TOPIC 10 Ch 12 Intro to Employer Provided Benefits Employee Benefits A form of compensation other than direct salaries wages that workers may receive from their employers Example Health expense benefits Death benefits Disability benefits Unemployment benefits I Types of Loss Exposures Medical expenses Loss of income o Disability o Unemployment o Death o Illness Sickness o Retirement Loss of productivity II Types of Employee EE Benefits 1 Health Care expense benefits Medical insurance Dental insurance Vision insurance Prescription drug insurance Long term care insurance nursing home care 2 Retirement Benefits Income after retirement Employer ER sponsored Social Security retirement benefits O A S D I 3 Death Benefits Employer ER sponsored life insurance o Group Term life insurance Survivor benefits under ER retirement plan Workers comp provides death benefits Social Security provides death benefits as well O A S D I Survivor Benefits 4 Disability Benefits Occupational disabilities Workers comp Non occupational disabilities o Sick leave o Short term disability STD o Long term disability LTD Social Security Disability Benefits OASDI Where DI Disability Income 5 Unemployment Benefits Severance package from employer Unemployment insurance Employers are required to offer SOCIAL INSURANCE PROGRAMS o Workers comp o OASDI o Unemployment Insurance o Health Insurance in 2015 for ERs w 100 employees o Health Insurance in 2016 for ERs w 50 99 employees o HEALTH INS NOT REQUIRED FOR 2014 III Why Offer Benefits 1 Attract retain employees 2 Increase enhance employee productivity e g Bonuses profit sharing plan Flexible leave programs Daycare programs Wellness programs 3 Income tax advantages to EEs 4 Take advantage of GROUP INS 5 Mandatory workers comp IV Eligibility VS Participation in an EE Benefit Plan Benefits Participation have eligibility standards or conditions e g full time after one month waiting period Satisfied all eligibility conditions AND Elect to contribute if contributions are required V Benefit Financing who pays cost 1 Non Contributory financing ER pays entire cost NO EE CONTRIBUTION Employee automatically becomes a participant once eligible 2 Contributory Financing BOTH ER EE SHARE COST ER usually pays more than EE Employee must satisfy eligibility conditions be willing to contribute MORE ADVERSE SELECTION More choice give ppl more chance for adverse selection Benefits Employee pays entire cost 3 Voluntary Payroll deduction Convenience Lower rate Includes many types of benefits example Aflac VI Group Insurance VS Individual INS Group Insurance Insurer insures the whole group EEs EE s Family Former EEs Insurer establishes one premium rate per exposure single vs family rate No individual evidence of insurability required no individual underwriting Group underwriting used when premium based on broad characteristic of group e g Healthcare Age distribution gender mix occupation VII Favorable Tax Treatment NOTE IRS SUBSIDIZES THE PURCHASE OF HEALTH INS BY NOT TAXING CURRENTLY NO LIMIT TO PRICE OF HEALTH INS THAT AN EE CAN RECEIVE TAX FREE VIII Life Insurance Group Term Life Insurance e g one year term ins policy If insured dies during 1yr term Paid face amount If insured survives during 1yr term Paid nothing EEs can get up to 50k tax free Premium is taxed If face amount 50k then EE is taxed on value that exceeds 50k IX Disability Income Insurance The benefit Income paid to EE if become disabled NOT WORKERS COMP If ER pays full cost premium isn t taxable to ER If EE pays any part monthly benefits is tax free Non Contributory Basis ER pays all EE is NOT taxed on values of disability ins premiums paid by ER EEs ARE taxed on benefits if become disabled Voluntary Plans EE pays all Salary Reduction pre tax EEs are taxed on disability income benefits received Salary Deduction after tax EEs NOT taxed on benefits Contributory Basis e g ER Pays 60 premium before tax EE pays 40 via payroll deductible after tax What of benefits would be taxable 60 X Advantages of ER provided benefits Group Ins 1 Tax Advantages 2 Group Ins less expensive than individual ins Admin costs less commissions lower 3 No individual underwriting in group ins especially helpful for high risk ppl 4 Lower search costs for employees EEs XI Disadvantages of ER provided benefits 1 One size does NOT fit all EE population EE benefit needs are homogenous 2 Coverage may be temporary Q If employee leaves group or a dependant no longer qualifies does their coverage terminate Portablility issue ADDRESSING THE TERMINATION OF COVERAGE ISSUE XII 1 Every group ins contract has a conversion option option to convert change group ins to individual ins w no evidence of insurability Will attract high risk ppl potential adverse selection Premiums are higher AND insurer restricts the coverage in some way 2 COBRA health ins only Provides safety net for employees their dependents by giving them the right to temporarily continue group health coverage following o Loss of employment o Loss of full time status o Loss of dependent status Divorce Death of EE Age out Can continue same group ins coverage as the individuals covered in the group plan o No EVIDENCE of insurability is required to do so o Continuation pd can range from 18 36 months o ERs can charge up to 102 of the cost of coverage Use of COBRA was GREATLY REDUCED due to Affordable Care Act ACA o Eligible for subsidies if purchase through State Health Insurance Exchange XII ADDRESSING THE ONE SIZE FITS ALL ISSUE Employee situations are different so are their needs for benefits SOLUTION Cafeteria Plans Flexible Benefit Plans Section 125 Plan PLANS THAT INVOLVE Plans That Involve Choice Cafeteria Plan Employee benefit plan that allow employees to choose between Types levels of benefits Possibly cash out CORE PLUS PLAN A major type of Cafeteria Plan Every employee receives a basic core of benefits e g Health Life Disability 1 Upgrade core benefits example purchase dependent health coverage or buy additional life or disability insurance 2 Buy benefits that are not in core plan ex Dental Insurance 3 Buy extra vacation time 4 Turn it into cash If turned into cash it is considered taxable income Every employee also receives Flex or Flex Credits can use them if they want to FLEXIBLE SPENDING ACCOUNTS FSAs AKA Reimbursement Accounts Can either stand alone or be an option in a core plus plan Employee agrees to take a pure tax salary reduction o Funds are deposited into FSA o Used to reimburse eligible