RMI: Test 3 Notes – Life and Health RisksChapters 11, 14, 15, 16, 17, & 18Managing Life and Health RisksWhat are the risks?• Financial Impact of:o Premature Death - Life Insurance – individual, group, SS Survivor Benefitso Poor Health – Health Insurance, LTC insurance, Medicare, Medicaido Disability – STD, LTD, Supplement Insurance, SS, WCo Long Life – annuities, retirement savings (IRAs, Pensions), SSWhat is the Financial Impact of Premature Death of a:• Wage earning adult:o Marriedo Single with dependentso Single with no dependents• Non-wage earning adult:o Marriedo Single with dependentso Single with no dependents• ChildFinancial Impact of Poor Health/ Financial Impact of Disability• Ability to earn income may decrease, or cease (as in premature death)• Living expenses may continue (or increase)• Evaluative same exposure categories as premature deathFinancial Impact of Long Life• What happens when retired?o Income?o Expenses Which increases Which decreasesThree sources of risk management solutions• Individual• Employee Benefits/Group Insurance• Government/Social ProgramsCurrent Events• Obama CareEmployee Benefits• Purpose is to Retain Good Employees in competitive job markets• Employer contributions are a deductible business expense for “Qualified” status related to compliance with ERISA requirements• Many benefits are not taxable to employees• Non-contributory benefits are employer-pay-all• Contributory programs involve employee contributionsGroup Insurance – Employee Benefits• Basic Characteristicso Media contracto Cost savings – ER cont, marketing savings, underwriting, claimso No evidence of invisibilityo Experience rating• Basic Principles of Group Underwriting• Eligibility requirementso For the group insurance company seeks after this group to provide a discount to the members of the group through a master contracto For individuals as a member you can enter into an individual contractsCompanies seek these benefits to attract and obtain superior employees; thus your company contributes paying for those benefitsInsurance companies incur the most expenses in marketing, underwriting, and claims, and selling insurance through a group cuts marketing cost, and the group usually performs better in their contract: loss ratio lower, cost is lowerExperience rating: as a group, the insurance company will talk to the employer (rise or lower premiums) and gives the employer incentives to influence employees to help keep insurance cost downBenefits:• Group – main purpose?• Flower of participants• Automatic detainment of benefits• Minimum participation• Admin efficiencySocial Programs/Social Insurance: safety net (economic security), social problem (lack of incentive to save/spending out of means), lack of private market – none of these are designed to be your only source of income for your retirement [minimal benefit]• Basic Characteristicso Compulsory – no choice in the mattero Floor benefit – minimal standard/benefit, some minimal means for your retiremento Social adequacy – individual equity: is it fair to me? [We don’t care] o Benefits ties to earningso “ “ Prescribed by law – change CPI Indexo No means testing – don’t have to be below a poverty line to qualify for Medicare, SS, or Workers Compensationo Funded? Full? – Money you put in today pays for others retiremento Self=supporting?• Eligibility Requirements• Programso Social security unless you work for the railroad- as you work you are required to pay 6.2% for your retirement and your employer will match the 6.2%o Medicareo Workers compensationSocial Security (OASDHI)• Most employment situations covered• Payroll tax withholding required• Participants accumulate “credits” based on minimum earned incomeo In 2013, $1,160 per credit/$4,640 maximum 4 credits• Financing is on a “pay-as-you-go” system• Employee pays payroll taxo 6.2% OASDI (actually only 4.2% in 2011)o 1.45% Medicare• Employer matches employee contribution• Maximum taxable earnings set each yearo $113,700 in 2013o Medicare tax applies to all earned income Social Security Insured Status• Fully insured – 40 total “credits”o Retirement benefit eligibilityo Medicare eligibility• Currently insured – 6 of last 13 quarterso Survivors’ benefit eligibility eligible for currently insured• Disability insured – 10 of last 20 quarterso Disability benefit eligibilityo Modified for younger workers (< age 31)Social Security Benefits• Amounts based on primary insurance amount (PIA)o Covered earnings averaged look at what your earn, average it outo Adjustment for inflation• Loss of benefits possibleo Disqualifying income (must be earned)o Loss of eligible status (children, widows)• Retirement Benefit (deferred annuity)o PIA payable to retireeo ½ PIA payable to spouse• Survivors’ Benefit (life insurance)o Payable to spouseo Payable to children• Disability benefito Payable to disabled employeeMedicare retiree healthcare• Part A – Hospital Expense Insurance (Automatically qualify) No premiums paido Hospital serviceso Some nursing home stays (covers 90 days per occurrence)o Deductibleo Graduated cost sharing• Part B – Physician’s services (voluntary)o Requires monthly premium o Includes cost sharing (out of pocket expenses)• Medicare + Choice [Optional Part C] o HMO or other managed care plan private health plans that are sold through private companies – premium paid to private marketo May pay extra benefits, e.g., prescription drugs benefits package must be equal or greater to what is provided in part A of Medicareo May remove need for “Medigap” no longer worry about overlapping of coverages• Part D - Prescription Drugs (voluntary coverage) – pay government - is for premium o Wide choice of plans different deductibles, limits, different approved drugs Cost differ Covered medications differo “Doughnut hole” plan design you pay first $200-300 pay on prescriptions – Medicare still pay a copay up to $2,940+ a year and then Medicare just stops until your total expenses go above $47,000 and then we will help you cover the rest – [provides some incentive to drive prescription drug prices down; but don’t want to struck someone down with catastrophic demands for prescription drugs]Workers’ Compensation Principles – State Run Programs• Cost is made a cost of production, cost passed
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