Chapter 12 Class Notes 04 18 2014 Rate of premium for benefits is growing faster than cash wages o Labor issues Increased Wages Any Type of compensation other than wages What Is Included in total compensation Wages Value of Benefits Why are benefits so important Benefits cost Employer 40 of payroll Increased premiums employer OR Self Insuring o Same benefits o Cutting back Employee Dependents Employee Employee pays for dependents Employer pays partial for Employees Employer wants employees to share more cost Why Do Employers offer benefits Attract and Retain competent employees Tax Advantages cash incentives IRS looks at benefit expenses the same as wages Mandatory Workers Compensation Increased Employee Morale Employee increase productivity Healthier Workforce Group Insurance Basic Underwriting Principle of Group Insurance AKA The method to control Adverse Selection 1 Insurance should be incidental to the group The group should not be formed just for the purpose of Insurance a Group just for Insurance Gather the high risk members which leads to higher premium higher rate of people dropping out and no one will sell Insurance to the Employer i Death Spiral ii Employer is a Group 2 Flow People In Out of The Group a b It Needs younger people to flow in It Needs older people to flow out i Older people using up all of the resources which makes premium go up ii Younger people drop out and seek coverage elsewhere 1 Adverse Selection Death Spiral iii Don t want to much turnover Increase in administrative costs 3 Automatic Determination of Benefits a You don t want individuals to be able to select individual amounts of coverage b Unhealthy High Risk They are going to choose top of the line coverage i Employer will offer a basic benefit and let the employee enhance the benefit if they employee pays for it 1 Dependents Extra Benefits You pay for it ii Payroll Deduction 1 Pre taxed Tax benefit to employee as well as to the employer 4 Minimum Participation a If the plan is Non Contributory Employer pays all RARE i 100 of Employees must be covered b If the plan is Contributory Employee pays something i Large of employees must participate for the pool to be diverse ii Hard Waiver Not joining Employer s Health Insurance Plan but to prove that you have other coverage 5 3rd Party Sharing of Costs a Individual Employee is not bearing whole cost employer pays part i Sharing avoids huge increase in premium younger healthier employees would realize they re subsiding older workers 6 Simple Efficient Administration a Payroll deduction keeps costs down b Cafeteria Benefits for employees Difficult to Administer i Employees love it ii Employers Hate it Because it is difficult to administer 7 Eligibility Requirements a New Employees must meet the requirements before coverage begins probation 3 6 months waiting period i Full Time Employees Part Time employees partial benefits Must be actively at work when insurance becomes available NO workers compensation NO FLMA o Apply for coverage during waiting period One pass probation and get benefits 2 circumstances per year you can change benefits o Life Event o Anniversary Open Enrollment Benefit Financing 1 Non Contributory RARE a Employer pays all costs b Employees covered without financial contributions c All employees must be covered d Eligible Participate i a d NO PHYSICAL Doc Appointment required to become employee 1 Whole Group Covered 2 Contributory a Employer Employee share costs b For employee to become participant they must make a financial contribution c Voluntarily Come in Group Rate No Physical 1 Income Tax as wages a Employer can deduct cost of employee benefits as ordinary business expense same b Sometimes employee is taxed on value of benefits i Mostly Employee not taxed ii Life Insurance 50 000 taxed iii Tuition c Benefits are a way for employer to compensate employee s tax free d Life Insurance Employee pays tax on face value over 50 000 2 Disability Insurance a Many different plans Employer chooses only offer 1 plan at a time b Short term Long Term disability c Monthly benefit when you cant work NOT Workers Comp d If Employer pays full cost the premium is not taxable to employer e Employee pays any part Monthly benefits is tax free 1 Disadvantages To Group Insurance a Temporary Leave the group or group disbands you have no insurance and your dependents don t have insurance 2 COBRA Quantifying Event i Terminated NOT gross misconduct a Gives employees and dependents to continue coverage for up to 18 months after ii Divorce Separation iii Death to Employee iv Dependents hit age limit 26 years old b Employee pays 102 full premium and administrative costs i Still cheaper than an alternative ii Easy No charges iii Chronic Condition or your dependent has one iv Cant get coverage anywhere else c No Application No Physical d No evidence of insurability is necessary Perk Benefits Life Style Benefits Voluntary Employee Pays o Pet Insurance o Gym Membership o Discount on Cell Phone Plans Car Insurance o Attorney Consultations Core Plus Plan Employee has a basic core of benefits o Minimum Single Coverage o Want more Buy more o 1 000 Allowance Health Vision Dental Prescription For Extra 1 500 Dependents o Buy coverage and keep what you don t spend Taxed as income o Employees will have taken out every month on a pre tax basis o Take Allowance pay tax show Employer proof or evidence that you have coverage Flexible Spending Account 3 Types o Healthcare o Dependent Care o Transportation Arrangement that permits employees to pay for certain un reimbursable medical expenses with pre tax dollars o Employer agrees to reduce salary and deposits in to Flexible Spending o Items that aren t covered by medical insurance But still looks like a Account medical expense Co Pays Braces Glasses Lasik Eye surgery Hair Transplants Cosmetic Surgery Hearing Aids Over the counter medicine Dependent Care Child care providers Must be Legitimate Formal o Elder Care Transportation Train Bus Parking Expense o Must be something recognized by the Federal Government o NOT cover driving car gas mileage etc Income of 30 000 Without Flexible Spending Account FSA 0 Taxable Income 30 000 40 Income Tax 12 000 Childcare Expense 5 000 Net Income 13 000 With Flexible Spending Account FSA 5 000 Taxable Income 25 000 40 Income Tax 10 000 Childcare Expense 0 Net Income 15 000 Don t use funds that were set aside Funds go back to Employer Employer uses it to fund administrative costs such as FSA