Income Needs What is disability An illness or injury that prevents you from earning your regular income or reduces how much you can earn What s the probability of becoming disabled It is estimated that one in three people will be disabled for a period of three months or more at some point during their life Life Insurance Covered in Chapter 16 Two basic types Term Life Insurance Pays your beneficiary if you die during the policy period Includes no investment component Premiums are age related Permanent Life Insurance Pays your beneficiary if you die Accumulates a cash or investment value Long term policy with constant premium Sources of Disability Income Protection Personal and sick leave Short term disability income insurance Usually 6 months to 2 years Long term disability income insurance